Tuesday, July 22, 2014

Obamacare's price tag just got cut by $104 billion

Despite Healthcare.gov's botched rollout, federal budget forecasters now expect Obamacare's insurance exchanges to cover slightly more people with less money.

The Congressional Budget Office now estimates that 25 million people will gain insurance through the new marketplaces over the next decade. That's an increase from 24 million, the agency's last projection.

But here's what's most surprising: CBO thinks that, even as the exchanges insure slightly more people, the overall price tag for everyone goes down. It now expects the federal government to spend $104 billion less on the coverage expansion.

CBO's new forecasts reflect the fact that premiums on the exchange have come in slightly lower than initially expected. The ones being sold this year tend to pay doctors less and have "narrower networks of providers." When health plans contract with fewer doctors, they typically can negotiate cheaper prices with the few physicians they do include in their networks.

When premiums are lower, that means the federal government pays less to subsidize people buying insurance. CBO says the federal government is, on average, spending $300 less per person on insurance subsidies than it had expected.

Only 6 million people are expected to have exchange coverage this year

The White House has announced that 7.5 million people signed up for coverage on the exchange this year, but the CBO still isn't changing its prediction that 6 million people will have insurance through the marketplace in 2014.

What explains the discrepancy? Mostly the expectation that not everyone buying coverage right now will keep it all year. Some of the 7.5 million people, for example, will likely get jobs and transition into employer-sponsored plan (something that becomes especially likely as the economy adds jobs). With some of this churn on and off the exchange the CBO thinks that, at any given time, about 6 million people will have a plan they bought on the exchange.

The 6 million estimate also leaves out anyone who signs up for an insurance plan but never pays their first month's premium.

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