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CBO: Obamacare subsidies will cost 20 percent less than expected

Drew Angerer/Getty Images
  1. Federal spending on Obamacare subsidies will be 20 percent lower than expected over the next decade, according to new Congressional Budget Office projections released Monday morning.
  2. The reduction is the result of two trends: slower-than-expected growth in health-care costs and lower-than-expected enrollment through Obamacare exchanges.
  3. CBO also reduced its estimates for how many people the exchanges will cover within the next decade from 25 million to 24 million.

Great budget news for Obamacare

cbo chart

(CBO)

The Congressional Budget Office expects that the federal government will spend $849 billion on Affordable Care Act insurance subsidies — $209 billion less than the scorekeeping agency expected a year ago. That works out to the federal government spending 20 percent less than expected on subsidizing the coverage of low- and middle-income Americans who purchase coverage through the exchanges.

CBO also expects the federal government to spend less on Medicaid, the public program that covers low-income Americans and which the Affordable Care Act also expands. Medicaid spending will be $73 billion less than expected between 2016 and 2024.

Behind these numbers is the sharp slowdown in health-care spending growth. The reduction "is largely a result of projections of slower growth in premiums and, to a lesser extent, slightly lower exchange enrollment," CBO analysts write.

Some of that is likely the result of the recession — when people have less money, they tend to have less to spend on medical care. But what the CBO is saying in this report is it thinks the slowdown will have an effect that stretches out over the next decade and way past the recession.

Obamacare costs money. Just less than everyone thought.

Make no mistake: Obamacare spends a lot of money on its tax credits and Medicaid expansion. It recoups some, but not all, of that new spending with hundreds of billions of dollars in Medicare cuts, which reduce federal health spending. (The bulk of the remainder is made up with tax increases, but they're irrelevant for this calculation.) But back when the law was passing, Republicans argued up, down, and sideways that the Congressional Budget Office was sharply underestimating the amount of money Obamacare spends.

In fact, the CBO overestimated the cost of Obamacare — and by quite a lot. In April 2014, it marked down its Obamacare projection by more than $100 billion.

The government is now spending less on health care than CBO had projected back in January 2010 — a projection made before the Affordable Care Act, and its costly coverage provisions, came into law.

cb

(CBPP)

So even adding all the spending in Obamacare, the CBO is projecting the federal government will spend $600 billion less on health care than the agency expected in 2010, when it wasn't counting even a dollar of the spending in Obamacare.

That's simply an amazing fact. It's like finding you have thousands more in the bank than you expected at the beginning of the year — even though at the beginning of the year you didn't know you were going to buy a new car.

Will the spending slowdown stick? CBO is bullish.

Health-care costs tend to grow way faster than the economy, eating up a bigger and bigger share of American spending. But recently, that's changed: since 2009, health spending growth has slowed — and costs have grown at pretty much the same rate as the overall economy.

health spending

There's no crystal ball that can predict whether this is the new normal. Most health economists think that at least some of the slowdown is due to the recession; when Americans earn less, they have less to spend on medical care. The Kaiser Family Foundation has estimated that about 77 percent of the slowdown can be attributed to the recession — but the 23 percent that isn't reflective of an economic dip could stand to significantly reduce health costs.

These new CBO projections suggest that the agency thinks the effect of the slowdown will last at least through the next decade — and, because of that, the government can spend less on expanding insurance coverage than it otherwise would have.