The good, bad and ugly of CBO’s new Obamacare projections

February 4

1. The good news for Obamacare: That insurance company 'bailout'? It actually saves money. The new Congressional Budget Office report on the health law's risk corridor program, more popularly known as the Obamacare bailout, has a lot of interesting material. If you need a refresher, you can visit our explainer here.

In short, this is a transitional health law policy that limits both the amount that insurance companies can earn and lose on the exchanges. It does this by collecting fees from insurance companies whose premiums more than covered subscribers' claims -- and redistributing those funds to the insurers who had claims way outpace premium payments. This chart shows what, exactly, the federal government collects -- and what it pays out.


The Congressional Budget Office is projecting that the federal government will take in $16 billion from health plans that are essentially making a profit on the exchange -- and will redistribute $8 billion to other insurers running a loss. That means $8 billion in net savings for the federal government,.

The Congressional Budget Office analysis relies heavily on previous government experience with Medicare Part D, the prescription drug coverage program for seniors where the federal government uses a similar risk corridor program. In that program, net collections from insurance plans have outpaced payments by about $1 billion annually. Essentially, the agency believes that more insurance companies will have profits in 2014 than losses, meaning that the federal government nets more payments than those it sends out.

This is a pretty significant obstacle for Republican efforts to repeal the risk corridors. Now, any legislation that repeals the so-called "Obamacare bailout" will be scored as increasing the deficit, and need to come with $8 billion in pay-fors to offset the revenue loss.

2. The bad news for Obamacare: Two million fewer people are expected to gain coverage this year. In the wake of a botched rollout, the Congressional Budget Office is reducing its Obamacare enrollment projections. The nonpartisan office is now projecting that 2 million fewer people will gain coverage in 2014 than it had previously expected. "Those changes primarily reflect the significant technical problems that have been encountered in the initial phases of implementing the ACA," the Congressional Budget Office writes.

Half of the reduction comes from private insurance sign-ups, where the 2014 projection is reduced from 7 million to 6 million. The other half comes from Medicaid, where the Congressional Budget Office cut its projection of 9 million sign-ups in 2014 down to 8 million.


The Congressional Budget Office isn't changing its long-term outlook on the number of people that Obamacare will cover; it essentially expects, over the next decade, that the people who didn't get signed up in 2014 will work their way into coverage. "Over time, more people are expected to  respond to the new coverage options, so enrollment is projected to increase sharply in 2015 and 2016," CBO analysts wrote. "Starting in 2017, between 24 million and 25 million people are expected to obtain coverage each year through exchanges, and roughly 80 percent of those enrollees are expected to receive subsidies for purchasing that insurance."

Policy-wise, there's not a huge impact of CBO reducing its health law projections. There's nothing magical about getting 7 million people signed up for insurance -- the more crucial task for the exchanges is luring healthy people into insurance coverage, which will help hold down premium costs. Politically, the reduced projection could be more potent -- although how exactly it plays out isn't totally clear. Republicans will no doubt seize on the fact that the health-care law isn't going as well as initially expected. At the same time, this essentially gives the Obama administration an easier goalpost to hit over the 2014 enrollment period.

3. The ugly news for Obamacare: CBO thinks the law will cut full-time employment by 2 million people. Last, but certainly not least, there's a sizable chunk of the CBO report dedicated to the health-care law's impact on labor markets. This is one of the more detailed analyses that the agency has done on this front, and it forecasts a much more negative impact on jobs than previous reports. One of the big factors that the CBO looks at here is what happens when Americans, who typically rely on employers to gain insurance coverage, can suddenly gain coverage through government-subsidized programs.

The CBO thinks that Americans will work less, and the health-care law will reduce full-time employment, in 2024, by 2 million people. The health-care law creates certain disincentives to work higher hours. Workers would see their subsidies reduced or eliminated altogether, for example, as their salary increases.

"For some people, the availability of exchange subsidies under the ACA will reduce incentives to work both through a substitution effect and through an income effect," the agency wrote. Prior to 2014, getting a job was a primary channel to gain health insurance.

This is the flip side of reducing what health wonks call "job-lock:" when people stick around in their jobs solely because they need the health insurance that the employer provides. The health-care law takes off that lock in really significant ways, by ending pre-existing conditions and subsidizing low-income buyers on the individual market. When workers have that crucial link between employment and coverage broken, the CBO thinks they're going to work significantly less.

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Brad Plumer · February 4