Revisions to CBO's Estimates of the Cost of Last Year's Major Health Care Legislation

March 23, 2011

Last Friday CBO released its preliminary analysis of the President’s budget for 2012. That analysis included an update to CBO’s baseline budget projections, which largely reflect the assumption that current tax and spending laws will remain unchanged.

As we explained in Friday’s analysis, updating baseline projections of federal spending on health care programs does not automatically result in a complete reestimate of the budgetary impact of last year’s major health care legislation—the Patient Protection and Affordable Care Act (PPACA) and the Health Care and Education Reconciliation Act of 2010—under the assumptions of the new baseline. However, the costs or savings from some aspects of that legislation can be separately identified in the baseline projections. In particular, the provisions related to expanding health insurance coverage were projected to increase the deficit between 2012 and 2021 by $1.04 trillion, on net, in CBO’s January baseline; they are now projected to increase the deficit by $1.13 trillion over that period.

Those effects are only a part of the total budgetary impact of the legislation. The previous estimate by CBO and the staff of the Joint Committee on Taxation (JCT) showed that the effects of the other provisions on mandatory spending and revenues, taken together, will reduce the deficit by roughly $1.25 trillion over the 2012–2021 period—meaning that the legislation, as a whole, was projected to reduce the deficit over 10 years. The budgetary effects of all of those other provisions cannot be separately identified in the new baseline.

The following table compares the current estimates with previous ones by CBO and JCT. The first pair of columns with numbers shows the estimates CBO published just prior to enactment of the legislation. The second pair of columns comes from the estimated cost of repeal of that legislation that CBO published in February and is based on the projections included in CBO’s January baseline. The third pair of columns comes from CBO’s March baseline.

Effects on the Federal Deficit of the Insurance Coverage Provisions in PPACA and the Provisions of the Reconciliation Act Related to Health Care

(Billions of Dollars; Estimates from CBO and the staff of the Joint Committee on Taxation)

How does the current estimate of the cost of expanding health insurance coverage under this legislation compare with the previous projections?  The estimated cost of the coverage provisions, which is shown in the first two lines of the table, is a good deal larger over the 2012-2021 period than over the 2010-2019 period. (The estimated savings from the other provisions affecting direct spending and revenues are also a good deal larger over the later period, as is the estimated net reduction in the budget deficit.)  The difference is primarily attributable to the different time periods the estimates cover, and not to substantial changes in the year-by-year estimates. Over the eight-year period that is common to all three analyses (2012 through 2019), the latest estimate of the net cost of the coverage provisions ($794 billion) differs by only about 2 percent from the original estimate ($778 billion); the projected gross costs (which do not include the effects of penalty payments, receipts from the new excise tax on high-premium health insurance plans, and certain other receipts or savings) differ by only about 4 percent over that period.

In its ongoing monitoring of developments, CBO has seen no evidence to date that the steps that will be taken to implement the legislation—or the ways in which participants in the health care and health financing systems will respond to the legislation—will yield overall budgetary effects that differ significantly from the ones projected earlier. Therefore, the evolution of the estimates does not reflect any substantial change in the estimation of the overall effects of PPACA and the Reconciliation Act from what was projected in March 2010.

As we have noted repeatedly, our projections of the budgetary impact of last year’s major health legislation are quite uncertain because assessing the effects of making broad changes in the nation’s health care and health insurance systems requires assumptions about a broad array of technical, behavioral, and economic factors. The relatively small difference in the estimated cost of the coverage provisions for the 2012-2019 period reflects the net effect of using updated projections of economic conditions, health care costs, and other factors; some technical changes in modeling; and the effects of subsequent legislation. CBO’s estimates of the budgetary effects of last year’s major health legislation will probably change again in the future for all of those same reasons. More generally, we will continue to evaluate incoming information about the probable effects of the legislation, and we will adjust our estimates as needed.