CBO Issues Letter on Health Insurance Policies – InsuranceNewsNet


WASHINGTON, July 23 — The Congressional Budget Office issued the next letter entitled “Health Insurance Policies”:

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July 21, 2022

To: Honorable Mike Crapo, Rating Member, Committee on Finance, U.S. Senate, Washington, DC 20510

Re: Health Insurance Policies

Dear Senator:

You’ve got asked the Congressional Budget Office and the staff of the Joint Committee on Taxation (JCT) to elucidate the consequences of creating everlasting the improved premium tax credit structure provided in section 9661 of the American Rescue Plan Act of 2021 (ARPA). As you requested, the responses on this letter are based on CBO’s May 2022 baseline budget projections./1

You asked for information in several specific areas:

* How would a everlasting enhancement affect federal deficits and sources of medical insurance coverage?

* What’s the projected income distribution amongst latest enrollees whose income is above 400 percent of the federal poverty level (FPL) within the medical insurance marketplaces established by the Reasonably priced Care Act, and what are the estimated costs of federal subsidies for his or her insurance coverage?

* What’s the common federal subsidy under the everlasting enhancement for brand new marketplace enrollees, and what’s the common federal subsidy under current law for individuals who can be expected to not enroll in employment-based coverage due to everlasting enhancement?

You furthermore mght asked CBO and JCT to estimate the complete effects of finalizing a proposed regulation regarding the affordability of employment-based coverage for relations.

Making Section 9661 of ARPA Everlasting

Under current law, eligible people may use premium tax credits to lower their out-of-pocket monthly premium contributions for medical insurance obtained through the marketplaces established under the Reasonably priced Care Act. The credit is calculated because the difference between the benchmark premium for medical insurance (that’s, the premium for the second-lowest- cost silver plan available in a region) and a specified maximum contribution, expressed as a percentage of income, which is adjusted over time.

Except in 2021 and 2022, persons are eligible for premium tax credits in the event that they meet the next criteria:

* Their modified adjusted gross income is between 100% and 400 percent of the FPL;

* They’re lawfully present in the USA;

* They aren’t eligible for public coverage, corresponding to Medicaid; and

* They would not have an inexpensive offer of employment-based coverage.

Section 9661 of ARPA enhanced premium tax credits in two ways for 2021 and 2022. First, it increased the credit for currently eligible people by decreasing the utmost contribution and removing the adjustment to that contribution. Second, people whose income is above 400 percent of the FPL became eligible for the tax credits for 2021 and 2022. Maximum family contributions under current law and from a everlasting extension of section 9661 are illustrated in Table 1.

Under the May 2022 baseline, CBO and JCT estimate that if the enhancements became everlasting, federal deficits would increase by $247.9 billion over the 2023-2032 period (see Table 2)–a results of increases in direct spending of $181.4 billion and reduces in revenues of $66.5 billion over the period. Those effects primarily reflect a $305.5 billion increase in premium tax credits, partially offset by higher revenues stemming from a shift in employees’ compensation from tax-favored medical insurance to taxable wages.

The estimated increase in premium tax credits is the results of two effects. First, if the enhancements became everlasting, most current-law enrollees would receive a bigger subsidy that will lower their out-of-pocket costs for premiums. Second, CBO and JCT expect that, on average, the improved subsidies would attract 4.8 million latest enrollees to the marketplaces in every year over the 2023-2032 period relative to current law (see Table 3). Those enrollees would account for $242.2 billion, or roughly three-quarters, of the estimated $305.5 billion increase in premium tax credits over the period.

CBO and JCT estimate, on average, the annual credit for a latest marketplace enrollee can be $4,980 over the 2023-2032 period. Amongst latest enrollees, the agencies estimate, many of the increases in enrollment and the associated premium tax credits can be for people whose income is below 400 percent of the FPL. A majority of enrollees with incomes below 400 percent of the FPL would have incomes at or below 200 percent of the FPL, with a maximum required contribution starting from zero percent of income to 2 percent of income if the improved subsidies were made everlasting (see Table 1). As well as, CBO and JCT anticipate that almost all of the rise in enrollment amongst those with incomes below 400 percent of the FPL would occur for individuals who, already eligible for premium tax credits, would enroll due to increased subsidies.

CBO and JCT expect that if the enhancement became everlasting, 2.2 million fewer people can be without medical insurance, on average, in every year over the 2023-2032 period, relative to current law.

That decrease is the results of increases and reduces amongst various kinds of coverage:

* A 4.8 million net increase in enrollments for marketplace coverage resulting from a rise in subsidized enrollment of 5.2 million and a decline of 400,000 people enrolled without subsidies;

* A 200,000 combined increase in enrollment in Medicaid and the Kid’s Health Insurance Program (CHIP);

* A 500,000 decrease in nongroup coverage purchased outside the marketplaces; and

* A 2.3 million decrease in enrollment in employment-based coverage.

The estimated reduction in employment-based coverage and the rise in Medicaid and CHIP enrollment are driven primarily by a discount in offers of employment-based coverage that will result from the improved marketplace subsidies. CBO and JCT estimate that individuals who now not enroll in employment-based coverage due to policy would receive a mean annual tax good thing about $3,830 over the 2023-2032 period. The estimated effect on the variety of individuals with employment-based coverage is larger for a everlasting extension than is the case for the improved subsidies in place for 2021 and 2022 since the agencies estimate that few employers modified their decision to supply medical insurance given the temporary nature of the improved subsidy.

Proposed Regulation In regards to the Affordability of Employment-Based Coverage for Family Members

In a recent report, CBO and JCT analyzed the consequences of a regulation proposed by the Department of the Treasury and the Internal Revenue Service, “Affordability of Employer Coverage for Family Members of Employees” (87 Fed. Reg. 20354, April 7, 2022)./2

That regulation would change the current-law calculation used to find out whether the plan an employer offers is reasonably priced, for the aim of determining eligibility for marketplace subsidies. In what is commonly called the family glitch, the present calculation, which is predicated on the fee of an individual-only moderately than a family plan, leaves some families ineligible for marketplace subsidies because the worker’s contribution for individual coverage doesn’t exceed the affordability standard though that worker’s contribution for a family plan would accomplish that.

Under the May 2022 baseline, CBO and JCT estimate that, if the proposed regulation is made final, the number of individuals enrolled in nongroup coverage would increase, on average, by 900,000 in every year over the 2023-2032 period. That enrollment estimate is the online results of an estimated decrease of 600,000 individuals with employment-based coverage, a decrease of 400,000 people who find themselves uninsured, and a rise of 100,000 people enrolled in Medicaid and CHIP. The agencies estimate that those changes would increase the deficit by $33.6 billion over the period in consequence of increased direct spending of $43.7 billion, primarily driven by a rise in premium tax credits for people newly receiving them. The rise in direct spending can be partially offset by increased revenues of $10.1 billion collected from people now not receiving the tax exclusion for employment-based coverage (see Table 4).

I hope this information is useful. Please contact me directly if you will have any questions.


Phillip L. Swagel


cc: Honorable Ron Wyden, Chairman, Senate Committee on Finance

Honorable Bernie Sanders, Chairman, Senate Committee on the Budget

Honorable Lindsey Graham, Rating Member, Senate Committee on the Budget

Honorable Patty Murray, Chair, Senate Committee on Health, Education, Labor and Pensions

Honorable Richard Burr, Rating Member, Senate Committee on Health, Education, Labor and Pensions

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Table 1: Comparison of Maximum Household Contributions for Marketplace Premium Tax Credits

Table 2: Estimated Budgetary Effects of Making Everlasting the Temporary Enhancement of Premium Tax Credits Enacted in ARPA Section 9661

Table 3: Estimated Distribution of Latest Enrollment in Marketplace Coverage and Associated Premium Tax Credits Under a Everlasting Extension of ARPA Section 9661, 2023-2032

Table 4: Estimated Full Effects of Finalizing a Proposed Regulation In regards to the Affordability of Employment-Based Coverage for Family Members of Employees

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1/ Congressional Budget Office, The Budget and Economic Outlook: 2022 to 2032 (May 2022), www.cbo.gov/publication/57950.

2/ Congressional Budget Office, Federal Subsidies for Health Insurance Coverage for People Under 65: 2022 to 2032 (June 2022), www.cbo.gov/publication/57962.

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The report is posted at: https://www.cbo.gov/system/files?file=2022-07/58313-Crapo_letter.pdf


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