CBO projects Democrats’ $3.5 trillion spending bill will reduce private health coverage and shift people to government-controlled coverage

Earlier this week, the Congressional Budget Office (CBO) released estimates on the healthcare provisions of the Democrats’ massive spending bill. Altogether, the CBO projects these provisions will cost $553 million, including $210 billion to permanently increase Obamacare subsidies. Overall, the CBO estimates show how the bill will reduce private coverage, push people into poorer quality government-controlled coverage, undermine coverage for people with pre-existing conditions, and fail to efficiently cover more people.

Reduces private coverage

Despite this massive spending to subsidize private coverage on the Obamacare exchanges, the CBO projects the bill will, overall, reduce private coverage. That’s because three of the bill’s main provisions will reduce employer-sponsored health coverage by 2.8 million people:

• Permanently increasing Obamacare subsidies will reduce employer coverage by 1.6 million, primarily because fewer employers will offer coverage in response to the increase.
• Expanding Medicaid coverage will reduce employer coverage by 1.1 million, primarily due to fewer people taking up their employer’s offer and opting for Medicaid.
• Lowering the income threshold for the employer-sponsored affordability test — the test used to determine if someone can qualify for Obamacare subsidies because their employer coverage is unaffordable — will reduce employer coverage by fewer than 300,000, primarily by allowing people to opt for less expensive subsidize coverage.

At the same time 2.8 million people are pushed to leave private employer coverage, only 2.6 million people gain private individual market coverage on the individual market through increased Obamacare subsidies. Thus, the bill would on net reduce private coverage by about 200,000 people, according to the CBO. 

Pushes people into poorer government-controlled coverage

Unfortunately, most people shifting from employer coverage will find they get poorer quality government-controlled coverage through Medicaid and the Obamacare exchanges. While Medicaid will almost certainly be cheaper, many doctors refuse to accept Medicaid patients due to low provider payment rates. A federal government report from 2019 found that physician Medicaid acceptance rates were only 64.5 percent in states with low Medicaid-to-Medicare payment ratios. Access to health coverage under Medicaid does not equal access to care.  

People moving from employer coverage to Obamacare exchanges will likewise find their provider networks are much narrower. A large majority of plans sold on HealthCare.gov are now very restrictive health maintenance organization (HMO) or exclusive provider organization (EPO) plans. And, in many states, data from the Centers for Medicare & Medicaid Services (CMS) shows these narrow network plans are the only option. 

CMS data also show that people moving to Obamacare exchanges will tend to find their cost-sharing amounts are much higher than before. Obamacare sets a maximum out-of- pocket limit (MOOP) for individual market plans, which is currently set at $8,550. This is the maximum someone can be required to pay for in-network services through their deductible, coinsurance, and copays. Plans are free to offer lower MOOPs, but they tend to be quite high on Obamacare Exchanges. CMS data shows the lowest available MOOP is $6,000 or more in 12 states using the federal HealthCare.gov exchange. By comparison, the Kaiser Family Foundation employer survey shows the average employer MOOP is around $4,000 and can be less than $2,000.  

Undermines coverage for people with pre-existing conditions

By forcing some people to move from an employer plan with a lower MOOP, the bill will clearly undermine coverage for some people with pre-existing conditions. People with expensive pre-existing conditions tend to be the people who consistently hit their MOOP each year. Forcing them into a higher MOOP will require them to pay more out-of-pocket. This may be offset by lower premiums in some circumstances, but not likely considering employers tend to pay most of the premium for their employees. About 80 percent of workers with employer coverage pay less than 25 percent of their premium, according to the Kaiser survey.

During the Trump administration, Democrats spent four years loudly denouncing any Republican policy proposals with even the tiniest possible impact on people with pre-existing conditions, even when there was no evidence of any impact. For instance, Democrats repeatedly claimed Trump administration policies giving states more flexibility to waive certain Obamacare requirements would undermine coverage for people with pre-existing conditions, despite the fact that the law and Trump-era guidance required any waiver to guarantee that people with pre-existing conditions had access to coverage that was at least as comprehensive and affordable as before. 

Yet with Biden now in office, the Democrats are pushing a bill that will clearly push some people with pre-existing conditions into coverage that force them to pay more out-of-pocket. 

Wastes taxpayer dollars, fails to efficiently cover more people

Obamacare’s subsidies failed to efficiently cover more people on the individual market. Due to skyrocketing premiums and declining unsubsidized enrollment, it cost over $20,000 per additional person covered on the individual market in 2019 after accounting for how Obamacare drove unsubsidized people to drop unaffordable coverage. 

The CBO projects permanently expanding Obamacare subsidies will increase enrollment on exchanges by 3.4 million people at a cost of $210 billion from 2022 to 2031. However, of this enrollment increase, only 1.4 million are currently uninsured and the remaining are covered either individually off-exchange or through an employer. This $210 billion cost accounts for around $50 million in higher federal revenues from 1.6 million fewer people with tax-advantaged employer-sponsored coverage. 

As this cost generally nets out the employer coverage change, most if not all of that $210 billion is focused on making premiums more affordable for the 1.4 million uninsured and 600,000 with off-exchange coverage. According to the CBO’s annual cost estimates, this works out to a cost of more than $10,500 per person in 2025 when it appears CBO projects full enrollment kicks in. That’s nearly $900 a month on premium and cost sharing assistance to help 2 million people. When the average premium on the individual market currently costs around $600 a month, this is an incredibly inefficient and wasteful way to subsidize coverage. 

Now is not the time to build on Obamacare’s broken subsidy structure. Instead, Congress should be focused on fixing Obamacare and redesigning how the federal government subsidizes coverage to support a stable, affordable, and competitive individual health insurance market. We can cover more people at much cheaper cost to the American taxpayer.