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Tuesday, October 4, 2022

Lower-Than-Expected Affordable Care Act Premiums Will Save Taxpayers $190 Billion

Washington, D.C.–(ENEWSPF)–October 23, 2013. Intense price competition among health plans in the Affordable Care Act marketplaces for individuals has lowered premiums below projected levels. As a result of these lower premiums, the federal government will save about $190 billion over the next 10 years, according to a new report released today. The report, authored by Massachusetts Institute of Technology economist Jonathan Gruber and CAP health policy expert Topher Spiro, estimates that these savings will boost the health law’s amount of deficit reduction by 174 percent and represent about 40 percent of the health care savings proposed by the National Commission on Fiscal Responsibility and Reform—commonly known as the Simpson-Bowles commission—in 2010.

Moreover, Gruber and Spiro estimate that lower premiums will decrease the number of uninsured even further, by an additional 700,000 people, even as the number of individuals who receive tax credits declines because insurance is more affordable.

“The results of our analysis provide an important early indication that the Affordable Care Act is working even better than expected, producing more coverage for much less money,” said Topher Spiro, Vice President for Health Policy at the Center for American Progress and co-author of the report.

When the nonpartisan Congressional Budget Office, or CBO, projected premiums under the Affordable Care Act before its enactment, it theorized that increased competition would lower premiums in the individual market—but only slightly. The CBO’s theory has turned out to be correct in reality—only more so.

In March 2012, the CBO projected an average family premium for the second-lowest-cost silver plan in 2016. This projection is equivalent to an average individual premium of $4,700 in 2014. The actual average premium for the second-lowest-cost silver plan in 2014 turned out to be $3,936—16 percent lower than projected. According to the CAP report, a 16 percent reduction in premiums will produce the following results:

  • The total cost of Affordable Care Act tax credits will decrease by about 21 percent, or about $190 billion. The percentage reduction in the tax credit will often be much greater than the percentage reduction in the premium. Because the amount that individuals pay is fixed at a percentage of income, a reduction in premiums will result in a proportionally larger reduction in government spending. In its May 2013 baseline, the CBO projected that the tax credits would cost $920 billion through 2023, but the CBO made this projection before data on actual premium rates became available. According to the CAP report, a 16 percent reduction in premiums will lower this cost by about 21 percent, or about $190 billion.
  • An estimated $190 billion in savings will increase deficit reduction by 174 percent to almost $300 billion. When it was enacted, the Affordable Care Act was already fully paid for and projected to lower the federal budget deficit. In its most recent estimate, the CBO projected that the law would lower the deficit by $109 billion over the next 10 years. Recent long-term debt-reduction plans have proposed substantial health care savings in combination with additional tax revenue. The Simpson-Bowles commission, for example, proposed $487 billion in health care savings. In the last “grand bargain” offer that President Barack Obama made to House Speaker John Boehner (R-OH) in December 2012, he proposed about $400 billion in health care savings. CAP’s estimated $190 billion in savings represents a sizable share of these proposals’ health care savings—about 40 percent of the Simpson-Bowles plan’s savings and almost half of the president’s proposed savings.
  • More individuals will purchase Obamacare coverage because it is even more affordable. Gruber and Spiro estimate that a 16 percent reduction in premiums will lower the number of uninsured by an additional 2.8 percent. Because the CBO had projected a decline of 25 million in the number of uninsured by 2023, this means that an additional 700,000 people will gain coverage.

Read the full report: The Affordable Care Act’s Lower-Than-Projected Premiums Will Save $190 Billion by Topher Spiro and Jonathan Gruber

Source: americanprogress.org


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