Health Policy Alert: A Dozen Things to Know from CBO’s New Numbers

Last week, Paragon released our major new report, The Great Obamacare Enrollment Fraud, with an accompanying piece in The Wall Street Journal. Today, Paragon is releasing our quick-hitting analysis of several items published by the Congressional Budget Office over the past week. The brief contains a dozen takeaways, and below I summarize five of them.

Rapid Medicaid and ACA Spending Growth

CBO now projects federal deficits from 2024 to 2035 to be $2.5 trillion more than it projected just four months ago. Nearly 25 percent of the increase is from larger projected spending in Medicaid and the Affordable Care Act (ACA)—mostly through government subsidies to insurers.
 
The explosive cost growth is partly from millions of people claiming more subsidies than what they are eligible for. As detailed in The Great Obamacare Enrollment Fraud, Biden administration policy to expand subsidies and reduce eligibility safeguards — combined with significant financial gains to insurers and brokers when people claim more subsidies than they are eligible for—has produced enormous fraudulent spending, which we estimate at $20 billion in 2024. About 30 percent of the increase in Medicaid spending between CBO’s February and June baselines is rapid growth of shady Medicaid state-directed payments (SDPs), which we discuss in the policy brief.

High and Escalating Costs of ACA Medicaid Expansion Enrollees

Able-bodied, working-age adults made eligible for Medicaid by the ACA are costing the federal government substantially more than previously projected. CBO now estimates that 2023 federal outlays for newly eligible adults reached $130 billion—37 percent more than CBO had forecast as recently as 2021. Moreover, on average the federal government spent twice as much on newly eligible adults in 2023 than on traditionally eligible non-disabled, working-age adults despite early assurances that newly eligible adults would incur fewer medical expenses.

The Uninsured Rate Would Only Rise By One Percentage Point if the Enhanced ACA Subsidies Expire

According to CBO, the cost of extending the enhanced PTCs would be $383 billion from 2025 to 2034. There would be a 3.5-million-person reduction in employer coverage and 1.1-million-person reduction in unsubsidized individual market coverage as a result of this extension. Overall, CBO projects that there would be about a 3.4 million decrease in the number of people without health insurance—or a cost of roughly $11,300 per person per year of reduced uninsurance—an amount well above the average value that people place on health insurance. This amounts to a one percentage point decrease in the uninsured rate.

Number of People with Multiple Sources of Coverage Grows to 29 Million

CBO estimates nearly 29 million people had multiple sources of coverage in 2023. The most common dual enrollment situation is coverage in Medicaid and an employer plan. The COVID continuous coverage requirements meant that many people who gained employer coverage remained on the Medicaid program. Since the vast majority of Medicaid beneficiaries are covered through managed care plans in which the government pays a fixed rate to insurance companies for each beneficiary regardless of their level of health care use, this duplication of coverage is costly to taxpayers. Paragon’s new report suggests that, in North Carolina alone, potentially hundreds of thousands of people are dually enrolled in Medicaid and exchange plans after North Carolina adopted the ACA Medicaid expansion in December 2023.

Medicare’s Worsening Fiscal Outlook Driven by Higher Projected Hospital Outpatient Expenditures

As in past years, CBO projects that Medicare is growing at an unsustainable pace. By 2034, annual spending will more than double to $2.2 trillion (nearly twice the projected amount of estimated defense spending). Some of this is due to the rapid growth of the program’s overall enrollment as the baby boom generation continues to retire. But health care costs per enrollee are also expected to significantly rise—roughly 2.5 times above inflation.
 
Of particular concern, CBO projects hospital spending in Medicare fee-for-service to surge 155 percent. Outpatient hospital spending is the biggest driver of Medicare Part B spending growth because it is enabled by deeply misguided government policies. FFS pays for identical services at different rates depending on the type of facility where they are delivered. Hospitals usually command the highest rates, even for routine services that could be delivered in a physician’s office. This encourages hospitals to acquire independent physician practices, which they can rebrand as off-campus hospital outpatient departments. Equalizing payment rates across health care settings (known as site neutrality) is a sensible policy solution that would reduce costs for patients and taxpayers alike without compromising the quality of care.

Major Reforms Are Needed

Hopefully, CBO’s new reports will serve as a wake-up call to policymakers. CBO’s new numbers show costs rising throughout our government health programs, with sizeable short-term increases in Medicaid and the ACA subsidies. Policies that dramatically increase subsidies to insurers for Medicaid managed care and ACA plans are particularly unwise and costly. And Medicare continues to be on an unsustainable trajectory, in need of reforms to put the program on sustainable footing.

All the best,

Brian Blase
President
Paragon Health Institute