How Obamacare Will Save The Federal Government $190 Billion

Lower than projected premiums under the Affordable Care Act will save the federal government $190 billion over 10 years and increase the law’s deficit reduction by 174 percent to almost $300 billion, a new analysis from the Center for American Progress has found. The report, from Topher Spiro and Jonathan Gruber, bolsters President Obama’s claims on Monday that despite the ongoing technical problems surrounding HealthCare.gov, “the product of the Affordable Care Act for people without health insurance is quality health insurance that’s affordable.”

In fact, the emergence of new insurers and increased competition within the law’s marketplaces has lowered premiums below Congressional Budget Office (CBO) projections from March of 2012. While the nonpartisan office estimated that the average second-lowest-cost individual silver plan premiums would cost $4,700 in 2014, the actual average premium turned out to be $3,936 or “16 percent lower than projected.” The savings are significant because the law pegs its tax credits to the cost of the second-lowest silver plan. “If premiums for that plan are lower, then the cost of tax credits will also be lower,” the report argues. Here is why:

Consider a typical individual making $30,000 a year. That individual’s premium contribution would be capped at 8.37 percent of income, or $2,512. If the premium for the second-lowest-cost silver plan is $4,700, then the tax credit would be the difference between this premium and the individual’s contribution, or $2,188. But if the premium for the second-lowest-cost silver plan turns out to be only $3,936, then the tax credit would be $1,424.

“[A] 16 percent reduction in premiums will lower the total cost of tax credits by about 21 percent” or $190 billion dollars, Spiro and Gruber calculate. They also note that lower premiums will make insurance more affordable for the uninsured, expanding coverage to an additional 700,000 people.

While the Obama administration has yet to release the number of people who have successfully enrolled in coverage in the 36 states where the federal government is operating health care exchanges, it estimates that 476,000 individuals have begun applying for coverage through federal and state exchanges. Enrollment figures from states operating their own exchanges are also promising.

The CBO predicts that seven million people will sign up for insurance in the health care exchanges between October and March, including 2.7 million young and healthy people. Administration officials expressed confidence on Monday that they expect to meet their targets despite the ongoing website glitches.

SOURCE: ThinkProgress.Org