An article caught our eye this week, and underscored the Yogi Berra adage, “It’s tough to make predictions, especially about the future.”
Whenever Congress tackles major health care policy initiatives, from Medicare to the Affordable Care Act (ACA), including the so-called “Cadillac tax,” proponents are quick to point to Congressional Budget Office (CBO) estimates of the positive impact of the proposed changes in law as though those estimates are guaranteed. Of course, they are not, so keep that in mind as we enter the next round of federal elections in 2020 and as candidates treat CBO projections as gospel.
Past CBO estimates
Let’s revisit some past health care discussions and projections used to make policy. In 1965, as Congress weighed legislation that would install Medicare as a fixture of federal healthcare policy, the CBO estimated that by 1990 the program would cost the federal government $12 billion annually. By 1990 the federal government was spending $90 billion annually, or about 7.5 times the CBO projection.
A recent Investor’s Business Daily editorial highlighted some intriguing discrepancies in CBO estimates related to the ACA and the actual impact. While the CBO expected the ACA to increase the number of insured by 24 million people, a decade on only 8 million more people were insured. Instead of lowering the deficit as the CBO projected, the ACA increased the deficit, partly because its tax credit-based subsidies for people buying insurance in the individual market were 11% higher than expected (which, compared to other CBO estimates that missed wildly, might have been a pretty good estimate).
As we move closer to the next election year, Congress is considering several bills that would affect employee benefits plans. Of particular interest to group health plan sponsors is the effort to repeal the ACA’s Cadillac tax, the tax on so-called high-cost plans that exceed certain limits. Originally intended for implementation in 2018, Congress has twice kicked the Cadillac tax can down the road, most recently deferring it to 2022.
If the provision takes effect, it will impose a 40% penalty tax on the premium value of medical coverage that exceeds $11,200 (indexed) for individual coverage and $30,150 (indexed) for family coverage.
The tax is extremely unpopular among both employers and unions but loved by economists. The House voted overwhelmingly this summer to repeal the tax, but the bill is stalled in the Senate. Ironically, it’s difficult to repeal in its entirety due in part to the estimate of the revenues it would raise: CBO estimated in 2015 that it would raise $87 billion between 2016 and 2025.
While we can’t hold the CBO to that projection because Congress has twice delayed implementing the tax, we can take issue with another aspect of the CBO’s work related to the tax. The CBO concluded, somewhat dubiously in our view, that the increased tax revenue would come from employers cutting back on nontaxable health plan expenditures to avoid the 40% penalty tax while simultaneously increasing taxable wages to offset the reduced value of benefits. Most of us in the private economy find that expectation puzzling. Did the CBO actually speak to any corporate owners or financial officers before settling on that projection? We suspect not.
As we enter the 2020 election cycle, it will be interesting to see how many candidates tout the CBO’s rosy cost and coverage projections for healthcare policy aspects of their platforms. For our part, we’ll keep in mind Yogi’s admonition.