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Exclusive: New Study Says Cost of Health Reform Subsidies Could Far Exceed Previous Estimates (Updated 10/25)

Morgen on October 20, 2010 at 6:59 pm

A new study by the Lewin Group estimates that 28.6 million Americans will be eligible for a federal subsidy to purchase health insurance beginning in 2014 at a projected cost to tax payers in excess of $110 billion. This estimate is dramatically higher (578%) than the cost of these subsidies forecast by the Congressional Budget Office (CBO) prior to the bill’s enactment into law. If the new estimate is correct, it would mean that instead of lowering the deficit by $143 billion over ten years—a claim widely touted by proponents of the law— the legislation would begin adding to the deficit as early as 2015, only one year after major provisions of the law go into effect.

A central component of the Patient Protection and Affordability Act is the establishment of health insurance exchanges starting in 2014, enabling individuals and families with incomes up to 400% of the federal poverty level who do not have insurance to purchase federally subsidized coverage. The CBO’s final analysis of the bill enacted into law projected that only 7 million Americans would begin receiving these subsidies in 2014 at a total budgetary cost of $19 billion. This figure is $91 billion lower than the amount estimated by the Lewin Group.

The Lewin Group study was commissioned by Families USA, a healthcare reform advocacy group based out of Washington D.C. which is closely allied with the White House and leading Democrats in Congress. Then Senator Obama was a keynote speaker at their annual Health Action conference in 2005 and 2007, and House Speaker Nancy Pelosi opened the 2008 event. Other leading Democrats who have participated at Families USA events in recent years include Hillary Clinton, John Kerry, and Ted Kennedy.

The study appears to be the centerpiece of a major media campaign initiated last month by Families USA to promote the benefits of the health reform legislation. A September 14 press release touts the projected $110 billion in federal subsidies as “one of the largest middle-income tax cuts in history”, but makes no mention of the discrepancy with the CBO’s earlier estimate.

Families USA also published state-by-state estimates by the Lewin Group of the number of people eligible to receive these subsidies and the associated costs. Numerous local media outlets around the country have reported on these figures over the past few weeks.

The CBO’s projection that the healthcare reform bill would reduce the deficit by an estimated $143 billion over 10 years was a critical factor in the enactment of the bill. Democrats lost their super-majority in the Senate in January 2010 when Scott Brown was elected in Massachusetts, and ultimately passed the bill in March only through the use of procedural tactics, and without a single Republican vote in the House or Senate.

The claim that the bill will reduce the deficit continues to be a leading selling point for proponents of reform. Just last month Families USA repeated this claim in a press release criticizing opponents of the legislation. But if the latest Lewin Group estimate is correct the initial 10-year cost of the bill will be significantly higher than what was forecast by the CBO, and would begin adding to the federal deficit as early as 2015.

When questioned about the discrepancy between the CBO and the Lewin Group projections, Jennifer Sullivan, a Senior Health Policy Analyst with Families USA, called this an “apples to oranges” comparison. According to Sullivan, the Families USA report “looks exclusively at how many people will be eligible for the new premium tax credits, whereas CBO estimates how many people will actually enroll.”

The CBO projects a gradual increase in the number of individuals receiving subsidies between 2014 and 2019. Starting at 7 million people in 2014 and increasing to 19 million by 2019. The Lewin Group estimate that 28.6 million Americans will be eligible for this subsidy in 2014 is 50% higher than even the outer range of the CBO’s forecast.

While the Families USA report does state that the estimate is for the total number of people eligible, it is immediately followed by a more definitive statement that “the total value of the tax credits that year will be $110.1 billion”. The report does not state that the actual number of people utilizing these subsidies may be significantly lower than the total number of people eligible. And most of the earlier media reports repeat the figures provided by Families USA as if these subsidies will be fully utilized starting in 2014.

The CBO refused to provide any comment on the basis of their estimates, so it is unclear why they determined that only a relatively small percentage of people eligible for these subsidies would utilize them in 2014. This subsidy is expected to be substantial, averaging over $5,000 per eligible individual according to the CBO.

The Lewin Group is a healthcare research and consulting firm, and a wholly owned subsidiary of UnitedHealth Group. Their analysis has been frequently cited by both proponents and opponents of healthcare reform throughout the past two years.

Update (10/25/10): The Lewin Group responds in the comments below:

What’s important to understand about the report The Lewin Group conducted for Families USA is that the report estimates the number of people eligible for the tax incentive rather than how many actually will take advantage of it. In the report, we estimated that 28.6 million people would be eligible for the premium tax credit. In an earlier study of the Act [here] we had estimated that only about 20.1 million of these people would actually take the credit and purchase coverage, once program enrollment is fully mature. In fact, our experience shows that it could take a number of years before eligible people sign up. The Congressional Budget Office appears to have estimated that about 19 million people would receive the credit once enrollment is fully matured. (Letter to Speaker Nancy Pelosi from Douglas Elmendorf, Director of the Congressional Budget Office (CBO) concerning CBO estimates of the cost and coverage impacts of the Health reform bills, March 20, 2010 online [here].

I’m sure this is true – that all The Lewin Group was contracted to do with this research was estimate the total number of people eligible. The problem – and this seems to really be an issue of how Families USA presented the data – is that the report they released to the media did not make this transparently clear, and in fact stated unequivocally that “the total value of the tax credits that year will be $110.1 billion”. It did not say “could be”, or “will potentially be”, it said “will be“.

This inaccuracy resulted in media coverage which clearly misrepresented what the Lewin Group’s study actually said. Here’s just one example from Senate Majority Leader Harry Reid’s campaign web site: (emphasis added)

The historic tax cut in the health reform law, which is estimated to reduce nationwide income taxes by more than $110 billion in 2014 alone, will be provided through tax credits to offset a portion of the cost ofhealth insurance premiums, and Nevadans’ tax reductions will approximate $1.1billion in that year.

There are dozens of other examples just like this in the media over the past month. I will be contacting The Lewin Group and Families USA for additional comment.

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