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Testimony on Federal Subsidies for Health Insurance and Policies to Reduce the Prices Paid by Commercial Insurers

The federal government subsidizes health insurance for most of the U.S. population through Medicare, Medicaid, and various tax provisions. Those provisions include allowing employers and employees to exclude payments for health insurance premiums from income and payroll taxes and providing premium tax credits that reduce what people pay for coverage through the marketplaces established under the Affordable Care Act (ACA). The Congressional Budget Office projected that in fiscal year 2023, those subsidies would amount to a net $1.8 trillion, equal to 7.0 percent of the nation’s gross domestic product.

Federal subsidies for health insurance are projected to total $25.0 trillion over the next 10 years. That total includes $11.7 trillion for Medicare, $6.3 trillion for Medicaid and the Children’s Health Insurance Program, $5.3 trillion for employment-based coverage, and $1.1 trillion for the nongroup marketplaces established under the ACA and the Basic Health Program.

If current laws continued without change, the average federal subsidy for a Medicare enrollee would grow at an average rate of 5 percent a year from 2023 to 2033, CBO projects. The average federal subsidy for an enrollee in an employment-based plan would grow by 7 percent a year, on average. The average subsidy per enrollee depends in part on the prices that insurers pay health care providers. In recent years, the prices paid by commercial insurers have been higher, and have grown more rapidly, than the prices paid by the Medicare fee-for-service program.

Policies that would lower the prices that commercial insurers pay providers would reduce the federal budget deficit. And because subsidies for commercial insurance represent a significant portion of federal spending, even small reductions in commercial insurers’ prices would result in sizable deficit reduction.

Originally published at https://www.cbo.gov/publication/59917

- Part of VUGA -USA media group