On June 28, 2012, the Supreme Court issued a decision that essentially made the expansion of the Medicaid program under the Affordable Care Act (ACA) a state option. CBO and the staff of the Joint Committee on Taxation (JCT) have updated their estimates of the budgetary effects of the health insurance coverage provisions of the ACA to take into account the Supreme Court decision. This report describes those new estimates, how they were derived, and how they differ from the previous ones. The figures do not include the budgetary impact of other provisions of the ACA.

CBO and JCT’s previous estimate of the effects on insurance coverage of the ACA, before the Court’s decision, were reflected in the projections contained in CBO’s Updated Budget Projections: Fiscal Years 2012 to 2022 (March 2012) and further described in Updated Estimates for the Insurance Coverage Provisions of the Affordable Care Act (March 2012).

What Is the Net Budgetary Impact of the Coverage Provisions Taking Into Account the Supreme Court’s Decision?

CBO and JCT now estimate that the insurance coverage provisions of the ACA will have a net cost of $1,168 billion over the 2012–2022 period—compared with $1,252 billion projected in March 2012 for that 11-year period—for a net reduction of $84 billion. (Those figures do not include the budgetary impact of other provisions of the ACA, which in the aggregate reduce budget deficits.)

The projected net savings to the federal government resulting from the Supreme Court’s decision arise because the reductions in spending from lower Medicaid enrollment are expected to more than offset the increase in costs from greater participation in the newly established exchanges.

How Will States Respond to the Supreme Court’s Decision Regarding the Medicaid Expansion?

The Supreme Court’s decision has the effect of allowing states to choose whether or not to expand eligibility for coverage under their Medicaid program pursuant to the ACA. Under that law as enacted but prior to the Court’s ruling, the Medicaid expansion appeared to be mandatory for states that wanted to continue receiving federal matching funds for any part of their Medicaid program. Hence, CBO and JCT’s previous estimates reflected the expectation that every state would expand eligibility for coverage under its Medicaid program as specified in the ACA. As a result of the Court’s decision, CBO and JCT now anticipate that some states will not expand their programs at all or will not expand coverage to the full extent authorized by the ACA. CBO and JCT also expect that some states will eventually undertake expansions but will not do so by 2014 as specified in the ACA.

How Does Insurance Coverage Change After the Supreme Court’s Decision?

CBO and JCT now estimate that fewer people will be covered by the Medicaid program, more people will obtain health insurance through the newly established exchanges, and more people will be uninsured. The magnitude of those changes varies from year to year.

In 2022, for example, Medicaid and the Children’s Health Insurance Program (CHIP) are expected to cover about 6 million fewer people than previously estimated, about 3 million more people will be enrolled in exchanges, and about 3 million more people will be uninsured. Although the estimates discussed here are dominated by the movements of people losing eligibility for Medicaid, other smaller shifts in coverage are expected to occur as well. (The changes in coverage reflect the net effect of all estimated changes stemming from the Court’s decision, not just the movements of people who lose eligibility for Medicaid. For example, relative to prior estimates, not all of the increases in enrollment in exchanges and in the uninsured are among people who would have been newly eligible for Medicaid.)

Why are the Projected Medicaid and CHIP Savings Stemming from the Supreme Court’s Decision Greater than the Projected Additional Costs of Subsidies Provided through the Exchanges?

Federal spending over the 2012–2022 period for Medicaid and CHIP is now projected to be $289 billion less than previously expected, whereas the estimated costs of tax credits and other subsidies for the purchase of health insurance through the exchanges (and related spending) have risen by $210 billion. Small changes in other components of the budget estimates account for the remaining $5 billion of the difference.

The key factors leading to that result are as follows:

• Only a portion of the people who will not be eligible for Medicaid as a result of the Court’s decision will be eligible for subsidies through the exchanges. According to CBO and JCT’s estimates, roughly two-thirds of the people previously estimated to become eligible for Medicaid as a result of the ACA will have income too low to qualify for exchange subsidies, and roughly one-third will have income high enough to be eligible for exchange subsidies. In addition, those who become eligible for subsidies will have to pay a portion of the exchange premium themselves, which will affect their decisions about whether to enroll in the exchanges.
• For the average person who does not enroll in Medicaid as a result of the Court’s decision and becomes uninsured, federal spending will decline by roughly an estimated $6,000 in 2022.
• For the average person who does not enroll in Medicaid as a result of the Court’s decision and enrolls in an exchange instead, estimated federal spending will rise by roughly $3,000 in 2022—the difference between estimated additional exchange subsidies of about $9,000 and estimated Medicaid savings of roughly $6,000.
• With about 6 million fewer people being covered by Medicaid but only about 3 million more people receiving subsidies through the exchanges and about 3 million more people being uninsured, and because the average savings for each person who becomes uninsured are greater than the average additional costs for each person who receives exchange subsidies, the projected decrease in total federal spending on Medicaid is larger than the anticipated increase in total exchange subsidies.