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CBO lowers U.S. deficit estimates as health subsidies fall

Arminda Murillo, 54, reads a leaflet at a health insurance enrollment event in Cudahy, California March 27, 2014. REUTERS/Lucy Nicholson
Arminda Murillo, 54, reads a leaflet at a health insurance enrollment event in Cudahy, California March 27, 2014. REUTERS/Lucy Nicholson

By David Lawder and David Morgan

WASHINGTON (Reuters) - Health insurance subsidies under the Affordable Care Act will cost slightly less than previously thought, helping to slow down the forecast growth of U.S. deficits over the next decade, the Congressional Budget Office said on Monday.

The non-partisan CBO, in revisions to its annual budget estimates, said the reduced subsidy cost estimates partly reflect lower premiums now being charged in government-run "Obamacare" exchanges and accommodations that allow previously canceled health plans to be extended.

The reduced health cost estimates made up the bulk of a $286 billion reduction in CBO's cumulative deficit forecast for fiscal years 2015 through 2024, compared with a forecast in February, to $7.62 trillion.

The revisions gave the Obama administration a small piece of positive news on the embattled healthcare reforms after last week's departure of Health and Human Services Secretary Kathleen Sebelius prompted fresh criticism of Obamacare's troubled launch. White House spokesman Jay Carney wasted no time in trying to capitalize on it.

"This report demonstrates the Affordable Care Act is working," Carney told a news briefing. "It shows that marketplace healthcare costs have gone down because premium estimates have gone down."

The report also forecast less severe premium increases in benchmark health plans offered through the exchanges.

For the fiscal year 2014 ending September 30, CBO said, the deficit would fall to $492 billion from a $514 billion February estimate - and nearly a third lower than last year's $680 billion deficit. The forecasts assume no changes to tax and spending laws.

The agency attributed this year's decline to technical revisions to spending estimates for discretionary programs. But from 2015 onward, it estimated a $186 billion reduction in health insurance subsidies and related spending.

The current CBO estimate for the average subsidy for 2014 is $300, or 6 percent less than estimated in February. The subsidy estimated for 2024 is $1,200, or 14 percent less.

In an accompanying report, CBO and the Joint Committee on Taxation left unchanged their estimate that 6 million people on average will be covered by private health insurance purchased through Obamacare's marketplaces over the course of this year, saying enrollment will vary at different times as people leave and enter the marketplaces.

The administration announced last week that 7.5 million people have signed up for private coverage and the number is expected to rise.

CANCELED PLANS LIVE ON

Several factors led to the lower CBO cost estimates for Obamacare marketplace subsidies, including steps the administration took last year to accommodate people who were notified that their health insurance plans would be canceled for not complying with Obamacare's benefits and consumer protection standards. Researchers said plan premiums were also less costly than expected, while narrow provider networks made some insurance coverage less attractive.

Millions of people received cancellation notices from their insurers last fall, spawning a brief public uproar against Obama, his law and the Democrats who voted for it. The administration responded by saying state insurance regulators could allow people to renew noncompliant plans through September 2017. It also offered hardship exemptions to those who preferred to go uninsured or opt for low-premium catastrophic coverage.

People taking advantage of these accommodations would remain outside the Obamacare marketplaces in plans that do not qualify for subsidies.

CBO also estimated a $98 billion 10-year reduction in Medicare outlays due to lower spending on prescription drugs and hospital insurance compared with the February estimate. Medicaid, the healthcare program for the poor, would see a $29 billion reduction, CBO said.

FALLING DEFICITS TO END The CBO left intact its previous economic projections, which envision rising deficits after 2015 as more of the massive "baby boom" generation retires and draws more federal benefits or drops out of the workforce.

Mandatory spending programs, including Medicare, Social Security and Medicaid, will swell to 11.5 percent of GDP in 2024 from 9.5 percent in 2013. In 2024, they will cost $3.1 trillion, CBO said, accounting for more than half of all federal spending.

"If current laws do not change, the period of shrinking deficits will soon come to an end," the CBO said in the report.

Deficits will reach a low point of $469 billion, or 2.6 percent of U.S. gross domestic product, in fiscal 2015, then gradually start to rise, topping $1 trillion again in 2023 and 2024, a level that would be near 4 percent of GDP.

(Reporting By David Lawder; Editing by Doina Chiacu and Mohammad Zargham)

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