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Going down: CBO says Obamacare costs set to fall

The sky actually wasn't falling when Obamacare began, but its costs apparently are now.

The Congressional Budget Office on Monday said it expects the federal government will spend significantly less on Obamacare than had been projected.

Instead of $1.35 trillion in costs from 2016 through 2025, Affordable Care Act-related expenditures are expected to be $1.207 trillion, the CBO said. That is an 11 percent reduction.

The drop in projections is largely due to to lower estimates for cost increases of health insurance sold on government-run marketplaces, and a slight reduction in the number of people expected to gain coverage under ACA-related programs, the agency said.

The CBO said the costs of Obamacare subsidies issued by the government will drop 20 percent, or $209 billion, as a result of those factors over the decade.

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However, it also expects the overall number of people without health insurance to be lower in the coming decade than had been previously projected. And the agency expects slightly fewer people to lose health coverage through their employer than had been projected.

And, because insurance premiums are expected to rise slower than previously forecast, the CBO is now estimating the government will collect 41 percent less in total taxes paid by employers for the so-called Cadillac tax on pricey health insurance plans. The lowered tax revenue estimates of $87 billion over a decade will offset the larger decreases in overall Obamacare-related costs.

The US Capitol building
Getty Images
The US Capitol building

The latest CBO projections come as Obamacare faces an existential crisis, one that could lead to much more dramatic, if unsought, reductions in the cost of President Barack Obama's signature health-care reform law.

The Supreme Court is weighing a case in which the plaintiffs are challenging the legality of billions of dollars of subsidies that help about 7.5 million low- and middle-income people buy health insurance sold on HealthCare.gov, the federally run marketplace that serves 37 states. The Obama administration is defending the legality of those subsidies.

The bulk of Obamacare's costs to the U.S. Treasury are in the form of those subsidies, or tax credits, which are currently available to almost 9 out of every 10 customers who bought insurance on either HealthCare.gov or the exchanges run by individual states and the District of Columbia.

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In January, the CBO was projecting that the subsidies would cost about $1.058 trillion over the coming decade. Monday's report dropped that projection to $849 billion.

The earlier, higher estimate of the cost of the subsidies was based on the CBO's belief that the price of insurance plans would in coming years rise at rates last seen before 2006. The subsidies are tied to the price of insurance sold on the exchanges: if the prices rise, the value of the subsidies would increase as well.

"But such a bounce back seems less likely in light of further spending growth observed in the most recent data," the CBO report said, referring to information which showed a continuing trend of slow growth in spending by health insurers in recent years.

The CBO said it now believes that private health insurance spending per enrollee will increase by an average of 5.6 percent per year from 2016 to 2025. That is about 10 percent lower than the rate the agency previously forecast.

In addition to lower-than-expected increases in insurance prices, the CBO also cited "slightly lower" enrollment on Obamacare exchanges as a reason for the lowered subsidy-related costs in coming years.

For example, the CBO report said the estimated average enrollment through the exchanges during all of 2015 will be 11 million, instead of 12 million as previously projected.

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The report said that by 2025 an estimated 22 million people will have coverage through those exchanges, instead of the 24 million estimates as recently as January.

However, 2 million fewer people are projected to lose coverage under their employer by that year, according to the CBO.

The report estimates that by 2025, there will be 25 million Americans without health insurance. That is 2 million less than what the CBO was estimating for that year as of January.