Lower premiums? Great! Too bad they won't last. Photographer: Joe Raedle/Getty Images
Lower premiums? Great! Too bad they won't last. Photographer: Joe Raedle/Getty Images

The Congressional Budget Office just announced that it’s revising the projected cost of the Affordable Care Act -- downward. The reason? Well, there’s a lot going on in its report:

The biggest change is simply that it projects premiums will be lower, which means that it projects the government will pay out less in subsidies.

And why does it think premiums will be lower? Because it didn’t anticipate what the insurers did: slashing their provider networks to the bone in order to keep premiums low:

A crucial factor in the current revision was an analysis of the characteristics of plans offered through the exchanges in 2014. Previously, CBO and JCT had expected that those plans’ characteristics would closely resemble the characteristics of employment-based plans throughout the projection period. However, the plans being offered through the exchanges this year appear to have, in general, lower payment rates for providers, narrower networks of providers, and tighter management of their subscribers’ use of health care than employment-based plans do.

CBO and JCT anticipate that, as enrollment in the exchanges rises, the differences between employment-based plans and exchange plans will narrow. Therefore, projected premiums during the next few years were revised downward more than were premiums for the later years of the coming decade.

The lower exchange premiums and revisions to the other characteristics of insurance plans that are incorporated into CBO and JCT’s current estimates have small effects on the agencies’ projections of exchange enrollment. Although lower premiums will tend to increase enrollment, narrower networks and more tightly managed benefits will tend to reduce the attractiveness of plans and thereby decrease enrollment. The net effect on projected enrollment in the exchanges is small.

The good news is that this keeps premiums low. The bad news is that, over time, the CBO doesn’t think this will be sustainable. As more people exit the employer-based market for the exchanges, insurers will have to broaden their networks; they just can’t serve that number of customers with the networks they have, and if they try to keep the networks small, regulators will probably have something to say.

It’s worth noting, as I always do, that the CBO is required to assume that the current law will go into effect: that the employer mandate and the individual mandate are enforced, all the delayed provisions are allowed to take effect, the grandfathering ends. It’s also worth noting, as I always do, that the CBO does not have a crystal ball: We’ve never done anything like this before, so it is necessarily trying to reason from situations that aren’t necessarily great analogies for what we’re doing now. This is no slam on the office; it's doing the best it can. But its projections may differ significantly from what actually happens.

That said, I agree with them: The low premiums are a happy upside surprise, but not one that’s likely to last. We could both be wrong, and low premiums and narrow networks could survive. But that’s not how I’d bet.

To contact the writer of this article: Megan McArdle at mmcardle3@bloomberg.net.

To contact the editor responsible for this article: Brooke Sample at bsample1@bloomberg.net.