The estimated net costs of expanding healthcare coverage under President Barack Obama's landmark restructuring have been reduced by $48 billion through 2021, though fewer people would be covered under private insurance plans, a new analysis from the nonpartisan Congressional Budget Office showed on Tuesday.

The CBO also revised its overall federal budget deficit estimates to show a $92 billion increase in the projected fiscal gap for 2012, confirming a fourth straight year of $1 trillion-plus deficits.

The CBO revisions gave ammunition to both Democrats, who largely support Obama's controversial 2010 healthcare law, and to Republicans, who staunchly oppose it. The law will take center stage later this month when the U.S. Supreme Court hears oral arguments in a challenge of its constitutionality.

By reducing the estimated net 2012-2021 costs to $1.083 trillion from $1.131 trillion a year ago, the CBO report could help Democrats blunt some of the criticism over the high costs of extending coverage to some 47 million uninsured Americans, as they try to tout savings elsewhere in the law.

These cost reductions are largely due to lower estimates for subsidies and tax credits associated with the law's planned insurance exchanges for individual coverage.

They also include higher revenues from penalties and the tax effects of higher taxable income, as private employers drop health insurance plans in favor of extra compensation for employees to buy insurance via the exchanges.

But the analysis also projected that some 4 million fewer people will obtain insurance through employers or through the insurance exchanges promoted by the healthcare law by 2016 than estimated a year ago.

Many of those people will need to be covered by government-run Medicaid program for the poor, causing higher Medicaid costs to eat into savings elsewhere.

The CBO also added another year to its overall cost estimate for the insurance provisions, extending it out to 2022, for an 11-year net cost of $1.252 billion.

Before the revenue and tax effects, the gross cost for that period hits a new high: $1.762 trillion, and Republicans wasted little time in pouncing on it and the lower coverage estimate.

The fact that the outlook for the new law continues to worsen so rapidly, even before it's implemented, is ominous, said Senator Jeff Sessions, the top Republican on the Senate Budget Committee.

Many of the healthcare law's coverage provisions do not go into effect until 2014.

BUDGET DEFICIT RISES

In updating its budget estimates, the CBO said it now expects a $1.171 trillion deficit for the 2012 fiscal year, in the wake of Congress' extension of a payroll tax cut without finding savings elsewhere. In January, the CBO forecast a $1.079 trillion deficit for the fiscal year ended September 30.

The increase is in line with the $100 billion cost of the tax cut extension passed in February, and leaves both Democrats and Republicans with a deeper near-term fiscal hole as they consider how to deal with the expiration at the end of December of tax cuts begun under former President George W. Bush.

The new estimates will be used by U.S. House of Representatives Budget Committee Chairman Paul Ryan in drafting a Republican budget plan due to be unveiled next week. It is expected to show deeper spending cuts than proposed by Obama.

The fundamental story about the federal budget has not changed: Although the deficit is starting to shrink, it remains very large by historical standards, the CBO said in the report.

How much and how quickly it declines will depend in part on how well the economy performs over the next few years. Probably more critical, though, will be the fiscal policy choices made by lawmakers as they face the substantial changes to tax and spending policies that are slated to take effect within the next year under current law.

The baseline projections - which assume that the Bush tax cuts will expire on December 31 - show a reduction of $186 billion in the cumulative deficits for the subsequent 10 years compared with the January estimate.

That is partly attributed to the revised revenue estimates from the healthcare law, lower projected Social Security outlays, and a reduction in net interest costs due to a shift in assumptions that the Treasury Department will sell more short-term securities.

Under the CBO's alternative fiscal scenario, which assumes that the Bush-era tax cuts and some other policies are left in place, the 10-year cumulative budget deficits would shrink by $250 billion from the January estimate, to a cumulative $7.845 trillion.

The CBO will release an analysis of Obama's proposed fiscal 2013 budget plan later this week.

(Reporting By David Lawder; Editing by Will Dunham and Paul Simao)

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