CBO Confirms Insurance Losses under AHCA

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The Congressional Budget Office has “scored” the proposed American Health Care Act for its impact on insurance coverage, insurance premiums, and the federal budget. The results are not surprising to those most familiar with its provisions, although the reductions in insurance coverage may be even a little worse than expected. The analysis puts the Republican leadership in a difficult position. President Trump has called for a plan that increases coverage and lowers costs, while conservative House Republicans want a bill that offers even less assistance to the uninsured than this one does. The proposed plan doesn’t satisfy the demands from either side among Republicans, let alone generate any support among Democrats.

Here is a summary of the CBO’s conclusions about the proposed AHCA. See my previous post for a description of the bill itself.

Effects on insurance coverage

The CBO projects that the number of uninsured Americans would gradually rise relative to the number of uninsured if the current law were to continue. By 2026, 52 million would be uninsured instead of 28 million, a difference of 24 million. That would wipe out the gains attributable to the Affordable Care Act and take the country back to roughly where it was before it was passed. Only the most extreme conservatives would call that making America great again. It is certainly not what Trump led people to expect.

The biggest part of the 24 million difference is due to a 14 million projected decline in Medicaid enrollment, “as states that expanded eligibility for Medicaid discontinued doing so, as states projected to expand Medicaid in the future chose not to do so, and as the cap on per-enrollee spending took effect.” Those changes would result from the double impact of the bill on Medicaid. It phases out the expansion of Medicaid eligibility to include people with incomes up to 138% of the poverty level, and it caps federal payments to the states in such a way as to produce a projected shortfall relative to rising health care costs.

In the short run, enrollment in the “nongroup market” (people covered neither by their employer nor by Medicaid) would also decline dramatically. Some people would drop out because they were no longer required to buy insurance and didn’t feel they needed it. Others would leave the market when they lost their Obamacare subsidies and found that the tax credits in the new law didn’t cover enough of their premiums.

In later years, after 2020, the CBO projects that fewer employers would offer health plans to their workers, since their mandate to do so is also repealed. Many workers would then seek coverage in the nongroup market, which would then have something of a comeback.

The upshot of these changes is that by 2026, Medicaid coverage drops by an estimated 14 million, employment-based coverage by 7 million, and nongroup coverage by 2 million.

The loss of coverage would be especially great for low-income Americans, because of the cutbacks in Medicaid. In addition, the tax credits in the new law are not adjusted for income, as the Obamacare subsidies are. Federal benefits would fall short of premium costs for more families. Since the tax credits ignore geographic variations in costs, people in high-cost (especially rural) areas would also find insurance less affordable. And finally, many older people (but not old enough for Medicare) would also lose coverage. Although tax credits range from $2,000 to $4,000 by age, that difference wouldn’t be enough to cover the higher premiums that insurers could now charge.

Effects on premiums

The CBO analysis projects that premiums would rise for older people and fall for younger people. While the ACA allowed only a 3-to-1 ratio between the two, the AHCA allows a 5-to-1 ratio.

The effect of the law on average premiums is more complex. In the short run (before 2020), average premiums should rise because of the repeal of the individual mandate. Young, healthy people are most likely to drop out of the market. That would force insurers to increase premiums on the older, less healthy people who remain, since insurers are still required to cover people who are already sick. The CBO projects a rise of 15-20% for average premiums in the nongroup market.

After 2020, average premiums should come back down again for several reasons:

  • The age-mix of people insured in the nongroup market should change, as premiums rise for older people and fall for younger people. More older people would then leave the market, and younger people would come in.
  • The law sets up a Patient and State Stability Fund with money that states can use to compensate insurers for covering high-cost patients.
  • Insurers can offer cheaper plans because what the plans cover is not as tightly regulated. They still have to cover ten essential benefits, but they no longer have to cover 60% of the costs of care. They could offer a small maternity benefit, for example, that leaves mothers with most of the actual bill.

One unfortunate side effect of that last provision is that people will find it harder to shop for insurance. Insurers will no longer have to offer standard plans covering 60%, 70%, 80% or 90% of costs, and they will no longer have to offer them through federal or state exchanges. Insurers can offer all sorts of things, in all sorts of ways, including plans with very skimpy benefits. Let the buyer beware! (Although offering insurance across state lines is not part of this bill, the Republican plan to add that in later legislation could make this worse, by allowing insurers to offer plans that do not meet the normal standards of the states in which they are sold.)

The CBO’s conclusion: “By 2026, average premiums for single policyholders in the nongroup market under the legislation would be roughly 10 percent lower than under current law.” Two reasons for that reduction aren’t very great though: pushing older people out of the market and offering policies with fewer benefits.

The CBO expects the insurance market to be relatively stable. It does not expect a “death spiral,” that is, an unsustainable spiral of premiums. That would happen if the pool of people buying insurance became, on the average, sicker, leading insurers to raise premiums, which in turn encouraged more of the healthy people to drop their coverage–a vicious cycle. The CBO says that passage of the AHCA should not produce such a cycle, but leaving the current law alone shouldn’t either.

Effects on the federal budget

The CBO projects that “enacting the legislation would reduce federal deficits by $337 billion over the 2017-2026 period. The government would lose $883 billion in revenue, but that would be more than offset by over $1.2 trillion in spending cuts.

The biggest revenue losses would result from repealing the many taxes used to fund Obamacare, especially the surtaxes on high-income taxpayers and the tax penalties for failing to carry insurance. The law also sacrifices tax revenue by offering tax credits to help offset the cost of premiums.

The biggest spending cuts are in Medicaid, followed by elimination of Obamacare’s subsidies for buying insurance in the nongroup market. The CBO notes that the government saves money because the average tax credit people get under the new law is only about 50 percent of the average subsidy people get under the current law.

The law also includes $9 billion in savings from eliminating the Prevention and Public Health Fund, which “awards grants…to public and private entities to carry out prevention, wellness, and public health activities.” The CBO didn’t try to estimate any offsetting costs to the country. But if an ounce of prevention is worth a pound of cure, then $9 billion in prevention might be worth $144 billion, making this an exercise in fake economy!

Although the new law could reduce the federal deficit, I would be surprised if Republicans actually use it that way. My hunch is that if the legislation passes, they will use the savings to justify further tax cuts. The large spending cuts in the law are surely no accident, but are consistent with the larger Republican agenda of reducing taxes on the wealthy while reducing benefits for the needy.

Effects on reproductive health services

The AHCA would withhold funds from nonprofit reproductive health service providers that provide abortions. This is aimed at Planned Parenthood, although only a small portion of its income–and none of its federal income–goes to fund abortions. The CBO projects several consequences: more unplanned pregnancies, thousands of additional births, higher maternity costs for Medicaid, and loss of access to health care for poor women in areas without other providers serving low-income populations. Projecting abortion rates was not part of the CBOs mandate, but other research indicates that they would more likely rise than fall along with the rise in unplanned pregnancies.

Speaking of births, this legislation is the first legislative offspring of the strange marriage between Donald Trump and the Republican Party. In order to get elected, Trump needed to make some appealing promises to people who normally vote Democratic. Those included replacing Obamacare with something greater. But he also needed the support of the Republican base, which is more conservative than the country as a whole. The Republican leadership thought they could pull it all together and produce legislation that conservatives would vote for, the President would sign, and the public would accept. The fact that whatever coalition elected Trump is coming unglued so early in his administration is not good news for Republicans.


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