Late in the afternoon on March 13, 2017, the Congressional Budget Office issued a cost estimate on the House Republican leadership’s American Health Care Act (AHCA). The headlines of the report have already been widely reported: CBO projects that, if AHCA is enacted, the number of uninsured would grow by 24 million by 2026. AHCA would reduce the budget deficit by $337 billion over the 2017-2026 period, primarily by cutting the Medicaid program by $880 billion and the current Affordable Care Act means-tested tax credits and cost-sharing reduction payment by $673 billion (replaced by a much smaller $361 billion fixed-dollar, age-adjusted tax credit program). Meanwhile, the bill would cut taxes by $883 billion.

The report, however, is rich in detail—and in caveats as to the risk of projecting ten years in advance. This post will explore the report’s specific predictions.

Coverage Losses

Several factors would contribute to the predicted growth in the uninsured. The repeal of the individual mandate, retroactive to 2016, would, CBO projects, result in 4 million people dropping coverage for 2017. By 2018, 14 million more would be uninsured, as 6 million dropped coverage in the nongroup market, 5 million dropped Medicaid coverage, and 2 million fewer people had employer coverage. (The components sum to 13 million because of rounding and “other” coverage losses.) Two million more would drop coverage for 2019, with most of the losses due to the repeal of the individual mandate. (The CBO report assumes that the cost-sharing reduction payments, currently being litigated in House v. Price, will continue until 2020.  Were they defunded sooner, the individual market would collapse much more dramatically.)

It can be argued that those who lose coverage because of the end of the mandate did not want it to begin with, but coverage losses would also be driven by rising premiums, and those who drop coverage, presumably healthier people, would in turn cause premiums to rise for others. They would also become an uncompensated care burden when they get sick.

Between 2020 and 2026, the number who would lose Medicaid coverage would increase to 14 million as states dropped the Medicaid expansions and the per-capita Medicaid caps started to force the states to drop coverage. The number covered by the nongroup market would grow by 7 million between 2020 and 2026 as employers dropped coverage and higher-income and younger people took advantage of the new tax credits. The number of individuals with employer coverage, on the other hand, would shrink by 7 million as individuals dropped coverage with the end of the individual mandate or employers dropped coverage because higher-income employees could take advantage of the new tax credits (although alternatively, higher cost sharing and lower tax credits in the nongroup market might make employer coverage more attractive).

By 2026, 52 million, 19 percent of the nonelderly population, would be uninsured. The increase would be disproportionately attributable to coverage losses among people between the ages of 55 and 64 and with incomes below 200 percent of the federal poverty level.

Premiums: Increases, Then Stabilization

CBO projects that those who dropped coverage between 2017 and 2019 would be disproportionately healthy, resulting in premium increases in 2018 and 2019 that would be 15 to 20 percent higher than what premiums would otherwise have been. Starting in 2020, however, premiums are projected to stabilize.

This stabilization is due to several factors. First, with the repeal of the current actuarial value requirements, CBO expects insurers to offer cheaper products with higher deductibles and other cost-sharing. Although the ACA’s out-of-pocket cap, which AHCA retains, limits the ability of insurers to offer products with actuarial values much below the current 60 percent floor, they would offer more products near that floor and fewer low-deductible products. Second, because of the changes in age rating and the fixed dollar tax credits, with much smaller age adjustments, the nongroup market would attract a younger and healthier population (and repel older and less healthy enrollees). Third the Patient and State Stability Fund would presumably be used primarily for reinsurance, which would stabilize the market. The ongoing risk adjustment program would also contribute to stability.

By 2026, nongroup market premiums will be 10 percent lower than they would be under the present law. Changes in premiums will be age-related, however: 20 to 25 percent lower for 21 year-olds, 8 to 10 percent lower for 40 year-olds, but 20 to 25 percent higher for 64 year- olds.

Cost Savings

The CBO and Joint Committee on Taxation estimate that AHCA would reduce the federal deficit by $337 billion over the 2017 to 2026 period. This change would result in a $1.2 trillion decrease in direct spending partially offset by an $883 reduction in revenues. (CBO did not have time to project macroeconomic effects of the legislation).

The spending cuts result from a combination of:

  • A reduction in Medicaid outlays of $880 billion;
  • Savings of $673 billion from eliminating the ACA’s tax credits and cost-sharing reduction payments in 2020;
  • Increases in taxes of $70 billion on employed persons who lose employment-related health insurance and the tax exclusion that comes with it;
  • Savings of $6 billion from the repeal of the small employer tax credit;

Offset by:

  • The $361 billion cost of the new tax credits in the legislation after 2020;
  • A loss in $210 billion in individual and employer mandate penalties;
  • An increase in spending of $80 billion for the Patient and State Stability Fund; and
  • A net increase in $43 billion in the payments Medicare makes to hospitals that provide a higher proportion of care to uninsured people.

CBO also projects that:

  • Elimination of the prevention and public health fund would save $9 billion over the 2017 to 2026 period; and
  • The bill would increase funding by $442 million for community health centers for 2017;

Medicaid Contraction

The reductions in Medicaid spending would be primarily attributable to 14 million fewer people enrolled in Medicaid by 2026, a reduction of 17 percent compared to those who would have been covered under current law. Before 2020, reductions in Medicaid enrollment would be due to the repeal of the individual mandate penalties, which currently apply to single individuals with incomes above 90 percent of the federal poverty level.

After 2020, much of the Medicaid contraction would be due to the termination of enhanced federal matching funds for the Medicaid expansion population. CBO projects that no states would expand Medicaid if AHCA is adopted, resulting in 5 million fewer people enrolled by 2026 than under current law, which would have resulted in additional states expanding Medicaid in CBO’s opinion. AHCA grandfathers in the ACA’s enhanced match rate for continuously enrolled expansion population enrollees, but because of the normal churn of the low-income Medicaid population, CBO projects that fewer than one-third of those enrolled at the higher match rate at the end of 2019 would still be enrolled two years later. States would also lose funding under AHCA’s per-capita cap program, which goes into effect in 2020—Medicaid costs would grow at 4.4 percent and the federal matching funds would grow at a rate of 3.7 percent, a percentage point lower. States would have to cut Medicaid expenditures, and would likely do much of it by cutting eligibility.

Nongroup Market Changes

CBO notes that changes would occur in the nongroup market as the ACA tax credits were repealed and replaced by the new AHCA tax credits. Beginning in 2018, tax credits could be used to purchase coverage outside the marketplaces on a nonrefundable basis. CBO expects that 2 million individuals would exercise this option in 2018 and 2019. For 2019, AHCA changes tax credit eligibility requirements to increase tax credits for young people and reduce them for older people; this could result in 1 million more people enrolling in the nongroup market as young enrollees replace older enrollees. CBO assumes that most states would use the Patient and State Stability Funds for reinsurance purposes, at least early on, reducing premiums and stabilizing the markets, although it notes that some states would be unlikely to provide the matching money to access this program.

CBO projects that the continuous coverage requirement would increase the number of nongroup market enrollees for 2018 by 1 million as people tried to establish creditable coverage, but decrease enrollment after 2018 by 2 million each year thereafter—paradoxically predominantly among the healthy—as consumers avoided the penalty. CBO and JCT expect that it would probably take states until 2019 to change their permitted age rating ratios from 1:3 as permitted by the ACA to 1:5 as permitted by AHCA, and until that date the ACA’s premium tax credit structure would largely shield enrollees from premium increases. As of 2019, however, the age rating changes in the premium tax credits would result in an increase of about 500,000 enrollees as young people experienced higher tax credits.

The CBO report explores changes in nongroup coverage after the AHCA rules go into effect in 2020. The elimination of the AV metal levels, as already noted, would likely drive up cost sharing, but it would also make it harder to compare plans and shop based on price. Allowing consumers to shop for coverage from insurers or brokers in addition to the marketplace might also make shopping for and comparing plans more difficult.

Premium Tax Credits: A Reduction In The Overall Amount And A Shift Toward The Younger And Wealthier

The CBO report explains in detail the effects of the changes in how premium tax credits would be calculated under AHCA, shifting resources from the old to the young and from the poor to those with higher incomes. The total cost of subsidies under AHCA would be smaller than under the ACA because fewer people would get them, the amounts would be lower, and the subsidies would grow more slowly because of a less generous inflation adjustment. In 2020, the average subsidy would be 60 percent of the average current subsidy; by 2026, it would be 50 percent of the current average.

The Effects Of Barring Funds For Planned Parenthood

The elimination of funding for Planned Parenthood for one year is presumably driven by ideology, not cost savings. CBO projects, however, that this provision would reduce direct costs by $234 million. On the other hand, CBO projects that 15 percent of people living in areas without other health care clinics or medical practitioners who can provide birth control services would lose access to care. The loss of funding would also increase the number of births by several thousand, costing Medicaid, which pays for 45 percent of all births, $21 million for 2017 and $77 million over the budget period, reducing overall savings to $156 million.

Repeal of the Medicaid Community First Choice program would decrease direct spending by $12 billion over 10 years. Repeal of the ACA’s Medicaid Disproportionate Share Hospital reductions would increase spending by $31 billion, while AHCA’s funding for safety net hospitals for states that did not expand Medicaid for 2018 to 2021 would increase expenditures by $8 billion. A number of small changes to the Medicaid program (including the lottery winning provisions, which were not separately costed out) would save $7 billion.

AHCA’s tax cuts would reduce revenues by $882.8 billion over the ten years, with the largest cuts being $157.6 billion for the net investment tax and $117.3 billion for the Medicare tax increase, both of which fall only on taxpayers making more than $200,000 a year ($250,000 for joint filers); $144.7 billion for the health insurance fee; and $48.7 billion for the “Cadillac” plan tax (which resumes in 2025).

CBO acknowledges the uncertainty of its estimates. It admits that the spending it projected for the Medicaid expansions under the ACA were about 60 percent of the actual amount (it somehow failed to project the Supreme Court’s decision making the Medicaid expansion an option) while the number of people it projected would purchase coverage in the nongroup market was twice the actual number. But its 2012 projection as to the decline in the number of uninsured for 2016 of 23 million was close to the actual number, 20 million. CBO’s numbers, of course, are not perfect, but they are the numbers Congress has accepted in the past, and it is hard to defend abandoning them this time just because they reveal problems with proposed legislation.

It will be noted that of the total 24 million individuals who are projected to lose coverage under AHCA, 14 million are expected to do so because of the end of the individual mandate and thus arguably did not really want coverage; 5 million are projected to lose coverage due to Medicaid expansions that CBO anticipated would have occurred but in fact have not yet occurred. It will be argued, therefore, that the 24 million number is artificial.

It is important, however, to focus not just on the 24 million number. Arguably a bigger story is that millions—CBO does not say how many—of low-income, older people would lose coverage under AHCA because they could no longer afford it after the age rating ratio and premium tax credits changed. Millions of younger and wealthier people—again we don’t know how many—would gain coverage, but they are not generally in need of costly care to the same extent. Almost everyone would likely to end up with higher deductibles and cost-sharing, making actual health care less affordable.    The CBO report does not measure the full extent of the financial instability and community burden that would result from this shift in coverage, but it seems a very relevant consideration.

Letter To Governors On Section 1332 Waivers

On March 13, 2017, Health and Human Services Secretary Thomas Price sent a letter to the state governors setting out the approach of the new administration to the Affordable Care Act section 1332 state innovation waiver program. (Blog post here) Section 1332 permits the states, as of 2017, to apply to HHS and the Treasury Department for waivers from certain provisions of the ACA, and for the pass through of funding that would otherwise have been provided through ACA tax credits and cost-sharing reduction payments, for state-designed programs that provide access to health care that is at least as comprehensive and affordable and covers a comparable number of state residents as would have been covered by the ACA without increasing the federal budget deficit.

The letter begins by stating, “The Administration’s top priorities include improving patients’ access to and affordability of care, slowing the rate of premium growth to improve the risk pool, bringing stability to the individual and small group health insurance markets, and increasing consumer choice.” It invites the states to submit 1332 waiver applications to accomplish these priorities. The letter cites President Trump’s Executive Order directing the agencies that implement the ACA to provide more flexibility to the states and promises “to work with states to review all applications within the timeframe provided under Section 1332’s implementing regulations and do our best to work with states to review their applications on an expedited basis.” It promises to “in the coming weeks” provide the states with a checklist with further information to assist state applications.

The letter specifically cites Alaska’s 1332 waiver application. This application seeks to obtain federal funding for 2018 for the Alaska Reinsurance Program, which Alaska has already implemented using state funding for 2017. By reinsuring high-cost cases in the individual market, the Alaska reinsurance program has succeeded in substantially reducing Alaskan individual market insurance premiums for 2017. The letter to governors specifically invites proposals that include high-risk pools or reinsurance and offers pass-through funding for such programs if a waiver is approved.

While the letter signals the new administration’s eagerness to receive and process waiver applications, it recognizes the statutory constraints under which the program operates. HHS and the DOT can only waive certain provisions of the ACA and waiver proposals must provide coverage comparable to the ACA, as set out above. States will have to enact or amend state laws to authorize waiver proposals. And states will have to comply with current regulations requiring public notice and comment periods and public hearings.

In sum, the letter is a further indication of the eagerness of the new administration to be flexible, but within the bounds of the established law until that law changes.