Congressional Budget Office (CBO) Report – Executive Summary [Dated March 2017]

Are you looking for the most up-to-date version of the CBO report?

You can view our executive summary of the May 24th CBO report on the AHCA here.  This incorporates all amendments and titles as passed by the House of Representatives on May 4, 2017.   The below article is an archive of our previous summaries of the CBO reports.  It is not updated, but may contain information that was not captured by the May 24th CBO Report but still holds true.

Quick Jump
I. Introduction
II. Effect on Federal Budget
III. Effect on Health Insurance Coverage
IV. Effect on Stability of Health Insurance Market
V. Effect on Insurance Premiums
VI. Effect of Per Capita Cap (Medicaid)
VII. Effect of Changes to Subsidies in Non-Group Market
VIII. Effect of Continuous Coverage Provision
IX. Effect of Age Rating Rules
X. Effect of Changes in Non-Group Market on Employer-Sponsored Plans
XI. Other Budgetary Effects


I. Introduction

On March 12, 2017 the nonpartisan Congressional Budget Office (“CBO”) and the Joint Committee on Taxation (“JCT”) released its report on the American Health Care Act of 2017 (“AHCA”). According to their analysis, the AHCA is anticipated to reduce the federal deficit by $337 billion between 2017 and 2026. Because of changes to the insurance market, as well as significant cuts in spending by the federal government, the CBO also estimates that there would be 24 million more uninsured Americans by 2024 under the AHCA.

 

The March 20th Manager’s Amendment

The CBO report summarized here is based on the version of the AHCA prior to the “Manager’s Amendment” released by the House GOP on March 20, 2017. The original CBO report therefore does not analyze the impact of these amendments on the federal budget or its impact on costs to consumers.  The March 12 Report and this Summary of that Report do not account for changes to the bill made in the March 20th “Manager’s Amendment” unless specifically noted.

Some analysts believe that the changes in the Manager’s Amendment will essentially negate any deficit reduction that was anticipated under the original bill. This is because the amendment increases expenditures while at the same time cutting additional taxes and thereby decreasing revenues.  You can read our executive summary of the AHCA with the Manager’s Amendment changes below or view our list of the changes introduced by the Manager’s Amendment.

You can read our Executive Summary of the Manager’s Amendment here.

 


II.  Effect on Federal Budget

The CBO estimates that the AHCA would reduce the federal deficit by $337 billion over the 2017-2026 period.  The change would result from a $1.2 trillion dollar decrease in direct spending offset by a $883 billion reduction in revenues.

The largest savings would come from cuts to Medicaid ($880 billion dollars between 2017 and 2026) and the elimination of the subsidy program under the Affordable Care Act (“ACA”). The CBO projects 25% less spending on Medicaid under the AHCA than the ACA by 2026 as far fewer individuals would be eligible for Medicaid coverage.

The largest costs would be from new tax credits given to individuals to purchase health insurance premiums, the repeal of many taxes on higher income earners currently in place under the ACA, and fewer revenues from mandate penalties.


III. Effect on Health Insurance Coverage

The CBO estimates that the AHCA would substantially increase the number of uninsured Americans. As the chart below demonstrates, by 2026, the CBO estimates that under the AHCA there would be nearly twice as many uninsured Americans under age 65 than there would be under the ACA.

Year AHCA
2018 14 million more uninsured

Anticipated cause: repeal of the individual mandate would lead people to drop coverage because penalty would no longer exist

Total uninsured: 41 million under the age of 65

2019 16 million more uninsured

Anticipated cause: repeal of the individual mandate would lead people to drop coverage because penalty would no longer exist

Total uninsured: 43 million under the age of 65

2020 21 million more uninsured

Anticipated cause: Changes in Medicaid eligibility and per-capita cap on federal Medicaid spending

Total uninsured: 48 million under the age of 65

2024 24 million more uninsured

Anticipated cause: Changes in Medicaid eligibility and per-capita cap on federal Medicaid spending

Total uninsured: 51 million under the age of 65

2026 25 million more uninsured
Total uninsured: 52 million under age 65

The CBO particularly noted that in 2020, 17% of the non-elderly population would not be insured.  It further projected that in 2026, 19% of the non-elderly population would be left uninsured under the AHCA compared to the project 10% of the non-elderly population under the ACA.


IV. Effect on Stability of Health Insurance Market

The CBO reports that the health insurance individual market will remain relatively stable under either the AHCA or the ACA.

Ways the ACA Stabilizes the Market Ways the AHCA Stabilizes the Market
Subsidized enrollees are insulated from premium increases because out-of-pocket payments are based on % of income; federal government covers the difference Subsidies to purchase insurance (even though less generous than under the ACA) would maintain sufficient demand for people with low health-care expenditures; lower premiums for healthy people would encourage enrollment and stabilize the market
Subsidies PLUS penalties under the individual mandate will keep sufficient demand for insurance to keep the market stable Grants to states from the Patient and State Stability Fund (“PSSF”) would reduce the cost to insurers that cover people with high health care expenditures

V. Effect on Insurance Premiums

The CBO estimates that insurance premiums would initially increase by between 15-20% from 2018 to 2019 under the AHCA as compared with the ACA. This would primarily be due to the elimination of the individual mandate which would result in far fewer healthier people signing up for health insurance coverage.

The CBO further estimates that by 2026, premiums would be 10% lower under the AHCA than they would have been under the ACA.  However, whether an individual’s premium increases or decreases is highly dependent upon age. Younger individuals would see lower premiums.  On the other hand, older individuals would see “substantially higher” premiums because insurers could charge them five times more than young people. (See Section on “Effect of Age Rating”).

ACA AHCA
Premiums before 2020
Premiums after 2020
Premiums 10% higher by 2026
Premiums before 2020

– 15-20% higher between 2018-2019

– Anticipated cause: elimination of the individual mandate would result in fewer healthier people signing up for coverage

Premiums decrease after 2020 and are 10% lower by 2026

Anticipated causes:

1. States would use PSSF grants to limit costs to insurers for high-use enrollees

2. Insurers would no longer have to offer plans covering certain percentages of covered benefits (under ACA, must cover a minimum of 60% of costs of care).  As a result of this, insurers may be able to offer premiums that are lower, but that have higher out-of-pocket costs for consumers.

3. Younger mix of enrollees


VI. Effect of Per Capita Cap (Medicaid)

Under the AHCA, the federal government would establish a limit on reimbursement to states for Medicaid programs in 2020.  This limit would be based on the average per-enrollee cost for each state in 2016, inflated by growth in the Consumer Price Index for Medical Services (CPI-M).  Under the proposed law, if a state were to spend more than the limit, the federal government would provide no additional funding to match that spending.  This would substantially reduce federal spending on Medicaid while simultaneously increasing the number of uninsured individuals because fewer individuals will be eligible for coverage as states are forced to cut coverage.

The CBO anticipates that Medicaid spending per enrollee would grow faster than the CPI-M, forcing states to make significant changes to their Medicaid programs.

 

The March 20th Manager’s Amendment:

Subsequent to the CBO analysis above, House Republicans modified these provisions in a Manager’s Amendment released on March 20th.  The CBO has not had the opportunity to assess the cost of those changes, but we provide here a summary of those changes.  Those changes are listed below. For expert analysis of the Manager’s Amendment published in Health Affairs, click here.  

The House GOP’s Manager’s Amendment makes additional changes to the way in which states receive Medicaid funding. Under the newly added language, states would be able to choose a “block grant” for Medicaid rather than the per capita cap to fund Medicaid services for their adult and child enrollees (block grants would NOT be allowed for the disabled or elderly). States which accepted a block grant would be able to choose which populations to cover under Medicaid (although coverage for some low-income women and children would continue to be mandatory) and would also be able to decide which services would be offered.  There would be virtually no requirements that the state would have to meet in order to receive the block grant.

Another change to Medicaid funding that appears in the Manager’s Amendment is a change in how the per capita cap would be calculated.  For disabled and elderly individuals, the limit on the average per-enrollee cost for each state in 2016 would be inflated by growth in the CPI-M, plus 1%.

In addition, under the Amendment, states could impose a work requirement on all “able-bodied” adults, without dependents,  who are receiving Medicaid.

Finally, the Amendment prohibits any state from expanding Medicaid; under the original bill, states presumably could continue to expand until 2020.

 

You can read more about the changes to Medicaid under the Manager’s Amendment here.
You can learn more about the basics of how block grants work at the Kaiser Family Foundation website.

 

 


VII. Effect of Changes to Subsidies in Non-Group Market 

The CBO estimates that changes in the way tax credits are assessed and the elimination of subsidies for out-of-pocket costs by 2020 would result in higher enrollment rates of higher income and younger individuals and a decrease in enrollment by lower income and older individuals.  

ACA AHCA
Tax Credits: Ins. Premium

Used to help cover cost of premiums

Available to those between 100% and 400% FPL
Only for plans purchased on the exchanges
Amount of credit depends on age and has an income cap

Result: costs for young

Result: costs for older

Beginning in 2018, available for all plans (not just exchange plans).
Plans purchased off the market would not receive an advance credit and can only be claimed on tax returns
Although there would be an estimated increase of 2 million people receiving a tax credit, the CBO estimates that only 1 million people would be able to obtain coverage with the help of these credits.

Subsidies to cover out-of-pocket costs Available to those between 100% and 250% FPL Unchanged until 2020, then eliminated.
CBO: many lower income purchasers would be priced out of insurance all together because they cannot afford high out-of-pocket costs that would come with loss of subsidies
Example 1: 21yr old at 175% of FPL in 2026 Premium tax credit of about $3,400

Subsidies to cover out-of-pocket expenses

Premium tax credit of about $2,450

No other subsidies

Example 2: 21yr old at 450% of FPL in 2026 Ineligible for tax credit or subsidies Premium tax credit of about $2,450

VIII. Effect of Continuous Coverage Provision

Under the AHCA, starting in 2019, the insurer would look back over the last year to ensure that an applicant has had continuous health insurance coverage.  To maintain “continuous coverage,” an individual must not have a gap in insurance coverage for more than 63 consecutive days.  If an applicant fails to maintain continuous coverage and then seeks to purchase coverage, he or she must pay a flat 30 percent late enrollment surcharge on top of the base premium for 1 year following re-enrollment.  

The CBO estimates that the continuous coverage requirement would increase enrollment in 2018 by approximately 1 million people because people will want to avoid a surcharge.  After 2018, an estimated 2 million fewer people would purchase insurance because of the required surcharge. Individuals willing to pay the surcharge are likely to have greater healthcare needs than those who choose to remain uninsured.


IX. Effect of Age Rating Rules

Beginning in 2018, the AHCA would allow insurers in the individual and small group markets to charge more for premiums on the basis of age.  Under the ACA, an insurer can charge an older individual premiums three times higher than a younger person; under the AHCA, this rate would increase to five times more. The CBO projects that this would reduce the premiums for younger people and increase them for older Americans.

Before 2020, when the premium tax credits and subsidies change, the CBO does not estimate that the age ratings would have a significant impact on enrollment. This is because, under the ACA, subsidies increase with premium increases. The CBO estimates that as long as the ACA’s subsidies remain in place, the AHCA age rating changes would minimally affect enrollment (less than 500,000 enrollees in 2019). According to the CBO, the small increase in enrollment would “mostly stem from net changes in enrollment among people who had income high enough to be ineligible for subsidies and who would face substantial changes in out-of-pocket payments for premiums.”

 

The March 20th Manager’s Amendment:

Subsequent to the CBO analysis above, House Republicans modified these provisions in a Manager’s Amendment released on March 20th.  The CBO has not had the opportunity to assess the cost of those changes, but we provide here a summary of those changes.  Those changes are listed below. For expert analysis of the Manager’s Amendment published in Health Affairs, click here.

According to the press release from the House Energy and Commerce Committee, the March 20th Manager’s Amendment is intended to help individuals between the ages of 50-64 who may face higher premiums under the AHCA. Under the Amendment, individuals could deduct from their taxes the cost of medical expenses if they exceed 5.8 percent of their income (under current law costs must exceed 10% of their income before they can be deducted). This could help alleviate some of the higher premiums costs that some older Americans may experience under the AHCA.

There is also a $75 billion fund being added which state may be able to use to assist older adults purchasing insurance. The Manager’s Amendment leaves the the work of deciding how to create and use this fund to the Senate.


X. Effect of Changes in Non-Group Market on Employer-Sponsored Plans

The CBO estimates that the AHCA would lead to fewer employers offering health insurance to their employees. First, there would no longer be a penalty for failing to offer coverage.  Second, the available tax credits to purchase individual insurance would be available to a broader range of incomes, making non-group coverage more attractive to some employees. As a result, employers may view non-group insurance as comparable to group insurance and cease offering group coverage.

The CBO anticipates that many employers would wait to make significant changes because of uncertainty surrounding implementation of the new law.  Those employers that do fail to offer group insurance would likely have younger and higher-income work forces than those that continue to offer coverage.


XI. Other Budgetary Effects

The CBO estimates that Medicare expenditures would increase by $43 billion between 2018 and 2026. This increase would largely be due to increased Disproportionate Share Hospital (“DSH”) payments made to hospitals that treat large numbers of uninsured individuals. The ACA made substantial cuts to DSH payments because of the anticipated gains in insurance coverage through the Medicaid expansion and the individual mandate. The increase in uninsured patients under the AHCA would necessitate substantially higher lump-sum DSH payments to these hospitals.

In addition, the CBO report looked at additional reductions and increases in indirect spending under the AHCA.

Reduction in Federal Spending/Costs under AHCA (2017-2026) Increase in Federal Spending/Costs under AHCA (2017-2026)
Elimination of Prevention and Public Health Fund = $9 billion Increased payments to Community Health Center Fund = $422 million
Elimination of Planned Parenthood Funding*

$178 million in 2017

$234 million between 2017-2026

Medicaid coverage of childbirth and care (as a result of elimination of Planned Parenthood funding)

$21 million in 2017

$77 million between 2017-2026

Elimination of federal matching funds for home and community based attendants =

$12 billion between 2017-2026

Increased DSH payments = $31 billion between 2017-2026
Reduction in state Medicaid costs =

$7 billion between 2017-2026

Safety net funding for states that did not expand Medicaid = $8 billion between 2017-2026

*To the extent that there would be reduced access to care under the legislation, they would affect services that help women avert pregnancies. The people most likely to experience reduced access to care would probably reside in areas without other health care clinics or medical practitioners who serve low-income populations. The CBO projects that about 15% of those people would lose access to care.