IV. Effect on Stability of Health Insurance Market
V. Effect on Insurance Premiums
VI. Effect on Employer-Sponsored Plans
VII. Effect of Age Rating Rules and Other Age-Related Changes
VIII. Other Budgetary Effects
IX. External Discussion and Analysis
On May 24, 2017, the nonpartisan Congressional Budget Office (“CBO”) released its report on the American Health Care Act of 2017 (“AHCA”) as passed by the House of Representatives on May 4, 2017. This report is the third such analysis of the AHCA. Previous CBO analyses of earlier versions of the bill were released on March 13, 2017 and on March 23, 2017. You can view the summary of those reports here.
According to this latest analysis, the AHCA is projected to reduce the cumulative federal deficit by $119 billion between 2017 and 2026. The CBO estimates that significantly fewer people would be insured under the current version of the AHCA; 23 million more individuals would be uninsured by 2026 than would be under current law. Furthermore, although the AHCA would reduce the deficit, it would do so by passing many of the costs onto consumers.
Below is an executive summary of the CBO report of the AHCA as passed by the House of Representatives.
The CBO estimates that the AHCA would reduce the federal deficit by $119 billion over the 2017-2026 period. This is due to a $1.1 trillion dollar decrease in direct spending offset by a $992 billion reduction in revenues. The provisions dealing with health insurance coverage would reduce the deficit by $783 billion. The CBO’s key findings regarding the effect on the federal budget are as follows:
- The largest savings would come from cuts to Medicaid of $834 billion dollars between 2017 and 2026. Medicaid cuts would include termination of the Affordable Care Act’s (“ACA”) enhanced federal matching funds and by switching to a per capita based cap on Medicaid payments. According to a March 23, 2017 letter from the CBO to Congress, allowing some states to switch to Medicaid block grants could lead to further savings, though the CBO did not state the amount.
- $276 billion in cuts to subsidies for individual health insurance would provide another area of savings.
- One direct cost would come from the expected $117 billion in federal outlays for grants from the Patient and State Stability Fund (“PSSF”).
- More than $800 billion would be lost in revenue with the repeal of the individual mandate penalties and many ACA taxes (including those on higher income earners and fees imposed on manufacturers).
As with previous versions of the bill, the CBO estimates that the AHCA would substantially increase the number of uninsured individuals. By 2026, the CBO estimates that under the AHCA, 51 million individuals under age 65 would be uninsured. Although amendments to the AHCA have slightly lowered that number from previous versions of the bill, this would still leave nearly 23 million more people uninsured than under the ACA. The CBO anticipates that the increase in uninsured would fall disproportionately on older people with lower incomes, particularly those individuals between ages 50-64 with an income of less than 200% of the federal poverty level ($12,060 per year for an individual in 2017).
|Year||Number of Uninsured under the AHCA|
|2018||⇓ 14 million more uninsured
(Total: Approx. 41 million uninsured v. 26 million uninsured under the ACA)
|2020||⇓ 19 million more uninsured
(Total: 46 million uninsured v. 27 million uninsured under the ACA)
|2026||⇓ 23 million more uninsured
(Total: 51 million uninsured v. 28 million uninsured under the ACA)
The CBO further notes that “a few million” of those who were uninsured would use tax credits to purchase insurance plans that the agency does not consider to be health insurance. The CBO defines private health insurance as “consisting of a comprehensive major medical policy that, at a minimum, covers high-cost medical events and various services, including those provided by physicians and hospitals.” Insurance policies that fail to cover major medical risk, that offer coverage for only specific diseases, or that are for a single service do not qualify as “health insurance” under this definition and thus the CBO counts individuals who purchase these types of policies as “uninsured.”
The CBO expects around 8 million fewer people to obtain any form of coverage in the individual market in 2018 under the AHCA than under the ACA. This number would jump to 10 million fewer individuals in 2020, but would drop to 6 million fewer people by 2026. The CBO attributes the decreased enrollment rates in the individual market to the lack of an individual mandate penalty and subsidies would, on average, be substantially lower than under current law.
The CBO estimates that Medicaid would cover 14 million fewer people by 2026 under the current version of the AHCA. This would amount to a reduction in enrollment of about 17% compared to current law. According to the CBO’s earlier report on the AHCA, Medicaid enrollment would decrease for several reasons:
- Elimination of the enhanced federal matching dollars for new Medicaid enrollees under the ACA would mean that enrollees in a state would receive the traditional (lower) federal matching rate. Most states would likely be unable to procure enough of their own funding to sustain the current program. Thus states would likely restrict care by capping enrollment and limiting Medicaid to even narrower segments of certain populations.
- Beginning in 2020, per capita caps on Medicaid would result in states receiving fewer federal dollars for their Medicaid programs. The caps on funding 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”). For disabled individuals and those over age 65, the limit would be the CPI-M plus 1%. Under the proposed law, if a state were to spend more than that, the federal government would provide no additional funding to match spending. This would substantially reduce federal spending on Medicaid while simultaneously increasing the number of uninsured individuals. Fewer individuals would be eligible for coverage as states would likely be forced to cut coverage.
The CBO also previously projected that Medicaid spending per enrollee would grow faster than the CPI-M, forcing states to make significant changes to their Medicaid programs.
For more on how the AHCA would impact Medicaid, read our summary here.
The CBO reports that the individual health insurance market, in many places, would remain relatively stable under either the AHCA or the ACA. The first table below shows the different ways the ACA and AHCA could lead to stabilization of the individual insurance market.
|Ways the ACA Stabilizes the Market||Ways the AHCA Stabilizes the Market|
|Out-of-pocket payments are based on percentage of income and thus insulate subsidized enrollees from experiencing premium increases; the 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 healthcare expenditures; lower premiums for healthy people would encourage enrollment and stabilize the market|
|Subsidies PLUS penalties under the individual mandate 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|
However, the CBO estimates that not all individual markets would remain stable under the AHCA. According to the report, about one-sixth of the population resides in areas where beginning in 2020 under the AHCA the individual health insurance market is expected to be unstable. This instability would likely result from states seeking waivers from certain provisions of the ACA as allowed under the AHCA.
One type of waiver would allow states to modify the Essential Health Benefits (“EHBs”) requirements set forth in the ACA. A state could choose a different set of categories of benefits for coverage than required under the ACA or might choose to eliminate certain services from the definition of EHB. States could also choose to give insurers greater flexibility in the types of plans offered and in the scope of coverage the plans provide.
The second type of waiver would allow insurers, starting in 2020, to waive the “community rating” requirement in the ACA. The ACA prohibits discrimination on the basis of pre-existing conditions and requires that all premiums be based on the average healthcare costs of all non-smokers of similar age in the same geographic region. Under the AHCA, companies could set premiums based on an individual’s health status (e.g. “pre-existing conditions”) if that person did not have continuous health coverage in the preceding 63 days. Because of this, the CBO projects that this would reduce the cost of premiums for healthier individuals whose health status would not negatively impact the calculation of their premiums.
However, premiums would increase significantly for people who have both pre-existing conditions and any lapse in coverage because insurance companies would be allowed to factor those pre-existing conditions into their rates. The CBO expects that premiums for these individuals would eventually rise so high that they might ultimately be unaffordable. Thus, the individual health insurance market for those with higher-than-average costs (such as those with pre-existing conditions) would likely become unstable. This would lead many to lose health insurance that they would have had under the ACA.
The CBO projects that under the AHCA the insurance market will become unstable in those states that elect waivers, particularly for people with higher than average expected healthcare costs. As a result, some individuals who would have sought insurance under the non-group market will become uninsured or will seek insurance through a family member or employer.
The CBO estimates that under the AHCA, as compared with the ACA, insurance premiums would initially increase by about 20% in 2018 and an additional 5% in 2019. Starting in 2020, the average cost of premiums would depend upon whether states chose to seek waivers, how those waivers were implemented, and what share of the funding available from the PSSF would go toward premium reduction. While recognizing that projections of these costs are uncertain, the CBO predicts the following general patterns:
1. About 50% of Americans reside in states that would not seek a waiver regarding EHBs or community rating. In those states, average premiums would be about 4% lower by 2026 than under current law, due primarily to healthier and younger individuals purchasing insurance on the individual market. The AHCA’s allowance for increased age ratings means that older individuals would likely see much higher premiums with younger individuals enjoying lower ones.
2. About one-third of Americans live in states that would make “moderate changes” to insurance market regulations, likely by modifying the EHBs insurers must cover. In these states, premiums may be an average of 20% lower than under current law, primarily because the policies would offer fewer benefits. Once again, reductions for younger people would be substantially higher than for older people.
3. About one-sixth of Americans reside in states that would adopt both EHB and community ratings waivers, allowing premiums to be based on individual health status in a “substantial portion of the group market.” These states have smaller markets, fewer insurers, and higher premiums, and as such, this would likely result in:
- Somewhat lower premiums, on average, due to younger individuals in the market and policies would cover fewer benefits; and
- Unhealthy people would face extremely high premiums, despite the AHCA’s attempts to lower these costs with additional funding. Over time, less-healthy people (including those with pre-existing conditions) would find it difficult to purchase insurance because of continually and rapidly increasing premiums.
The CBO further projects that even though some individuals would have lower premiums, overall healthcare costs would likely substantially increase. Individuals living in states that allow insurers to cover fewer health benefits would “experience substantial increases in out-of-pocket spending on healthcare” and may forego treatment altogether. Maternity care and substance abuse treatment are just two of the current EHBs that states may eliminate. Under this scenario, individuals who use maternity care or seek substance abuse treatment would see out-of-pocket spending increase by thousands of dollars.
In order to combat some of these costs, starting in 2020, the AHCA would provide $15 billion for “maternity coverage, newborn care, and for prevention, treatment or recovery support services for people with mental or substance abuse disorders.” The CBO assumes, however, that states would give these funds primarily to health care providers, rather than to insurers. As a result, premiums would not be significantly affected.
In addition, because the prohibition on annual or lifetime limits only applies to EHBs, individuals living in states that modify the definition of EHB may incur substantial out-of-pocket costs when they hit the cap on benefits. For example, those who take expensive prescription drugs could easily reach the annual or lifetime cap.
Under the Upton Amendment, an additional $8 billion would be allotted to states that elect a community rating waiver. This funding is intended to assist in lowering out-of-pocket costs and/or premiums of individuals who are negatively affected by this waiver (i.e., those that are unhealthy or have pre-existing conditions). The CBO notes that states could only receive funding from this $8 billion pot if the state were to waive the community rating requirement. Thus, the CBO foresees that the availability of the funding would increase the number of states choosing to request this waiver.
The CBO projects that changes to market regulations would affect small group plans less than they would the individual market. Because these plans pool risk among more people, insurers may feel less pressure to reduce the scope of offered benefits.
Large group plans could experience greater changes. Under current regulations, large employers are allowed to choose the EHB benchmark plan of any state in which the employer operates. A large employer operating in a state that chooses the EHB waiver could therefore choose to apply that state’s EHB requirements in all plans offered by the employer. That in turn could result in lifetime and annual maximums on all benefits not considered EHBs in that state. However, in the final analysis, the CBO does not anticipate that state decisions would significantly affect large group plans.
The CBO forecasts that enrollment in employer-based plans would increase by 1 million individuals in 2018 and 4 million individuals by 2026. This estimate is based on an assumption that in states that make moderate changes to regulations, more employers would offer employer-based insurance. This is because the individual market would no longer be comparable to the employer-based market, leaving employees with higher out-of-pocket expenses. Likewise, in states making substantial changes to the market, employers would offer plans because their employees may not longer be able to obtain comprehensive coverage on their own.
Beginning in 2019, 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. Some states could acquire waivers to have even higher rates based on age. The CBO projects that this would substantially reduce the premiums for younger people and significantly increase them for older Americans.
The CBO expects that the legislation would increase the number of uninsured, and would disproportionately increase uninsurance rates among older people with lower income. This number would be especially high amongst individuals between 50 and 64 years old with income of less than 200% of the federal poverty level. The CBO attributes these changes to increased premiums, the way the AHCA assesses tax credits, and the elimination of subsidies for out-of-pocket costs by 2020.
The CBO estimated in its earlier report 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.
Additional budgetary effects are summarized in the below table:
|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 = ⇓ Lowers cost by $9 billion||Increased payments to Community Health Center Fund = ⇑ Cost of $422 million
|Elimination of Planned Parenthood Funding*
||Medicaid coverage of childbirth and care (as a result of elimination of Planned Parenthood funding)
|Elimination of federal matching funds for home and community based attendants =
⇓ Lowers costs by $12 billion between 2017-2026
Increased DSH payments = ⇑ Cost of $31 billion between 2017-2026
|Reduction in state Medicaid costs =
⇓ Lowers cost by $7 billion between 2017-2026
|Safety net funding for states that did not expand Medicaid = ⇑ Cost of $8 billion between 2017-2026
*To the extent that there would be reduced access to care under the legislation, this 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 those who use medical practitioners who serve low-income populations. The CBO projects that about 15% of those people would lose access to care.
New CBO AHCA Estimate: Decreases in Savings and Uninsured, Potential Instability for States with Major Waivers
May 25, 2017
Senators Rush for Distance from CBO Report: “The AHCA is a First Step, But Not a Solution”
Kaiser Health News
May 25, 2017
What the New CBO Score Reveals about the AHCA
May 24, 2017