Employee Benefits Compliance

CBO Score of House-Passed AHCA: Seven Things to Know

On May 24th, the Congressional Budget Office (CBO) and Joint Committee on Taxation (JCT) released their estimate of the direct spending and revenue effects of the GOP health care reform bill passed by the House May 4th (the American Health Care Act of 2017, H.R. 1628).   The CBO-JCT projections are known as the “score” of the bill.  The CBO had previously scored an earlier version of the AHCA (on March 23), before numerous amendments were made to the bill to secure enough votes for passage.  (See below for a list of the changes.)

The first thing to know is that the CBO/JCT estimates are uncertain, primarily because it is difficult to predict how many states would request waivers (of ACA essential health benefits, prohibition on medical underwriting and rating factors) how those waivers would be implemented, and how insurers would respond.  “Despite the uncertainty,” CBO says (page 32) “the direction of certain effects of the legislation is clear.  For example, the amount of federal revenues collected and the amount of spending on Medicaid would almost surely both be lower than under current law.” And the number of  uninsured would almost surely be greater.

The next four things to know are the estimated effects CBO and JCT project that the May 4th version of the AHCA would have, compared to both current law (the Affordable Care Act, or ACA) and to the earlier (March 22nd) version of the AHCA.  Note that the “Details” often provide a different picture than the averages — because health care reform is so darn complex!

  1. Effect on the federal deficit
  • Compared to current law, the AHCA would reduce the cumulative federal deficit by $119 billion over the 2017-2026 period.  This results from a $1,111 billion reduction in direct spending plus a $992 billion reduction in revenues.
  • CBO’s March score estimated that version of the AHCA would reduce the federal deficit by $151 billion over the same period.  Thus, the revised version would increase the deficit by $32 billion more than the earlier version.
  • Details: The largest savings would come from reduced expenditures for Medicaid and from replacing the ACA’s subsidies with the new age-based tax credits for individual health insurance. These savings would be partially offset by the funding for the new Patient and State Stability Fund (designed to reduce premiums), by reduced revenues from repealing “employer mandate” penalties and “individual mandate” taxes, and from repealing or modifying ACA tax provisions.

2. Number of uninsured people

  • Compared to current law, the AHCA could increase the number of uninsured people by 14 million in 2018, 19 million in 2020 and 23 million in 2026.
  • Compared to the March 22nd version of the AHCA, the revised version is estimated to result in 1 million fewer uninsured in 2026.  CBO estimated the March 22nd version would have increased the number of uninsured people by 14 million in 2018, 21 million in 2019, and 24 million in 2026.
  • Details: The increase in the number of uninsured is primarily due to loss of Medicaid coverage for about 14 million people by 2026, as well as a loss of individual health insurance for 6 million people. Some of these people would drop coverage because the penalty for not having it would be eliminated, while others would want it but be unable to afford it because the average subsidy for coverage would be much lower (particularly for people ages 50-64 with incomes below 200% of the federal poverty level).  CBO also projects that more employers would offer group coverage to their employees because premiums and out-of-pocket costs would increase for non-group coverage.
  • Details:  CBO also estimates that a few million people who would be counted as uninsured would actually use the tax credits to buy “skinny” policies — policies that would not cover major medical risks but that would be priced to closely match the size of the credits.

3. Average premiums for individual health insurance policies

  • Compared to current law, the AHCA would increase average premiums for individual health insurance policies before 2020 (by about 20% in 2018 and 5% in 2019), and by unknown amounts after that depending on the extent to which states requested and implemented the three waivers allowed under the AHCA.
  • Details:  Estimated premium increases vary significantly based on age, so the averages are deceiving. Premiums would increase more for older people, because the AHCA will allow insurers to charge them five times as much as younger enrollees (compared to only three times as much under the current law), and states can also obtain waivers and allow the rating differences to exceed 5:1.  However, tax credits for people 60 and older will be only twice the amount as for people under 30.
  • Details:  Since the new tax credits are based on age more than income, net premiums for younger people with lower incomes might be about the same or less than under current law.  For middle-to-higher income people, premiums would generally be lower, since they will now qualify for tax credits.
  • Details:  CBO estimates that some individual policies will provide a narrower rage of benefits (since it assumes some states will obtain waivers to reduce the number of “essential health benefits”), so average premiums will decrease but individual out-of-pocket costs will increase.

4. Stability of the individual health insurance market

  • The CBO score predicts continued stability of the individual health insurance market in most states before 2020 and in many states beyond 2020, but beginning in 2020 market instability would affect an estimated 1/6 of the population.
  • Stability of the individual insurance market refers to “the proportion of people living in areas with participating insurers in the individual market and on the likelihood of premiums not rising in an unsustainable spiral.”  (CBO score, page 4)
  • Details:  Although the CBO estimates that about one-sixth of the population resides in areas in which the non-group market would start to become unstable in 2020, people in those areas who are healthier than average would have affordable premiums, because they could choose between premiums based on their own estimated health care costs (medical underwriting) and  community rating.  Premiums for less healthy people in those areas would be higher and would increase over time.

The sixth thing to know is that  the CBO projects the impact of the bill will be minimal on employer-sponsored group health plans.  Except that:

  • More employers may increase coverage for employees, in states where the cost of non-group coverage increases.
  • Some employers might revise their large group and self-insured plans by imposing dollar limits and/or increasing employee out-of-pocket maximums on coverage for services that are no longer “essential health benefits” (EHBs), if some states waive the ACA’s EHBs requirement.

The seventh thing to know is that the Senate version of the AHCA is expected to differ (perhaps significantly) from the House version. The Senate will definitely consider the CBO score of the May 4th AHCA passed by the House, but the CBO score of the Senate version (assuming there is one) will likely  differ considerably from this most recent CBO cost estimate.  Many experts predict there will be a Senate version by August 1, or not at all.

Changes from Earlier Version of the AHCA

Changes from the March 22nd to May 4th (final) version of the House AHCA include the following:

  • States can request waivers of ACA essential health benefits, prohibition on medical underwriting and rating factors,
  • Additional $15 billion in funding that states can use for maternity care and mental health services,
  • Additional $15 billion in funding for the Federal Invisible Risk Sharing Program,
  • Additional $8 billion in funding that states can use to offset premiums for people with preexisting conditions who have a gap in coverage of more than 63 days (in states that get a waiver from the prohibition on medical underwriting).
  • Delay (to 2023) in repeal of the 0.9% increase in payroll tax (FICA) on high-income earners.