CBO Releases Analysis of AHCA, Estimates Bill Would Cut Medicaid Spending by $880B

March 14, 2017
If enacted, the American Health Care Act (AHCA), House Republicans’ proposed law to repeal and replace portions of the Affordable Care Act (ACA), would reduce federal deficits by $337 billion over the coming decade and increase the number of people who are uninsured by 24 million in 2026 relative to current law, according a new estimate by the Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT).

If enacted, the American Health Care Act (AHCA) would reduce federal deficits by $337 billion over the next 10 years and increase the number of people who are uninsured by 24 million in 2026, relative to current law, according to a cost estimate by the Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT).

CBO and JCT estimate that, in 2018, 14 million more people would be uninsured under the legislation than under current law.

The AHCA is healthcare legislation introduced by Republican leaders of the House of Representatives on March 6, to replace elements of the health insurance provisions of the Affordable Care Act (ACA), passed by Congress and signed into law in March2010 by President Barack Obama. President Donald Trump backs the GOP’s healthcare bill.

The nonpartisan CBO’s score of the AHCA indicates that the largest savings from enacting the AHCA would come from reductions in outlays for Medicaid and from the elimination of the Affordable Care Act’s (ACA’s) subsidies for non-group health insurance. The bill would cut Medicaid spending by $880 billion between 2017 and 2026, according to the CBO analysis. The full CBO cost estimate analysis can be found here.

To estimate the budgetary effects, CBO and JCT projected how the legislation would change the number of people who obtain federally subsidized health insurance through Medicaid, the non-group market, and the employment-based market, as well as many other factors.

Regarding its estimate that 14 million more people would lose coverage in 2018 under the legislation, CBO and JCT wrote, "Most of that increase would stem from repealing the penalties associated with the individual mandate. Some of those people would choose not to have insurance because they chose to be covered by insurance under current law only to avoid paying the penalties, and some people would forgo insurance in response to higher premiums,” the CBO wrote.

Further, following additional changes to subsidies for insurance purchased in the non-group market and to the Medicaid program, the increase in the number of uninsured people relative to the number under current law would rise to 21 million in 2020 and then to 24 million in 2026.

“The reductions in insurance coverage between 2018 and 2026 would stem in large part from changes in Medicaid enrollment—because some states would discontinue their expansion of eligibility, some states that would have expanded eligibility in the future would choose not to do so, and per-enrollee spending in the program would be capped. In 2026, an estimated 52 million people would be uninsured, compared with 28 million who would lack insurance that year under current law,” the CBO wrote in its cost estimate.

CBO and JCT estimate that enacting the legislation would reduce federal deficits by $337 billion over the 2017-2026 period. That total consists of $323 billion in on-budget savings and $13 billion in off-budget savings. Outlays would be reduced by $1.2 trillion over the period, and revenues would be reduced by $0.9 trillion.

U.S. Department of Health and Human Services Secretary Tom Price, M.D., had some strong words about the CBO's report on the AHCA. Price, a former Republican Congressman from Georgia, was tapped by President Donald Trump to serve as HHS Secretary. In his statement, Price said, "The CBO report’s coverage numbers defy logic. They project that zeroing out the individual mandate – allowing Americans to choose whether to have insurance – will result in 14 million Americans opting out of coverage in one year. For there to be the reductions in coverage they project in just the first year, they assume five million Americans on Medicaid will drop off of health insurance for which they pay very little, and another nine million will stop participating in the individual and employer markets. These types of assumptions do not translate to the real world, and they do not accurately estimate the effects of this bill.

Further, Price said in his statement, "The CBO report also does not incorporate two-thirds of the healthcare reform plan President Trump has called for – specifically the regulatory relief HHS can provide and the additional legislative reforms Congress is and will be pursuing. Our three-pronged approach will free patients to purchase coverage that works best for them at a price they can afford. Doctors and patients understand that, especially under current law, having coverage is not the same thing as having access to the care one wants or needs. Our approach will provide Americans with relief from the collapsing healthcare law, which never delivered on the benefits projected by the Congressional Budget Office in the first place.”

The American College of Preventive Medicine (ACPM) released a statement opposing the AHCA, based on the CBO analysis. “Given that the legislation will reduce insurance coverage and eliminate support for key prevention and public health programs, ACPM cannot support it.”

“For any new legislation to build upon the progress made under the ACA, it must retain health insurance for those currently insured, continue the Medicaid expansion initiative to ensure a viable healthcare safety net, and ensure patient protections in the insurance marketplace, including prohibitions on benefit caps, on discrimination against persons with pre-existing conditions, premium assistance, and reductions in out-of-pocket payments. The bill shifts premium assistance away from low-income households and will increase out-of-pocket payments with the elimination of subsidies in favor of tax credits,” the ACPM stated.

The CBO's analysis also estimates that the one-year funding ban on Planned Parenthood would have an impact on federal spending for Medicaid because the legislation would reduce access to care, specifically reproductive health, and would lead to more births in the Medicaid program. CBO projects that the one-year funding ban on Planned Parenthood would reduce direct spending by $178 million in 2017 and by $234 million over the 2017-2016 period. However, those savings would be partially offset by increased spending for other Medicaid services, namely, an increase in the number of births in the Medicaid program by several thousand, increasing direct spending for Medicaid by $21 million in 2017 and by $77 million in the next ten-year period. CBO estimates the Planned Parenthood funding cuts would result in reductions in access to care and affect services that help women avert pregnancies. "The people would likey to experience reduced access to care would probably reside in areas without other health care clinics or medicla practitioners who serve low-income popualtions," the CBO wrote, and projects that about 15 percent of those people would lose access to care.

"The government would incur some costs for Medicaid beneficiaries currently served by affected entities because the costs of about 45 percent of all births are paid for by the Medicaid program. CBO estimates that the additional births stemming from the reduced access under the legislation would add to federal spending for Medicaid. In addition, some of those children would themselves qualify for Medicaid and possibly for other federal programs," the CBO stated in its report.

Regarding the stability of the insurance market, the CBO analysis projects that there is the potential for instability in the market for insurance purchased individually (that is, non-group coverage) if, for example, “the people who wanted to buy coverage at any offered price would have average health care expenditures so high that offering the insurance would be unprofitable. In CBO and JCT’s assessment, however, the non-group market would probably be stable in most areas under either current law or the legislation,” according to the CBO cost estimate report.

Further, the CBO cost estimate report stated that, under the legislation, in the agencies’ view, “key factors bringing about market stability include subsidies to purchase insurance, which would maintain sufficient demand for insurance by people with low health care expenditures, and grants to states from the Patient and State Stability Fund, which would reduce the costs to insurers of people with high health care expenditures. Even though the new tax credits would be structured differently from the current subsidies and would generally be less generous for those receiving subsidies under current law, the other changes would, in the agencies’ view, lower average premiums enough to attract a sufficient number of relatively healthy people to stabilize the market.”

Regarding insurance premiums, the CBO assessment stated that the legislation would tend to increase average premiums in the non-group market prior to 2020 and lower average premiums thereafter, relative to projections under current law. “In 2018 and 2019, according to CBO and JCT’s estimates, average premiums for single policyholders in the non-group market would be 15 percent to 20 percent higher than under current law, mainly because the individual mandate penalties would be eliminated, inducing fewer comparatively healthy people to sign up,” the CBO report stated.

According to the CBO assessment, starting in 2020, the increase in average premiums from repealing the individual mandate penalties would be more than offset by the combination of several factors that would decrease those premiums. The CBO assessment outlines those factors as: “grants to states from the Patient and State Stability Fund (which CBO and JCT expect to largely be used by states to limit the costs to insurers of enrollees with very high claims); the elimination of the requirement for insurers to offer plans covering certain percentages of the cost of covered benefits; and a younger mix of enrollees.” Further, CBO stated, “By 2026, average premiums for single policyholders in the non-group market under the legislation would be roughly 10 percent lower than under current law, CBO and JCT estimate.”

CBO and JCT estimate that changes in premiums relative to those under current law would differ significantly for people of different ages because of a change in age-rating rules. “Under the legislation, insurers would be allowed to generally charge five times more for older enrollees than younger ones rather than three times more as under current law, substantially reducing premiums for young adults and substantially raising premiums for older people,” the CBO estimate stated.

The CBO also noted that there is some uncertainty surrounding the estimates. “The ways in which federal agencies, states, insurers, employers, individuals, doctors, hospitals, and other affected parties would respond to the changes made by the legislation are all difficult to predict, so the estimates in this report are uncertain. But CBO and JCT have endeavored to develop estimates that are in the middle of the distribution of potential outcomes,” CBO stated.

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