The nonpartisan Congressional Budget Office released its highly anticipated scoring of the American Health Care Act this week, and many commentators have observed that several of the CBO's findings will make the legislation a tougher sell for Republicans.

In particular, the CBO found the AHCA would result in a dramatic and near immediate increase in the number of Americans who will be uninsured.

House Republicans released the AHCA on Monday, March 6. In general, the legislation would, among other things, repeal the Affordable Care Act, also known as Obamacare, as well as enact an age-based health care coverage tax credit and make significant Medicaid reforms. It was swiftly scheduled for markup by the House Ways and Means Committee and the House Energy and Commerce Committee on March 8. It was approved by both committees on party-line votes after extensive debate. The House Budget Committee approved the legislation after receiving the CBO score on March 16.

House Speaker Paul Ryan holding up a copy of the American Health Care Act, with House Majority Leader Kevin McCarthy
House Speaker Paul Ryan holding up a copy of the American Health Care Act, with House Majority Leader Kevin McCarthy Zach Gibson/Bloomberg

In addition to challenging the legislation on its merits, Democrats opposed its consideration without the CBO's estimates of its effects on the federal budget and overall health insurance coverage levels, among other things.

The CBO, along with the Joint Committee on Taxation, issued its report on Mar. 13, 2017. The report was issued pursuant to the Concurrent Resolution on the Budget for Fiscal Year 2017, which directed the House Committee on Ways and Means and the Committee on Energy and Commerce to develop legislation to reduce the deficit. The resolution included reconciliation instructions, which effectively paved the way for the repeal of the ACA by a fast-track process that requires only a simple majority vote in both chambers of Congress. The CBO's report projects that the AHCA would reduce the deficit and thus comports with the resolution.

Observation: Bills that increase the federal deficit in the long term are generally ineligible for reconciliation (i.e., the fast-track or majority vote process described above).

For scoring purposes, the CBO assumed a May 2017 enactment of the AHCA and measured against its March 2016 baseline with adjustments for subsequently enacted legislation—essentially, against the CBO's projections under current law (including the ACA). The CBO cautioned that there is uncertainty surrounding its estimates in light of the difficulty in predicting the ways that agencies, states, individuals, hospitals and other affected parties would respond to the legislation.

Effect on federal budget: The CBO estimated that enacting the AHCA would reduce federal deficits by $337 billion over the 2017-2026 period. Government spending would be reduced by $1.2 trillion over the period, which would be partially offset by an $883 billion reduction in revenues.

The largest savings would come from reductions in outlays for Medicaid and from the elimination of the ACA's subsidies for nongroup health insurance—namely, cost-sharing subsidies and premium tax credits. The largest costs would come from repealing many of the ACA-related tax increases and from the establishment of a new tax credit for health insurance.

Specifically, the budgetary effects relating to health insurance coverage would stem primarily from the AHCA's:

• Elimination of the individual mandate and the employer mandate;

• Elimination, beginning in 2020, of the ACA's Medicaid expansion;

• Changing the government's Medicaid funding obligations to be a per capita-cap (i.e., a limit on the amount of reimbursement provided to states based on an average per-enrollee cost);

• Creation of a new health insurance coverage credit for insurance purchased through the nongroup market beginning in 2020;

• Appropriation of funding for grants to states through the Patient and State Stability Fund (i.e., beginning in 2018 and ending after 2026, allotments to states from the federal government that the states could use for a variety of purposes such as reducing premiums);

• Repeal of existing subsidies for coverage obtained through the nongroup market (i.e., the ACA's cost-sharing subsidies and premium tax credits);

• Changes to several of the ACA's market reforms, including allowing insurers to charge older people five times more for premiums than younger people beginning in 2018, and removing the requirement that certain insurers offer plans that cover at least 60 percent of the cost of covered benefits beginning in 2020; and

• Enactment of a "continuous coverage" provision under which insurers would be required to apply a 30 percent surcharge on premiums for people with coverage gaps exceeding 63 days within the past year.

The budgetary effects that don't relate to insurance coverage would stem primarily from the AHCA:

• Repealing the 3.8 percent net investment income tax;

• Repealing the 0.9 percent Medicare surtax;

• Repealing the annual health insurance provider fee; and

• Delaying the effective date of the "Cadillac" tax on certain high-cost plans.

The report noted that many of the changes described above would affect coverage and costs in complex ways. For instance, while repealing the individual and employer mandate would reduce federal revenues, in that individuals and employers wouldn't have to pay penalties, it would also substantially reduce the number of people with health insurance coverage, which in turn would reduce government costs in subsidizing their coverage. The CBO projects that the estimated savings from lower enrollment would exceed the estimated loss of revenues.

With respect to Medicaid changes, the CBO estimated that direct Medicaid spending would decrease by $880 billion over the 2017-2026 period, stemming primarily from lower enrollment and from converting the federal government's funding obligations for Medicaid to a per capita-based cap.

Effects on health insurance coverage: The CBO estimated that, by 2018, 14 million more people would be uninsured under the AHCA than under current law. Most of that increase would stem from repealing the penalties associated with the individual mandate under Code Sec. 5000A. That repeal would cause some people to choose not to have insurance because they chose to be covered under current law only to avoid paying the penalties, and some people would forgo insurance in response to higher premiums. Additionally, as the AHCA would change employers' incentives to offer health insurance, the CBO projects that over time, fewer employers would do so.

The CBO further predicted that, following additional changes (i.e., going into effect after 2018) to subsidies for insurance purchased in the nongroup 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.

One provision that would affect coverage levels is the continuous coverage provision. In general, the CBO projected that a 30 percent increase to the future price of insurance would induce roughly 1 million people to purchase insurance in 2018, but that in 2019 and later years, it would result in 2 million fewer people purchasing insurance. The people deterred from purchasing coverage would, CBO estimated, tend to be healthier than those who choose to purchase it.

The CBO also examined the potential effect of the AHCA health coverage tax credit on consumer behavior and its application to people at different income levels compared to the ACA subsidies. The main distinction is the current subsidies are based on income, whereas the AHCA credit would be based primarily on age (but would phase out at $75,000 of adjusted gross income for a single taxpayer and $150,000 for joint filers). Overall, the CBO projected that many lower-income people would receive smaller credits under the AHCA, compared to under current law, and higher-income individuals—particularly, with incomes above 400 percent of the federal poverty line but below the phase-out levels—would receive larger credits. Additionally, while credits under the AHCA would be larger for older taxpayers (up to twice the amount of the credit for younger taxpayers), the provision allowing insurers to charge older enrollees up to five times more would likely result in reduced enrollment in the nongroup market. CBO also noted that subsidies under current law tend to grow with insurance premiums, whereas subsidies under the AHCA would grow with inflation, the effect of which CBO projected would be a 50 percent reduction in the average subsidy by 2026.

Stability of the health insurance market: Decisions about offering and purchasing health insurance depend on the stability of the health insurance market. In the CBO's assessment, the nongroup market would probably be stable in most areas under either current law or the AHCA. Specifically, under the ACA, the subsidies to purchase coverage combined with the penalties paid by uninsured people stemming from the individual mandate generally create sufficient demand for insurance by people with low health care expenditures for the market to be stable.

On the other hand, under the AHCA, the CBO noted that key factors bringing about market stability would 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. The CBO projected that, even though the AHCA's health coverage tax credit would be generally less generous for those receiving subsidies as compared to the ACA, the other changes would lower average premiums enough to attract a sufficient number of relatively healthy people to stabilize the market. The CBO did project, however, that the first three years following the AHCA's enactment would see lower nongroup enrollment and worse overall health status of enrollees.

Effect on premiums: CBO projected that the AHCA would tend to increase average premiums in the nongroup market prior to 2020 and lower average premiums thereafter. In 2018 and 2019, according to the CBO's estimates, average premiums for single policyholders in the nongroup market would be 15 to 20 percent higher than under current law. This is because the individual mandate penalties would be eliminated so fewer healthy people would sign up.

However, 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, and by 2026, the CBO projected that average premiums for single policyholders in the nongroup market would be roughly 10 percent lower under the AHCA as opposed to under current law. However, the premium changes would also differ significantly for people of different ages because the AHCA would allow insurers to charge five times more for older enrollees than younger ones, so this reduction would mostly fall to younger people.

Political response: According to Reuters, the CBO's report is considered to make the AHCA "a harder sell for lawmakers". Some health policy experts and Wall Street analysts said the report was "more draconian than expected."

House Minority Leader Nancy Pelosi, D-Calif., cited the CBO's figures estimating 24 million more Americans would be uninsured by 2026 as “a remarkable figure that underscores the need for GOP leaders to scrap their bill.” Senate Minority Leader Chuck Schumer, D-N.Y., said the CBO estimates show the AHCA means “higher costs for less coverage,” and Republicans would need to “heed this warning and turn back on their plan that would be a disaster for the country.” Sen. Susan Collins, R-Maine, said the CBO report was “cause for alarm” and “should prompt the House to slow down and reconsider certain provisions of the bill.”

However, House Speaker Paul Ryan, R-Wis., issued a statement saying the report confirms that the AHCA “will lower premiums and improve access to quality, affordable care. CBO also finds that this legislation will provide massive tax relief, dramatically reduce the deficit, and make the most fundamental entitlement reform in more than a generation.” Referring to the lower coverage levels, he said that “[i]f we stop forcing people to buy something they don’t want to buy, they’re not going to buy it.”

Other AHCA advocates downplayed the importance of the CBO’s predictions, even before the report was issued. White House spokesman Sean Spicer said, “If you’re looking at the CBO for accuracy, you’re looking in the wrong place.” After the report was released, Health and Human Services Secretary Tom Price said it was “just not believable.” Others called the bill “a work in progress.”

Spicer also indicated the bill was a work in progress and that the White House intended to submit a “manager’s amendment” to it. He stated the White House was obviously in talks with House leadership about “the bill’s contents.” This sentiment was echoed by Speaker Ryan, who said he was open to changes and acknowledged that “of course” certain modifications may have to be made to the legislation.

Catherine Murray

Catherine Murray

Catherine Murray, J.D., LL.M. is a senior tax analyst with Thomson Reuters Checkpoint within the Thomson Reuters Tax & Accounting business.