Late in the day on May 24, 2017, the Congressional Budget Office and Joint Committee on Taxation (collectively referred to here as the CBO) released their third and final cost estimate regarding H.R. 1628, the House American Health Care Act of 2017. The cost estimate focuses primarily on changes that occurred after the CBO scored the original bill on March 13, 2017, and the manager's amendment on March 24. The CBO report is on the whole not good news for supporters of the House version of the AHCA.
The primary changes addressed by the new score are those added by the McArthur Amendment, which would allow states to obtain waivers 1) from the Affordable Care Act's essential health benefits (EHB) requirement and 2) to impose health status underwriting on individuals who have a lapse in coverage. It also covers amendments added in late March and early April that delayed the repeal of the Medicare surcharge for higher income taxpayers and added $15 billion in funding for maternity, mental health, and substance use disorder services; $15 billion for "invisible risk sharing"; and $8 billion in patient stability funding for states that accepted the McArthur amendment waivers to assist those who lose community rating protection.
Headline Numbers
The headlines are that the AHCA would, for the period of 2017 to 2026, reduce direct spending by $1.111 trillion and revenues by $0.992 trillion, for a net deficit reduction of $119 billion, $32 billion less than projected by the second CBO report on the bill. The CBO projects that 23 million people would lose coverage under the AHCA as passed compared to the number covered by the ACA, 1 million fewer than the CBO projected would lose coverage under its last estimate. The CBO believes that premiums would be somewhat lower on average in the individual market under the most recent amendments than under the earlier versions of the bill, but that health insurance would be unaffordable for individuals with health problems in some states. Indeed, the CBO projects that individual insurance markets could destabilize in one sixth of the country under the new amendments.
The largest savings in the AHCA would come from cuts in Medicaid, including repealing the ACA's Medicaid expansion ($834 billion over ten years), and repeal of the ACA's tax credits ($665 billion). These would be offset by increases in spending for the AHCA's tax credits ($375 billion) and the Patient and State Stability Fund (PSSF) ($117 billion)—the CBO believes that the full $138 billion provided by the AHCA for the PSSF would not in fact be claimed by the states. The largest increases in the deficit would come from the repeal of the penalties under the individual and employer mandate ($210 billion) and from repeal of various taxes on wealthy people and corporations and modification of various tax preferences ($662 billion, according to the Joint Committee on Taxation).
The biggest changes in the May 24 cost estimate from the earlier estimate are due to an increase in revenue of $68 billion from the delay in the repeal of the Medicare tax surcharge on people earning more than $200,000 a year ($250,000 for joint returns) until 2023, offset by an increase in expenditures of about $100 billion, including about $38 billion more for the Patient and State Stability Fund; the remainder is attributable to "changes in the number of people estimated to have nongroup and employment-based insurance," and "difficulties in the implementation and enforcement of the tax credit."
The CBO projects that 14 million more people would be uninsured in 2018 than under the current law, primarily because of people who would drop coverage with the end of the individual and mandate penalties. The number of people who were uninsured compared to those covered under current law would increase to 19 million in 2020 and 23 million in 2026, when a total of 51 million under age 65 would be uninsured. Increases in the uninsured would be disproportionately larger for older people who would face higher premiums and lower tax credits and for lower-income Americans who would also face tax credit reductions.
The CBO, however, only counts people as insured if they have financial protection from major medical risks, covering high-cost medical events and physician and hospital services. The CBO acknowledges that a few million people may use tax credits to purchase less comprehensive coverage. Indeed, it speculates that a market might develop for skinny policies that could be purchased for the amount of the premium tax credit.
The CBO projects that Medicaid enrollment would be lower throughout the decade culminating in 14 million fewer Medicaid enrollees by 2026. Roughly 8 million fewer people would be covered through the nongroup market in 2018, with that number climbing to 10 million in 2020, but then declining to 6 million fewer nongroup market enrollees in 2026 as the new tax credits and skimpier, and less expensive, coverage became available. The CBO expects disruptions of coverage as the new tax credits are implemented, requiring the establishment of new enrollment and eligibility verification systems and systems for certifying and paying insurers.
The reduction of the additional uninsured under the revised AHCA to 23 million compared to earlier estimates of 24 million is attributable to 4 million individuals gaining employment-based coverage in waiver states as employers and employees view nongroup coverage as becoming less desirable, offset by 3 million people in the nongroup market who drop coverage in favor of employer coverage or become uninsured.
Waivers, Premiums, And Insurance Market Stability
The most interesting and lengthy provisions of the report address the stability of nongroup insurance markets and the cost of premiums under the McArthur Amendment EHB and community rating waivers. The CBO assumes that it would take time to implement the community-rating waivers and that they would not take effect until 2020. CBO assumes that about half of the population (and half of nongroup enrollees) would live in states that would not request waivers. The CBO predicts that waivers would face significant political opposition from providers and patient groups and would be rejected in many states.
The CBO projects that about a third of the population would live in states that would obtain waivers to make moderate changes in market regulations. These states might reduce EHB requirements or modify community rating in a way that would have a limited impact on premiums. About one sixth of the population would live in states that would obtain waivers involving both EHB and community rating that would, as explained below, result in a substantial portion of the nongroup market being underwritten on the basis of health status. States that had fewer benefit mandates and looser rate regulation before the ACA, and that had smaller markets, fewer insurers, and higher premiums would be more likely to obtain waivers.
Whether or not states obtained waivers and the extent of the waiver provisions would, the CBO projects, have a significant effect on the stability of the nongroup market and on nongroup market premiums. The $8 billion fund for waiver states would incentivize states to seek waivers, but it is not large enough to have a major effect on premiums.
The CBO expects that nongroup markets would remain stable in most states if the current ACA were to remain in place. Although premiums are rising, the tax credits absorb most of the increase because individuals eligible for the tax credits are only obligated to pay a set percentage of their income for coverage and the tax credits cover the rest of the premium cost. The CBO acknowledges that some areas of the country have limited participation by insurers and that several factors could lead to market instability, including "lack of profitability and substantial uncertainty about enforcement of the individual mandate and about future payments of the cost-sharing subsidies to reduce out-of-pocket payments for people who enroll in nongroup coverage through marketplaces established by the ACA."
The CBO predicts that markets would remain stable in most areas under the AHCA through 2020, although uncertainty about the law could lead to market withdrawals. Continuing availability of existing premium tax credits until 2020 and the PSSF would help make premiums affordable. The CBO believes that states would use funding under the $100 billion PSSF in the original AHCA, the $15 billion invisible risk sharing program, and the final $8 billion addition for waiver states to reduce premiums and out-of-pocket costs for those who lose community rating protection. The CBO believes, however, that states would pay the $15 billion for maternity, mental health, and substance use disorder services directly to service providers and that this would have little effect on premiums, although more on out-of-pocket costs.
After 2020, markets would remain stable in many states. The new tax credits and the PSSF would lower average premiums enough to attract a sufficient number of people to the nongroup market to bring continued stability and encourage insurers to remain in the nongroup market. Even in states that did not seek waivers, however, fewer people would be covered through the nongroup market, Medicaid, and employer coverage, and more would be uninsured.
Potential Market Instability In States With Major Waivers
The CBO believes, however, that beginning in 2020, the nongroup market could destabilize for the one sixth of population living in states that obtain waivers to reduce the EHB and to allow insurers to set premiums based on health status for persons not able to demonstrate continuous coverage. The CBO believes that under such waivers, healthy individuals would simply fail to show continuous coverage and take advantage of lower premiums based on their good health. Individuals without continuous coverage and with preexisting, or newly acquired, health problems, would, on the other hand, face health status underwriting and much higher premiums. As more and more healthy people opted for health-status-underwritten premiums, those individuals who remained in the community-rated market—even with continuous coverage—would face higher and higher premiums and ultimately, unless they could get employer coverage, be priced out of the market. The market would destabilize.
The CBO also concludes that since CO-OP and multistate plans are not subject to the waiver provisions, they would have to continue to community rate and cover EHB. They would become the target of severe adverse selection and be driven out of business in McArthur Amendment waiver states.
As in earlier cost estimates, the CBO predicts that premiums would rise under the AHCA by 20 percent for 2018 (assuming it is adopted by July 2017) and by 5 additional percentage points for 2019. After that date, the CBO assumes that the effect of the AHCA on premiums would vary depending on whether states obtained McArthur Amendment waivers or not. In states covering half the population that did not obtain waivers, premiums would fall by about 4 percent by 2026 compared to current law, reflecting the younger and healthier population who would be purchasing insurance. Older and less healthy people would increasingly become uninsured given the 5 to 1 age underwriting ratio allowed by the AHCA and its less generous tax credits.
In the states covering one third of the population with moderate changes in market regulation under McArthur Amendment waivers, premiums would be from 10 to 30 percent lower (average 20 percent) by 2026 because they would cover fewer benefits. In states covering one sixth of the population that obtained waivers involving both EHB and community rating requirements, allowing the market to become substantially health-status underwritten, premiums would be reduced much more for young and healthy people, but would sharply increase, ultimately becoming unaffordable, for people with preexisting conditions.
Lower premiums in waiver states would be accompanied by reduced coverage and substantially higher out-of-pocket costs. The CBO acknowledges that states with EHB waivers could eliminate whole categories of EHB or simply allow insurers to choose their own EHB and approve coverage on a case-by-case basis. Services most likely to be dropped would be those less likely to be covered before the ACA—maternity care, mental health and substance use disorder services, rehabilitative and habilitative services, and pediatric dental. Individuals needing these services would face sharply higher out-of-pocket expenditures.
If a state allowed insurers to cover fewer services, all insurers would probably be compelled by competitive pressure and by adverse selection against the most generous plans to limit their benefits to those that were required. Alternatively, plans could sell riders for non-covered services, but as the riders would likely only be purchased by persons needing the service, they would probably cost about the same as would simple out-of-pocket payment for the service. The CBO projects that a maternity coverage rider in a state where maternity services were not covered could cost over $1,000 a month.
The ACA's annual and lifetime limit bans and cap on out-of-pocket expenditures that apply to all health plans, including large group and self-insured employer plans, apply only to EHB. Thus, if states reduce the scope of EHB they could diminish the protection of these requirements. Under current regulations, however, large and self-insured employer plans would still have to apply annual and lifetime limit bans and out-of-pocket caps to all ten categories of EHB.
The CBO report also includes a table showing the average cost of nongroup insurance coverage for 2026 for three age categories (21, 40, and 64) and for two income categories (175 percent and 450 percent of the federal poverty level (FPL)) under current law, in states not requesting waivers for market regulation, and states obtaining waivers for moderate changes to market regulation. The net premium paid for coverage after applying premium tax credits would drop for 21 year olds at 175 percent of FPL in states applying moderate changes in market regulation, and for all 21 and 40 year olds at 450 percent of poverty in states with no or with moderate waivers. In all other categories of 175 percent of FLP enrollees, and for 64 year olds in all categories, net premiums paid after application of premium tax credits would increase under the AHCA. For 64 year olds at 175 percent of FPL, net premiums paid after the application of premium tax credits would increase from $1,700 under the ACA to $16,100 in states not requesting waivers and $13,600 in states with moderate waivers.
The CBO acknowledges that substantial uncertainty surrounds its estimates, and that this estimate faces even greater uncertainty than earlier estimates because of the additional problem of projecting whether states will seek waivers or not. It concludes, however, that the directions of effects, such as the reduction in revenue and expenditures and the increase in the uninsured, are clear despite the uncertainty. Finally, the CBO notes that it has not had the time needed to project the macroeconomic effects of the legislation.
The Senate
The next move is now up to the Senate. There had been some expectation that the CBO report might show that the AHCA violated the requirements of the reconciliation resolution by failing to reduce the deficit by $2 billion over 10 years, with $1 billion each attributable to reductions under the jurisdiction of the Senate Finance and HELP committees. The CBO report clearly shows reductions of more than $2 billion, but does not allocate reductions based on Senate committee jurisdiction. The Senate Parliamentarian will have to make a determination on this, as well as to many other issues, as legislation proceeds in the Senate.
from Health Affairs BlogHealth Affairs Blog http://ift.tt/2rBWL7U
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