Analyzing the CBO Score: Will 23 Million Really Lose Coverage Under the AHCA?

It’s well-known and generally accepted that the non-partisan Congressional Budget Office is, in fact, non-partisan. The CBO, as you probably know, is the government agency charged with “scoring” proposed legislation to determine its intended and unintended impact. But just because people on both sides of the aisle agree that the CBO’s analyses aren’t politically motivated doesn’t mean that they necessarily agree with their findings.

Take the American Health Care Act, which was passed by the Republican-led House of Representatives on May 4, 2017, without an up-to-date CBO score. The Congressional Budget Office had reviewed a previous version of the bill but had not yet issued its findings about the revised version before the vote, causing opponents to point out that Republicans had passed the bill without even knowing how much it will cost or how many people will lose insurance as a result.

Of course, we eventually received the CBO’s score on the AHCA, and it was actually a little better than the previous score—but it still wasn’t great. According to the CBO:

• “Enacting the legislation would reduce federal deficits by $337 billion” over the next ten years.
• “In 2018, 14 million more people would be uninsured under the legislation than under current law,” primarily because the individual mandate penalties would be eliminated. “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.”
• “Later, following additional changes 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 legislation would tend to increase average premiums in the nongroup market prior to 2020 and lower average premiums thereafter, relative to projections under current law.” In 2018 and 2019, average premiums in the individual “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.”
• 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.”

Though they are not accusing the CBO of siding with opponents, not surprisingly, supporters of the AHCA, which would repeal major portions of the Affordable Care Act and replace them with other provisions which are at least as controversial and unpopular, do not agree with the CBO’s findings.

These Are Just Estimates

The Congressional Budget Office actually agrees that its numbers could be off. In its official report, the CBO says:

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.

What the CBO is saying is that, no matter what’s in the legislation, how the law is applied and how the various stakeholders react to the law will ultimately determine its true effect on the cost of health coverage, the uninsured rate, and the federal budget. Let’s take a quick look at the list of stakeholders the CBO mentions:

Federal Agencies: The Affordable Care Act says “the secretary shall” more than a thousand times. Federal regulators are given tremendous power implementing big pieces of legislation, and those regulators change from time to time and make different decisions along the way. The Secretary of Health and Human Services when the ACA was passed was Kathleen Sebelius, and later Silvia Mathews Burwell took over. Now Tom Price is in charge. Clearly, he will make different decisions than his predecessors. Regulators are given the power to write and enforce the rules, and it’s impossible to know exactly what decisions they’ll make related to the AHCA.

States: In the same way that states had the choice of setting up their own exchange or using Healthcare.gov and had the choice about whether or not to expand Medicaid, states will have more power under the American Health Care Act. For instance, the legislation would allow states to apply for waivers to eliminate some of the Essential Health Benefits or rate in certain circumstances based on pre-existing conditions. Whether they’ll apply for those waivers or not remains to be seen.

Insurers: Ultimately, the options available and the price of those options will depend a lot on whether insurance carriers continue to offer individual coverage or not. Many pulled out of the ACA marketplaces because adverse selection led to millions of dollars in losses. Whether they’ll participate if the AHCA becomes law will depend on whether they believe the continuous coverage incentive will be enough to convince healthy people to enroll.

Employers: The Affordable Care Act requires large employers to offer health coverage or pay a penalty, but the American Health Care Act would eliminate that penalty. Whether employers will continue to offer coverage will depend in part on whether their employees see group health coverage as a valuable employee benefit or not, and that will depend in part on the strength of the individual market and the other options available to them and their families.

Individuals: The American Health Care Act would also reduce the individual mandate penalties to zero, and that could cause healthy individuals to drop their coverage. The question is whether the 30% penalty that would apply if someone does not maintain continuous coverage and later decides to buy health insurance will work as well as (or better than) the individual mandate. The CBO does not believe it will, but top Republicans disagree.

It’s Anybody’s Guess

The truth is that the Congressional Budget Office’s analysis is important. It gives lawmakers an idea about the legislation they’re voting on and the possible repercussions, both positive and negative, if a bill becomes law. It’s also important because a reconciliation bill like the American Health Care Act, which only requires a majority vote in the Senate, must reduce the federal deficit. At the same time, it’s also true that the CBO, as smart as its mathematicians and statisticians are, is ultimately making an educated guess about what will happen, so lawmakers who question the analysis do in fact have a point.

What we do know is this:

• If the AHCA becomes law, millions of people will lose their Medicaid coverage. While they may not have much money to replace those policies, some will be interested in options that will provide their families with some protection.
• Millions of others could lose the premium tax credits and cost sharing subsidies that help them pay for their coverage and reduce their out-of-pocket exposure. While the advance premium tax credits will be replaced with a different type of tax credit, some people will definitely pay more and will be looking for alternatives. Others, especially those who did not previously qualify for an advance tax credit, might pay less under the new system, and they’ll need somebody to sell them health coverage.
• If states choose to apply for waivers and allow carriers to rate on pre-existing conditions, that too will create winners and losers, and anyone whose situation changes will be looking for new solutions.

In short, the Congressional Budget Office is correct that the AHCA, if passed, will have a huge impact. The degree of impact is up for debate, but the fact that millions of people will have either more or fewer options and will see their premiums increase or decrease means that agents will have plenty of opportunity going forward. Times of change and uncertainty can be times of opportunity for those who are prepared. AHCP has the solutions many of your clients will need going forward, so why not take a minute today to review our product offerings and see if you need to add anything to your portfolio?