"I set out on this ground which I suppose to be self evident, 'that the earth belongs in usufruct to the living'; that the dead have neither powers nor rights over it." --President Jefferson, 1789
"Is it really so easy to determine that smacking someone in the face to determine where he has hidden the bomb that is about to blow up Los Angeles is prohibited in the Constitution?…It would be absurd to say you couldn’t do that. And once you acknowledge that, we’re into a different game." --Justice Antonin Scalia, 2008
BLUF (bottom-line, up-front): This essay is an addendum to the previous writing on the A.H.C.A. and draws also from an opinion written in 2012 when 20+ state A.G.s lost their case against the A.C.A.'s individual mandate penalty and the Medicaid expansion before the Supreme Court. A case for the A.C.A. being fixed also informs this essay.
The Congressional Budget Office (C.B.O.) has released its evaluation of the American Health Care Act (A.H.C.A.) and the numbers do not look pretty. The text portion of that report, hi-lited for your convenience follows below these introductory remarks. While the C.B.O. has good news with respect to budgetary concerns, considerations other than the beneficial budgetary impact appear to be grim:
- some twenty-four (24) million more uninsured under the A.H.C.A. over the next decade with the first 60% coming next year;
- a total of fifty-two (52) million uninsured in 2026, almost twice the level of that projected under the Affordable Care Act (A.C.A.);
- some twenty-one (21) million more ‘older’ Americans (i.e., age-range of 50-64, before Medicare) uninsured under the A.H.C.A. than under the A.C.A.
- a crippling multiple of five (5x) of premiums for older people versus younger people;
- reduced subsidies cutting financial support of the poor by as much as 75%, averaging 50% of those enjoyed under the A.C.A.;
- nine-to-fourteen (9-14) million people falling off Medicaid and twenty-seven (27) million fewer insured under individual plans; as well as,
- an initial shock in 2020, from twenty-eight (28) million uninsured now to forty-eight (48) million in three years due to the end of Medicaid expansion, with gradual increase to fifty-two (52) million uninsured.
The A.H.C.A. will trim $336 billion from future deficits. Nevertheless, the C.B.O. numbers gloomy as they sound, may obscure other factors not quite so negative.
- President Trump’s Press Secretary explained in detail why the anti-ObamaCare partisans view the A.C.A. as a failure.
- Half or more of the newly uninsured will be younger people opting out of health insurance.
- The lower bound price for younger insureds would be reduced by 20-25% from current levels, while the upper-bound price for older people would increase by 20-25%; the increase in multiple from 3x to 5x sounds more dire.
- Again, as Mr Spicer argues, the C.B.O.’s non-budgetary estimates – like those of any other well-informed and statistically adroit forecaster – tend to be wrong over time.
While the numbers in the report are hard for me to follow, my sense is that what we are seeing is a clash of two polarizing political variables: class interests and comparative interpretations of the Constitution of the United States of America. The previous Letter #138 describes how the A.H.C.A. is really a plan to relieve economic pressures threatening to overwhelm the middle-class in the United States as opposed to the A.C.A. seeking to cover the poor.
On the constitutional side, also discussed in the underlying essay of last week, there are basically two strains of thought: one viewing health-care as a (human) right accorded to all Americans and the other viewing it as a highly desirable necessity but not a right. On the side of health-care being a right, such a sentiment was initially expressed by President Roosevelt over seventy-five years ago.
It is safe to say that this view has been shared by most Democrats and most liberal Republicans since then. Now, Justice Scalia’s broccoli analogy in the Supreme Court case on the A.C.A. of five years ago no longer seems quite as silly as it did then. Paul Krugman was right in stating the analogy did not quite fit the economics of pooled risk; of course, he failed to recognize the assumptions underlying the two opposing arguments.
Adjusting the analogy, I prefer to think of health-care as a refrigerator. There is little doubt that refrigerated foods have been better preserved, preventing millions of cases of ptomaine poisoning or worse. So, having a refrigerator is critical to good health. Nevertheless, no one would argue that having a refrigerator should be deemed a human right. Another dimension of the rights argument remains how such a right comports with the Constitution. There are four basic schools of thought on constitutional interpretation:
- flexibility implicitly imposed by the obsolescence of much of the original text and intent of the Constitution, as per President Roosevelt (very liberal);
- limited discretion afforded by the ‘General Welfare’ clause, as per President Jefferson’s aphorism (liberal);
- originalist (intent) by looking to the Constitution's wording to permit a few new contemporary rights reasonably inferred under the ninth and tenth amendments as per Judge Gorsuch (conservative); as well as,
- strict constructionism by taking the cue from the literal wording of the Constitution as articulated most (in)famously by Justice Taney (very conservative).
The crux of the stand-off between the A.H.C.A. and the A.C.A. remains the coincidence of the Republican middle class voting base with conservative jurisprudence arrayed against a symmetrically opposed coincidence of the Democratic urban voting base and a progressive interpretation of what rights can be inferred.
My position veers more toward the Republican view. First, the middle class needs to be supported for the country to get back on track. Additionally, my tendency is toward the originalist view. There are inferred rights. My criterion is subjective: ¿If the Constitution were written today, would the framers, well-versed in modern thinking, view health-care to be a right duly protected under the social contract?
No, they would not, I believe. At least not a human right but a limited one.
That does not mean the poor should be left without health-care. Indeed, the A.H.C.A. makes some effort to provide for this by Federal reinsurance to states under Patient and State Stability Funds. One problem I have with the premise of the A.C.A. is that Medicaid is expanded at the expense of much of the middle class.
As we have seen with food stamps, people receiving Medicaid will likely be getting better health-care than lower-waged working citizens. Additionally, a more persistent gap that is emerging is what level of health-care is embodied in such a right. The expectations of transplants, extraordinary measures, etc. may be foiled by the resources available under a national health-care system.
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https://www.cbo.gov/sites/default/files/115th-congress-2017-2018/costestimate/americanhealthcareact_0.pdf
CONGRESSIONAL
BUDGET OFFICE
COST ESTIMATE
March 13, 2017
American
Health Care Act
Budget Reconciliation Recommendations of the House Committees on
Ways and Means
and Energy and Commerce, March 9, 2017
SUMMARY
The Concurrent Resolution on the Budget for Fiscal Year
2017 directed the House
Committees on Ways and Means and Energy and Commerce to
develop legislation to
reduce the deficit. The Congressional Budget Office and the
staff of the Joint Committee
on Taxation (JCT) have produced an estimate of the budgetary
effects of the American
Health Care Act, which combines the pieces of legislation
approved by the two committees
pursuant to that resolution. In consultation with the
budget committees, CBO used its
March 2016 baseline with adjustments for subsequently
enacted legislation, which
underlies the resolution, as the benchmark to measure the
cost of the legislation.
Effects on the Federal Budget 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.
The largest savings
would come from reductions in outlays for Medicaid and from the
elimination of the
Affordable Care Act’s (ACA’s) subsidies for nongroup health insurance.
The largest
costs would come from repealing many of the changes the ACA made to the
Internal Revenue Code—including an increase in the Hospital Insurance payroll
tax rate
for high-income
taxpayers, a surtax on those taxpayers’ net investment income, and
annual
fees imposed on health insurers—and from the establishment
of a new tax credit for health
insurance.
Pay-as-you-go procedures apply because enacting the
legislation would affect direct
spending and revenues. CBO and JCT estimate that enacting
the legislation would not
increase net direct spending or on-budget deficits by more
than $5 billion in any of the four
consecutive 10-year periods beginning in 2027.
Effects
on Health Insurance Coverage
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
nongroup market, and the employment-based market, as well as
many other
factors.
CBO and JCT estimate that, in 2018, 14 million more people would be uninsured under
the
legislation than
under current law. 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.
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
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.
Stability
of the Health Insurance Market
Decisions about
offering and purchasing health insurance depend on the stability of the
health insurance
market—that is, on having insurers participating in most areas of the
country and on the
likelihood of premiums’ not rising in an unsustainable spiral. The
market for insurance purchased individually (that is,
nongroup coverage) would be
unstable, for example, if 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
nongroup market would
probably be stable in most areas under either current law
or the legislation.
Under current law, most subsidized enrollees purchasing
health insurance coverage in the
nongroup market are largely insulated from increases in
premiums because their
out-of-pocket payments for premiums are based on a
percentage of their income; the
government pays the difference. The subsidies to purchase
coverage combined with the
penalties paid by uninsured people stemming from the
individual mandate are anticipated
to cause sufficient demand for insurance by people with low
health care expenditures for
the market to be stable.
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.
Effects
on Premiums
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, according to CBO and JCT’s estimates, average premiums for single
policyholders in the
nongroup 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: 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. By
2026, average premiums for single policyholders in the nongroup market
under the legislation would be roughly 10 percent lower
than under current law, CBO and
JCT estimate.
Although average
premiums would increase prior to 2020 and decrease starting in 2020,
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.
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.
Macroeconomic Effects
Because of the magnitude of its budgetary effects, this
legislation is “major legislation,” as
defined in the rules of the House of Representatives.1
Hence, it triggers the requirement
that the cost estimate, to the greatest extent practicable,
include the budgetary impact of its macroeconomic effects. However, because of the very short
time available to prepare this cost estimate, quantifying and incorporating those macroeconomic
effects have not been practicable.
1. Cl. 8 of Rule XIII of the Rules of the House of Representatives, H.R. Res. 5, 115th Congress (2017).
Intergovernmental and Private-Sector Mandates
JCT and CBO have reviewed the provisions of the legislation
and determined that they
would impose no intergovernmental mandates as defined in the Unfunded Mandates
Reform Act (UMRA).
JCT and CBO have
determined that the legislation would impose private-sector mandates
as defined in UMRA. On
the basis of information from JCT, CBO estimates the aggregate
cost of the mandates would exceed the annual threshold
established in UMRA for
private-sector mandates ($156 million in 2017, adjusted
annually for inflation).
MAJOR
PROVISIONS OF THE LEGISLATION
Budgetary effects related to health insurance coverage
would stem primarily from the
following provisions:
- Eliminating penalties associated with the requirements
that most people obtainhealth insurance coverage and that large employers offer
their employees coveragethat meets specified standards.
- Reducing the
federal matching rate for adults made eligible for Medicaid by theACA to equal the rate for other enrollees in the state,
beginning in 2020.
- Capping the growth in per-enrollee payments for most Medicaid beneficiaries
to no more than the medical care component of the consumer price
index starting in 2020.
- Repealing current-law subsidies for health insurance
coverage obtained through the nongroup market—which include refundable tax credits for
premium assistance and subsidies to reduce cost-sharing payments—as well as the
Basic Health Program, beginning in 2020.
- Creating
a new refundable tax credit for health insurance coverage purchased through the nongroup market beginning in 2020.
- Appropriating funding for grants to states through the
Patient and State Stability Fund beginning in 2018.
- Relaxing the current-law requirement that prevents
insurers from charging older people premiums that are more than three times larger than
the premiums charged to younger people in the nongroup and small-group markets.
Unless a state sets a different limit, the legislation would allow insurers to
charge older people five times more than younger ones, beginning in 2018.
- Removing the requirement, beginning in 2020, that insurers
who offer plans in the nongroup and small-group markets generally must offer plans
that cover at least 60 percent of the cost of covered benefits.
- Requiring
insurers to apply a 30 percent surcharge on premiums for people who enroll in insurance
in the nongroup or small-group markets if they have been uninsured for more
than 63 days within the past year.
Other parts of the legislation would repeal or delay many
of the changes the ACA made to
the Internal Revenue Code that were not directly related to
the law’s insurance coverage
provisions. Those with the largest budgetary effects
include:
- Repealing
the surtax on certain high-income taxpayers’ net investment income;
- Repealing
the increase in the Hospital Insurance payroll tax rate for certain high-income
taxpayers;
- Repealing the annual fee on health insurance providers;
and
- Delaying when the excise tax imposed on some health
insurance plans with high premiums would go into effect.
In addition, the legislation would make several changes to
other health-related programs
that would have smaller budgetary effects.
ESTIMATED
COST TO THE FEDERAL GOVERNMENT
CBO and JCT estimate that, on net, enacting the legislation
would decrease federal deficits
by $337 billion over the 2017-2026 period (see Table 1). That
change would result from a
$1.2 trillion decrease in direct spending, partially offset
by an $883 billion reduction in
revenues.
BASIS
OF ESTIMATE
For this estimate, CBO and JCT assume that the legislation
will be enacted by May 2017.
Costs and savings are measured relative to CBO’s March 2016
baseline projections, with
adjustments for legislation that was enacted after that
baseline was produced.
The largest budgetary effects would stem from provisions in
the recommendations from
both committees that would affect insurance coverage. Those
provisions, taken
together,
would reduce
projected deficits by $935 billion over the 2017-2026
period.
Other provisions would increase deficits by $599 billion, mostly by reducing tax
revenues. Deficits would be reduced by $337 billion over that
period, CBO and JCT estimate.
(See Table 2 for the estimated budgetary effects of each
major provision.)
Budgetary Effects of Health Insurance Coverage Provisions.
The $935
billion in estimated deficit reduction over the 2017-2026 period that
would stem
from the insurance coverage provisions includes the
following amounts (shown in
Table 3):
- A
reduction of $880 billion in federal outlays for Medicaid;
- Savings of $673 billion, mostly stemming from the elimination of the ACA’s subsidies for
nongroup health insurance—which include refundable tax credits for premium assistance and subsidies to reduce cost-sharing
payments—in 2020;
- Savings
of $70 billion mostly associated with shifts in the mix of taxable and nontaxable
compensation resulting from net decreases in the number of people estimated to enroll in employment-based health insurance
coverage; and
- Savings
of $6 billion from the repeal of a tax credit for certain small employers
thaprovide health insurance to their employees.
Those decreases would be partially offset by:
- A
cost of $361 billion for the new tax credit for health insurance
established by the legislation in 2020;
- A reduction
in revenues of $210 billion from eliminating the penalties paid by uninsured people and
employers;
- An increase in spending of $80 billion for the new Patient and State Stability Fund grant program; and
- A
net increase in spending of $43 billion under the Medicare program
stemming from changes in payments to hospitals that serve a
disproportionate share of low-income patients.
Methodology. The legislation would change the pricing of
nongroup insurance and the
eligibility for and the amount of subsidies to purchase
that insurance. It would also lead to
changes in Medicaid eligibility and per capita spending.
The legislation’s effects on health
insurance coverage would depend in part on how responsive
individuals are to changes in
the prices, after subsidies, they would have to pay for
nongroup insurance; on changes in
their eligibility for public coverage; and on their
underlying desire for such insurance.
Effects on coverage would also stem from how responsive
firms are to changes in those
post subsidy prices and in the attractiveness of other
aspects of nongroup alternatives to
employment-based insurance.
To capture those complex interactions, CBO uses a microsimulation model to
estimate
how rates of
coverage and sources of insurance would change as a result of alterations in
eligibility and
subsidies for—and thus the net cost of—various insurance options.
Based on
survey data, that model incorporates a wide range of
information about a representative
sample of individuals and families, including their income,
employment, health status, and
health insurance coverage. The model also incorporates information from
the research
literature about the
responsiveness of individuals and employers to price changes and the
responsiveness of
individuals to changes in eligibility for public coverage.
CBO updates the model so that it incorporates information from
the most recent administrative data on insurance. CBO and JCT use
that model—in combination
with models of tax revenues, models of Medicaid spending
and actions by states,
projections of trends in early retirees’ health insurance
coverage, and other available
information—to inform their estimates of the numbers of
people with certain types of
coverage and the associated federal budgetary costs.2
2. For additional
information, see Congressional Budget Office, “Methods for Analyzing Health
Insurance Coverage” (accessed March 13, 2017),
Effects of Repealing Mandate Penalties.
Eliminating the penalties associated with two
requirements, while keeping the requirements themselves in
place, would affect insurance
coverage in various ways. Those two requirements are that
most people obtain health
insurance coverage (also called the individual mandate) and
that large employers offer
their employees health insurance coverage that meets
specified standards (also called the
employer mandate). Eliminating their associated penalties
would reduce federal revenues
starting in 2017, but CBO and JCT estimate that doing so
would also substantially reduce
the number of people with health insurance coverage and,
accordingly, would reduce the
costs incurred by the federal government in subsidizing
some health insurance coverage.
The estimated savings stemming from fewer people enrolling
in Medicaid, in health
insurance obtained through the nongroup market, and in
employment-based health
insurance coverage would exceed the estimated loss of
revenues from eliminating mandate
penalties.
CBO and JCT estimate that repealing the individual mandate
penalties would also result in
higher health insurance premiums in the nongroup market
after 2017.3 Insurers would still
be required to provide coverage to any applicant, would not
be able to vary premiums to
reflect enrollees’ health status or to limit coverage of
preexisting medical conditions, and
would be limited in how premiums could vary by age. Those features are most
attractive to
applicants with
relatively high expected costs for health care, so CBO and JCT expect that
repealing the
individual mandate penalties would tend to reduce insurance coverage less
among older and less
healthy people than among younger and healthier people.
Thus, the
agencies estimate that repealing those penalties, taken by
itself, would increase premiums.
3. CBO and JCT expect that insurers would not be able to change their 2017 premiums because those premiums have already been set.
Nevertheless, CBO and JCT anticipate that a significant
number of relatively healthy
people would still purchase insurance in the nongroup
market because of the availability of
government subsidies.
Major Changes to Medicaid. CBO estimates that several major provisions
affecting
Medicaid would
decrease direct spending by $880 billion over the 2017-2026 period. That
reduction would stem primarily from lower enrollment
throughout the period, culminating
in 14
million fewer Medicaid enrollees by 2026, a reduction of about 17
percent relative to
the number under current law. Some of that decline would be
among people who are
currently eligible for Medicaid benefits, and some would be
among people who CBO
projects would be made eligible as a result of state
actions in the future under current law
(that is, from additional states adopting the optional
expansion of eligibility authorized by
the ACA). Some decline in spending and enrollment would
begin immediately, but most of
the changes would begin in 2020, when the legislation would
terminate the enhanced
federal matching rate for new enrollees under the ACA’s
expansion of Medicaid and would
place a per
capita-based cap on the federal government’s payments to states for medical
assistance provided through Medicaid. By 2026, Medicaid spending would
be about
25 percent less than
what CBO projects under current law.
Changes Before 2020. Under current law, the penalties
associated with the individual
mandate apply to some Medicaid-eligible adults and
children. (For example, the penalties
apply to single individuals with income above about 90
percent of the federal poverty
guidelines, also known as the federal poverty level, or
FPL). CBO estimates that, without
those penalties, fewer people would enroll in Medicaid,
including some who are not
subject to the penalties but might think they are. Some
people might be uncertain about
what circumstances trigger the penalty and others might be
uncertain about their annual
income. The estimated lower enrollment would result in less
spending for the program.
Those effects on enrollment and spending would continue
throughout the 2017-2026
period.
Termination of Enhanced Federal Matching Funds for New Enrollees
From Expanding
Eligibility for Medicaid. Under current law, states
are permitted, but not required, to
expand eligibility for Medicaid to adults under 65 whose
income is equal to or less than
138 percent of the FPL (referred to here as “newly
eligible”). The federal government pays
a larger share of the medical costs for those people than
it pays for those who were
previously eligible. Beginning in 2020, the legislation would reduce the
federal matching
rate for newly
eligible adults from 90 percent of medical costs to the rate for other
enrollees
in the state. (The
federal matching rate for other enrollees ranges from 50 percent to
75 percent,
depending on the state, with an average of about 57 percent.) The
lower federal
matching rate would apply only to those newly enrolled
after December 31, 2019.
The 31 states and
the District of Columbia that have already expanded Medicaid to the
newly eligible cover
roughly half of that population nationwide. CBO projects that under
current law, additional states will expand their Medicaid programs
and that, by 2026,
roughly 80 percent of newly eligible people will reside in
states that have done so. Under
the legislation, largely because states would pay for a
greater share of enrollees’ costs,
CBO expects that no additional states would expand
eligibility, thereby reducing both
enrollment in and spending for Medicaid. According to CBO’s
estimates, that effect would
be modest in the near term, but by 2026, on an average
annual basis, 5 million fewer people would be enrolled in Medicaid than would have been enrolled
under current law (see
Figure 1).
CBO also anticipates some states that have already expanded their Medicaid programs
would no longer
offer that coverage, reducing the share of the newly eligible population
residing in a state
with expanded eligibility to about 30 percent in 2026. That
estimate
reflects different possible outcomes without any explicit
prediction about which states
would make which choices. In considering the possible
outcomes, CBO took into account
several factors: the extent of optional coverage provided
to the newly eligible population
and other groups before the ACA’s enactment (as a measure
of a state’s willingness to
provide coverage above statutory minimums), states’ ability
to bear costs under the
legislation, and potential methods to mitigate those costs
(such as changes to benefit
packages and payment rates). Some states might also begin
to take action prior to 2020 in
anticipation of future changes that would result from the
legislation to avoid abrupt
changes to eligibility and other program features. How
individual states would ultimately
respond is highly uncertain.
Because the lower federal matching rate would apply only to
those newly enrolled after
December 31, 2019 (or who experience a break in eligibility
after that date), CBO
estimates that reductions in spending for the newly
eligible would increase over several
years, as “grandfathered” enrollees would cycle off the
program and be replaced by new
enrollees. On the basis of historical data (and taking into
account the increased frequency
of eligibility redeterminations required by the
legislation), CBO projects that fewer than
one-third of those enrolled as of December 31, 2019, would
have maintained continuous
eligibility two years later. Under the legislation, the
higher federal matching rate would
apply for fewer than 5 percent of newly eligible enrollees
by the end of 2024, CBO
estimates.
Per Capita-Based Cap on Medicaid Payments for Medical Assistance. Under current law,
the federal
government and state governments share in the financing and administration of
Medicaid. In
general, states pay health care providers for services to enrollees, and
the
federal government
reimburses states for a percentage of their expenditures. All
federal
reimbursement for medical services is open-ended, meaning
that if a state spends more
because enrollment increases or costs per enrollee rise,
additional federal payments are
automatically generated.
Under the legislation, beginning in 2020, the federal government would establish
a limit on
the amount of
reimbursement it provides to states. That limit would be set by
calculating
the average
per-enrollee cost of medical services for most enrollees who received full
Medicaid benefits in
2016 for each state. The Secretary of Health and Human Services
would then inflate the average per-enrollee costs for each
state by the growth in the
consumer price index for medical care services (CPI-M). The
final limit on federal
reimbursement for each state for 2020 and after would be
the average cost per enrollee for
five specified groups of enrollees (the elderly, disabled
people, children, newly eligible
adults, and all other adults), reflecting growth in the
CPI-M from 2016 multiplied by the
number of enrollees in each category in that year. If a
state spent more than the limit on
federal reimbursement, the federal government would provide
no additional funding to
match that spending.
The limit on federal reimbursement would reduce outlays
because (after the changes to the
Medicaid expansion population have been accounted for)
Medicaid spending would grow
on a per-enrollee basis at a faster rate than the CPI-M,
according to CBO’s projections: at
an average annual rate of 4.4 percent for Medicaid and 3.7
percent for the CPI-M over the
11 2017-2026 period. With less federal reimbursement for
Medicaid, states would
need to
decide whether to
commit more of their own resources to finance the program at
current-law levels
or whether to reduce spending by cutting payments to health care
providers and health
plans, eliminating optional services, restricting eligibility for
enrollment, or (to the extent feasible) arriving at more
efficient methods for delivering
services. CBO anticipates that states would adopt a mix of
those approaches, which would
result in additional savings to the federal government.
(Other provisions affecting
Medicaid are discussed below.)
Changes to Subsidies and Market Rules for Nongroup Health
Insurance Before 2020.
Under the legislation, existing subsidies for health
insurance coverage purchased in the
nongroup market would largely remain in effect until
2020—but the premium tax credits
would differ by the age of the individual in 2019. Aside
from the changes in enrollment and
premiums as a result of eliminating the individual mandate
penalties (mentioned earlier),
the other changes discussed in this section would have
small effects on coverage and
federal subsidies in the nongroup market.
Nongroup Market Subsidies. Subsidies under current law fall into two
categories: subsidies
to cover a portion
of participants’ health insurance premiums (which take the form of
refundable tax
credits) and subsidies to reduce their cost-sharing amounts (out-of-pocket
payments required
under insurance policies). The first category of subsidies, also called
premium tax credits, is generally available to people with
income between 100 percent and
400 percent of the FPL, with certain exceptions. The second
category, also called
cost-sharing subsidies, is available to those who are
eligible for premium tax credits,
generally have a household income between 100 percent and
250 percent of the FPL, and
enroll in an eligible plan.
Under current law, those subsidies can be obtained only by purchasing
nongroup coverage
through a health
insurance marketplace. Under the legislation, premium tax credits—but
not cost-sharing
subsidies—would also be available for most plans purchased in the
nongroup market
outside of marketplaces beginning in 2018. However, the tax credits for
those plans could not be advanced and could only be claimed
on a person’s tax return.
CBO and JCT estimate that roughly 2 million people who are
expected to enroll in plans
purchased in the nongroup market outside of marketplaces in
2018 and 2019 under current
law would newly receive premium tax credits for that
coverage under the legislation.
The premium tax credits would differ by the age of the
individual for one year in 2019,
while cost-sharing subsidies would remain unchanged prior
to 2020. For those with
household income exceeding 150 percent of the FPL, the legislation would generally
reduce the
percentage of income that younger people had to pay toward their
premiums and increase that percentage for older people.4 CBO and JCT
expect that roughly 1 million
For families, the
age of the oldest taxpayer would be used to determine the age-adjusted
percentage of income that must be paid toward the premiums. As under current law, the
premium tax credits would cover the amount by more people would enroll in coverage obtained through the
nongroup market as a result of the change in the structure of premium tax credits. That
increase would be the net result of higher enrollment among younger people and lower enrollment
among older people.
Patient and State Stability Fund Grants. Beginning in 2018
and ending after 2026, the
federal government would make a total of $100 billion in allotments to states that
they
could use for a
variety of purposes, including reducing premiums for insurance in
the
nongroup market. CBO and JCT estimate that federal outlays for grants from the Patient
and State Stability
Fund would total $80 billion over the 2018-2026 period.
By the agencies’ estimates, the grants would reduce
premiums for insurance in the
nongroup market in many states. CBO and JCT expect that
states would use those grants
mostly to reimburse insurers for some of the costs of
enrollees with claims above a
threshold. For states that did not develop plans to spend
the funds, the federal government
would make payments to insurers in the individual market
who have enrollees with
relatively high claims.
Before 2020, CBO expects, the
Secretary of Health and Human Services would make payments to insurers on the behalf of
most states because most would not have enough time to set up their own programs before
insurers had to set premiums for 2018. As a result, CBO estimates that most states would
rely on the federal default program
for one or more years until they had more time to establish
their own programs.
Continuous Coverage Provisions. Insurers would be required to impose a penalty on
people who enrolled
in insurance in the nongroup or small-group markets if they had been
uninsured for more
than 63 days within the past year. When they purchased
insurance in
the nongroup or small-group market, they would be subject
to a surcharge equal to
30 percent of their
monthly premium for up to 12 months. The requirement would apply
to
people enrolling during a special enrollment period in 2018
and, beginning in 2019, to
people enrolling at any time during the year.
CBO and JCT expect that increasing the future price of
insurance through the surcharge for
people who do not have continuous coverage would increase
the number of people with
insurance in 2018 and reduce that number in 2019 and later
years. By the agencies’
estimates, roughly 1 million people would be induced to
purchase insurance in 2018 to
avoid possibly having to pay the surcharge in the future.
In most years after 2018, however,
roughly 2 million fewer people would purchase insurance
because they would either have
to pay the surcharge or provide documentation about
previous health insurance coverage.
The people deterred from purchasing coverage would tend to
be healthier than those who
would not be deterred and would be willing to pay the
surcharge. The reference
premium—that is, the premium for the second-lowest-cost “silver” plan that
covers the eligible people in the household in the area in which they
reside—exceeds that percentage of income. A silver plan covers about 70 percent of the costs of covered
benefits.
Age Rating Rules. Beginning in 2018, the legislation would expand the
limits on how much
insurers in the
nongroup and small-group markets can vary premiums on the basis of age.
However, CBO and JCT expect that the provision could not be
implemented until 2019
because there would be insufficient time for the federal
government, states, and insurers to
incorporate the changes and then set premiums for 2018.
Under current law, a 64-year-old
can generally be charged premiums that cost up to three
times as much as those offered to a 21-year-old. Under the legislation, that allowable difference would shift to five
times as
much unless a state
chose otherwise. That change would tend to reduce premiums for
younger people and increase premiums for older people.
However, CBO and JCT estimate that the structure of the
premium tax credits before 2020
would limit how changes in age rating rules affected the
number of people who would
enroll in health insurance coverage in the nongroup market. People eligible for
subsidies in
the nongroup market
are now largely insulated from changes in premiums: A person
receiving a premium
tax credit pays a certain percentage of his or her income toward the
reference premium,
and the tax credit covers the difference between the premium and that
percentage of income.
Consequently, despite the changes in premiums for younger and
older people, the person’s out-of-pocket payments would not
be affected much.
Therefore, CBO and JCT estimate an increase in numbers of
people enrolled in coverage
through the nongroup market as a result of changes in age
rating rules would be less than
500,000 in 2019 and would be the net result of higher
enrollment among younger people
and lower enrollment among older people. The small increase
would mostly stem from net
changes in enrollment among people who had income high
enough to be ineligible for
subsidies and who would face substantial changes in
out-of-pocket payments for
premiums.
Changes to Subsidies and Market Rules for Nongroup Health Insurance
Beginning
in 2020. Beginning in 2020, the current premium tax
credits and cost-sharing subsidies
would both be repealed. That same year, the legislation
would create new refundable tax
credits for insurance purchased in the nongroup market. In
addition to making the market
changes discussed thus far (eliminating mandate penalties,
providing grants to states to
help stabilize the nongroup market, establishing a
requirement for continuous coverage,
and changing the age rating rules), the legislation would
relax the current requirements
about the share of benefits that must be covered by a
health insurance plan.Many rules
governing the nongroup market would remain in
effect as under current law.
For example,
insurers would be required to accept all applicants during specified
open-enrollment
periods,
could not vary people’s premiums on the basis of their health,
and could not restrict coverage of enrollees’ preexisting
health conditions. Insurers
would
also still be
required to cover specified categories of health care services, and the amount
of
costs for covered
services that enrollees have to pay out of pocket would remain limited to
a specified
threshold. Prohibitions on annual and lifetime maximum benefits
would still
apply. Also, the risk adjustment program—which transfers
funds from plans that attract a
relatively small proportion of high-risk enrollees (people
with serious chronic conditions,
for example) to plans that attract a relatively large
proportion of such people—would
remain in place.
Because the new tax
credits are designed primarily to be paid in advance on behalf of
enrollees to
insurers, procedures would need to be in place to enable the Internal Revenue
Service and the
Department of Health and Human Services to verify that the credits were
being paid to
eligible insurers who were offering qualified insurance as
defined under
federal and state law on behalf of eligible enrollees. CBO
and JCT’s estimates reflect an
assumption that adequate resources would be made available
through future appropriations
to those executive branch agencies to ensure that such
systems were put in place in a timely
manner. To the extent that they were not, enrollment and
compliance could be negatively
affected.
Changes to Actuarial Value Requirements. Actuarial value is
the percentage of total costs
for covered benefits that the plan pays when covering a
standard population. Under current
law, most plans in the nongroup and small-group markets
must have an actuarial value that
is in one of four tiers: about 60 percent, 70 percent, 80
percent, or 90 percent. Beginning in
2020, the legislation would repeal those requirements,
potentially allowing plans to have
an actuarial value below 60 percent. However, plans would still be required to
cover 10
categories of health
benefits that are defined as “essential” under current law, and the total
annual out-of-pocket
costs for an enrollee would remain capped. In CBO and JCT’s
estimation, complying with those two requirements would
significantly limit the
ability of
insurers to design
plans with an actuarial value much below 60 percent.
Nevertheless, CBO and JCT estimate that repealing the
actuarial value requirements would
lower the actuarial value of plans in the nongroup market
on average. The requirement that
insurers offer both a plan with an actuarial value of 70
percent and one with an actuarial
value of 80 percent in order to participate in the
marketplace would no longer apply under
the legislation. As a result, an insurer could choose to
sell only plans with lower actuarial
values.
Many insurers would find that option attractive
because they could offer a plan
priced closer to the amount of the premium tax credit so
that a younger person would have
low out-of-pocket costs for premiums and would be more
likely to enroll. Insurers
might be
less likely to offer
plans with high actuarial values out of a fear of attracting a greater
proportion of less
healthy enrollees to those plans, although the availability of
the Patient
and State Stability Fund grants in most states would reduce
that risk. The continuation of
the risk adjustment program could also help limit insurers’
costs from high-risk enrollees.
Because of plans’ lower average actuarial values, CBO and JCT expect that
individuals’
cost-sharing
payments, including deductibles, in the nongroup market would tend to be
higher than those anticipated under current law. In addition,
cost-sharing subsidies would
be repealed in 2020, significantly increasing out-of-pocket
costs for nongroup insurance
for many lower-income enrollees. The higher costs would
make the plans less attractive
than those available under current law to many potential
enrollees, especially people who
are eligible for the largest subsidies under current law.
Changes in the Ways the Nongroup Market Would Function.
Under the legislation, some of
the ways that the nongroup market functions would change
for consumers. The current
actuarial value requirements help people compare different
insurance plans, because all
plans in a tier cover the same share of costs, on average.
CBO and JCT expect that, under
the legislation, plans would be harder to compare, making
shopping for a plan on the basis
of price more difficult.
Another feature of the nongroup market under current law is
that there is one central
website through the state or federal marketplace where
people can shop for all the plans in
their area that are eligible for subsidies. Under the
legislation, insurers participating in the
nongroup market would no longer have to offer plans through
the marketplaces in order for
people to receive subsidies toward those plans; therefore,
CBO and JCT estimate that
fewer would do so. With more plans that are eligible for
subsidies offered directly from
insurers or directly through agents and brokers and not
through the marketplaces’ central
websites, shopping for and comparing plans could be harder,
depending on insurers’
decisions about how to market their plans.
Changes in Nongroup Market Subsidies. With
the repeal in 2020 of the current premium
tax credits and the cost-sharing subsidies, different
refundable tax credits for insurance
purchased in the nongroup market would become available.5 The new tax credits would
vary on the basis of
age by a factor of 2 to 1: Someone age 60 or older would be eligible for
a tax credit of
$4,000, while someone younger than age 30 would be eligible for a tax credit
of $2,000. People would generally be eligible for the full amount of the tax credit if
their
adjusted gross income was below $75,000 for a single tax
filer and below $150,000 for
joint filers and if they were not eligible for certain
other types of insurance coverage.
5. People would also be able to use the new tax credits toward unsubsidized of continuation coverage under the
Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA).
The credits would phase
out for people with income above those thresholds. The tax credits
would be refundable
if the size of the credit exceeded a person’s tax liability.6 They
could
also be advanced to insurers on a monthly basis throughout
the year on behalf of an
enrollee. Finally, tax credits could be used for most health
insurance plans purchased
through a marketplace or directly from an insurer.
6. The tax credits and the income thresholds would both be indexed each year by the consumer price index for all urban
consumers plus 1 percentage point.
Under current law, the size of the premium tax credit
depends on household income and the
reference premium in an enrollee’s rating area. The
enrollee pays a certain percentage of
his or her income toward the reference premium, and the
size of the subsidy varies by
geography and age for a given income level. In that way,
the enrollee is insulated
from
variations in
premiums by geography and is also largely insulated from increases in the
reference premium. An
enrollee would pay the difference between the reference premium
and the premium for the plan he or she chose, providing
some incentive to choose
lower-priced insurance. Beginning in 2020, under the legislation,
the size of a premium tax
credit would vary with age, rather than with income (except
for people with income in the
phase-out range) or the amount of the premium. The enrollee
would be responsible for any
premium above the credit amount. That structure would
provide greater incentives for
enrollees to choose lower-priced insurance and would mean
that people living in high-cost
areas would be responsible for a larger share of the
premium.
Under the legislation, some people would be eligible for
smaller subsidies than those under
current law, and others would be eligible for larger ones.
As a result, by CBO and JCT’s
estimates, the composition of the population purchasing
health insurance in the nongroup
market under the legislation would differ significantly
from that under current law,
particularly by income and age.
For many lower-income people, the new tax credits under the legislation would tend to
be
smaller than the
premium tax credits under current law.7 In an illustrative example,
CBO
and JCT estimate that a 21-year-old with income at 175
percent of the FPL in 2026 would
be eligible for a premium tax credit of about $3,400 under
current law; the tax credit would
fall to about $2,450 under the legislation (see Table 4). In addition, because
cost-sharing
subsidies would be
eliminated under the legislation, lower-income people’s share of
medical services
paid in the form of deductibles and other cost sharing would increase.
7. People with income below 100 percent of the FPL who are ineligible for Medicaid and meet other eligibility criteria
would become newly eligible for a premium tax credit under the legislation.
As a result, CBO and JCT estimate, fewer lower-income people
would obtain coverage
through the nongroup market under the legislation than
under current law.
Conversely, the tax credits under the legislation would
tend to be larger than current-law
premium tax credits for many people with higher
income—particularly for those with
income above 400 percent of the FPL but below the income
cap for a full credit, which is
set by the legislation at $75,000 for a single tax filer
and $150,000 for joint filers in 2020.
For example, CBO and JCT estimate that a 21-year-old with
income at 450 percent of the
FPL in 2026 would be ineligible for a credit under current
law but newly eligible for a tax
credit of about $2,450 under the legislation. Lower
out-of-pocket payments toward
premiums would tend to increase enrollment in the nongroup
market among higher-income
people. Enacting the legislation would also result in significant
changes in the size of
subsidies in the nongroup market according to people’s age. For example,
CBO and JCT
estimate that a21-year-old, 40-year-old, and 64-year-old with income at
175 percent of the
FPL in 2026 would all pay roughly $1,700 toward their reference premium
under current
law, even though the reference premium for a 64-year-old is three
times larger than that
for a 21-year-old in most states.
Under the legislation, premiums
for older people could be five times larger than those for
younger people in many states,
but the size of the tax credits for older people would only be
twice the size of the credits
for younger people. Because of that difference in how much the
tax credits would cover, CBO and
JCT estimate that, under the legislation, a larger share of
enrollees in the nongroup
market would be younger people and a smaller share would be
older people.
According to CBO and JCT’s estimates, total federal subsidies
for nongroup health
insurance would be significantly smaller under the
legislation than under current law for
two reasons. First, by the agencies’ projections, fewer
people, on net, would obtain
coverage in the nongroup health insurance market under the
legislation. Second, the
average subsidy per subsidized enrollee under the
legislation would be significantly lower
than the average subsidy under current law. In 2020, CBO
and JCT estimate, the average
subsidy under the legislation would be about 60 percent of
the average subsidy under
current law. In addition, the average subsidy would grow
more slowly under the legislation
than under current law. That difference results from the fact that subsidies
under current
law tend to grow
with insurance premiums, whereas subsidies under the legislation would
grow more slowly, with the consumer price index for all urban consumers
plus
1 percentage point. By 2026, CBO and JCT estimate
that the average subsidy under the
legislation would be
about 50 percent of the average subsidy under current law.
Patient and State Stability Fund Grants. As a
condition of the grants, beginning in 2020,
states would be required to provide matching funds, which
would generally increase from
7 percent of the federal funds provided in 2020 to 50
percent of the federal funds provided
in 2026. The agencies expect that the grants’ effects on
premiums after 2020 would be
limited by the share of states that took action and decided
to pay the required matching
funds in order to receive federal money and by the extent
to which states chose to use the
money for purposes that did not directly help to lower
premiums in the nongroup market.
Nevertheless, CBO and JCT estimate that the grants would
exert substantial downward
pressure on premiums in the nongroup market in 2020 and
later years and would help
encourage participation in the market by insurers.
Effects of Changes in the Nongroup Market on Employers’ Decisions to
Offer Coverage.
CBO and JCT estimate that, over time, fewer employers would
offer health insurance
because the legislation would change their incentives to do
so. First, the mandate
penalties
would be eliminated.
Second, the tax credits under the legislation, for which people would
be ineligible if
they had any offer of employment-based insurance, would be available to
people with a broader range of incomes than the current tax
credits are. That change could
make nongroup coverage more attractive to a larger share of
employees. Consequently, in
CBO and JCT’s estimation, some employers would choose not
to offer coverage and
instead increase other forms of compensation in the belief
that nongroup insurance was a
close substitute for employment-based coverage for their
employees.
However, two factors would partially offset employers’ incentives
not to offer insurance.
First, the average subsidy for those who are eligible would
be smaller under the legislation
than under current law and would grow more slowly than
health care costs over time.
Second, CBO and JCT anticipate, nongroup insurance under
the legislation would be less
attractive to many people with employment-based coverage
than under current law
because nongroup insurance under the legislation would
cover a smaller share of enrollees’
expenses, on average, and because shopping for and
comparing plans would probably be
more difficult. In general, CBO and JCT expect that
businesses that decided not to offer
insurance coverage under the legislation would have, on
average, younger and
higher-income workforces than businesses that choose not to
offer insurance under current
law.
CBO and JCT expect
that employers would adapt slowly to the legislation. Some
employers would probably delay making decisions because of
uncertainty about the
viability of and regulations for the nongroup market and
about implementation of the new
law.
Market Stability. CBO and JCT anticipate that, under the
legislation, the combination of
subsidies to
purchase nongroup insurance and rules regulating the market would result in a
relatively stable
nongroup market. That is, most areas of the country would have
insurers
participating in the nongroup market, and the market would
not be subject to an
unsustainable spiral of rising premiums. First and most
important, a substantial number of
relatively healthy (mostly young) people would continue to
purchase insurance in the
nongroup market because of the availability of government
subsidies.
Second, grants from the Patient and State Stability Fund would help stabilize
premiums and reduce potential losses to insurers from enrollees with very large claims.
Finally, in CBO and JCT’s judgment, the risk adjustment program would help protect
insurers from losses arising from high-risk enrollees. The agencies expect that all of
those factors would encourage insurers to continue to participate in the nongroup market.
However, significant changes in nongroup subsidies and market rules
would occur each
year for the first three years following enactment, which
might cause uncertainty for
insurers in setting premiums. As a result of the
elimination of the individual mandate
penalties, CBO and JCT project that nongroup enrollment in 2018 would be smaller
than
that in 2017 and
that the average health status of enrollees would worsen. A
small share of
that decline in enrollment would be offset by the onetime
effect of the continuous coverage
provisions, which would somewhat increase enrollment in the
nongroup market in 2018 as
people anticipated potential surcharges in 2019. Grants
from the Patient and State Stability
Fund would begin to take effect in 2018 to help mitigate
losses and encourage participation
by insurers.
The mix of enrollees in 2019 would differ from that in
2018, because the change to
age-rating rules would allow older adults to be charged
five times as much as younger
adults in many states. In addition, there would be a
one-year change to the premium tax
credits, which CBO and JCT expect would somewhat increase
enrollment among younger
adults and decrease enrollment among older adults. Although
the combined effect of those
two changes would reduce the average age and improve the
average health of enrollees in
the nongroup market, it might be difficult for insurers to
set premiums for 2019 using their
prior experience in the market.
In 2020, CBO estimates, grants to states from the Patient
and State Stability Fund, once
fully implemented, would significantly reduce premiums in
the nongroup market and
encourage participation by insurers. The grants would help
to reduce the risk to insurers of
offering nongroup insurance. As a result, CBO expects that
those grants would contribute
substantially to the stability of the nongroup market.
That effect would occur despite the fact that more major
changes taking effect in that year
would make it difficult for insurers to predict the mix of
enrollees on the basis of their
recent experience. The new age-based tax credits would be
introduced in 2020 and
actuarial value requirements would be eliminated. In
response, insurers would have the
flexibility to sell different types of plans than they do
under current law. The nongroup
market is expected to be smaller in 2020 than in 2019 but
then is expected to grow
somewhat over the 2020-2026 period.
Other Budgetary Effects of Health Insurance Coverage Provisions.
Because the
insurance coverage provisions of the legislation would
increase the number of uninsured
people and decrease the number of people with Medicaid
coverage relative to the numbers
under current law, CBO estimates that Medicare spending
would increase by $43 billion
over the 2018-2026 period.
Medicare makes additional “disproportionate share hospital”
payments to facilities that
serve a higher percentage of uninsured patients. Those payments have two
components: an
increase to the
payment rate for each inpatient case and a lump-sum allocation of a pool of
funds based on each
qualifying hospital’s share of the days of care provided to
beneficiaries of Supplemental Security Income and Medicaid.
Under the legislation, the decreased enrollment in Medicaid would slightly
reduce the
amounts paid to
hospitals, CBO estimates. However, the increase in the number of
uninsured people
would substantially boost the amounts distributed on a lump-sum basis.
Net
Effects on Health Insurance Coverage
CBO and JCT expect that under the legislation, the number
of people without health
insurance coverage would increase but that the increase
would be limited initially, because
insurers have already set their premiums for the current
year and many people have already
made their enrollment decisions for the year. However, in
2017, the elimination of the
individual mandate penalties would result in about 4
million additional people becoming
In 2018, by CBO and JCT’s estimates, about 14 million more
people would be uninsured,
relative to the number under current law. That increase
would consist of about 6 million
fewer people with coverage obtained in the nongroup market,
roughly 5 million fewer
people with coverage under Medicaid, and about 2 million
fewer people with
employment-based coverage. In 2019, the number of uninsured
would grow to 16 million
people because of further reductions in Medicaid and
nongroup coverage.
Most reductions in coverage in 2018 and 2019 would stem from
repealing the penalties
associated with the individual mandate. Some of those
people would choose not to have
insurance because they choose 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. CBO and JCT estimate that, in total, 41 million
people under age 65 would be
uninsured in 2018 and 43 million people under age 65 would
be uninsured in 2019.
In 2020, according to CBO and JCT’s estimates, as a result
of the insurance coverage
provisions of the legislation, 21 million more nonelderly people in the United
States would
be without health
insurance than under current law. By 2026, that number would
total
24 million, CBO and JCT estimate. Specifically:
- Roughly
9 million fewer people would enroll in Medicaid in 2020; that figure would rise to 14 million
in 2026,
as states that expanded eligibility for Medicaid discontinued doing so, as states projected to expand
Medicaid in the future chose not to do so, and as the cap on per-enrollee spending took
effect.
- Roughly 9 million fewer people, on net, would obtain
coverage through the nongroup market in 2020; that number would fall to 2
million in 2026. The reduction in enrollment in the nongroup market would shrink
over the 2020-2026 period because people would gain experience with the new
structure of the tax credits and some employers would respond to those tax
credits by declining to offer insurance to their employees.
- Roughly 2 million fewer people, on net, would enroll in
employment-based coverage in 2020, and that number would grow to roughly 7
million in 2026. Part of that net reduction in employment-based coverage would occur
because fewer employees would take up the offer of such coverage in the
absence of the individual mandate penalties. In addition, CBO and JCT expect that,
over time, fewer employers would offer health insurance to their workers.
CBO and JCT estimate
that 48 million people under age 65, or roughly 17 percent of the
nonelderly
population, would be uninsured in 2020 if the legislation was
enacted. That
figure would grow to 52 million, or roughly 19 percent of
the nonelderly population, in
2026. (That figure is currently about 10 percent and is
projected to remain at that level in
each year through 2026 under current law.) Although the
agencies expect that the
legislation would increase the number of uninsured broadly,
the increase would be
disproportionately
larger among older people with lower income; in particular, people
between 50 and 64 years old with income of less than 200 percent
of the FPL would make
up a larger share of the uninsured (see Figure 2).
Net
Effects on Health Insurance Premiums
The legislation would tend to increase average premiums in
the nongroup market prior to
2020 and lower average premiums thereafter, relative to the
outcomes under current law.
(This discussion is focused on premiums before any
applicable tax credits and before any
surcharges for not maintaining continuous coverage.)
In 2018 and 2019, according to CBO and JCT’s estimates,
average premiums for single
policyholders in the nongroup market would be 15 percent to
20 percent higher than under
current law mainly because of the elimination of the
individual mandate penalties.
Eliminating those penalties would markedly reduce
enrollment in the nongroup market and
increase the share of enrollees who would be less healthy. CBO and JCT expect that grants
from the Patient and
State Stability Fund would largely be used for reinsurance programs,
particularly in 2018 and 2019, when many states would rely
on the federal default before
establishing their own programs and, as explained earlier,
that those payments would help
lower premiums in the nongroup market. The agencies
estimate that program would have a
relatively small effect on premiums in 2018 because there
would not be much time
between enactment of the legislation and insurers’
deadlines for setting premiums for
2018. By 2019, however, in CBO and JCT’s judgment, the
Patient and State Stability Fund
would have the effect of somewhat moderating the increases
in average premiums in the
nongroup market resulting from the legislation.
Starting in 2020, the increase in average premiums from
repealing the individual mandate
penalties would be more than offset by the combination of
three main factors. First,
the mix
of people enrolled
in coverage obtained in the nongroup market is anticipated to be
younger, on average, than
the mix under current law. Second, premiums, on average, are
estimated to fall because of the elimination of actuarial
value requirements, which would
result in plans that cover a lower share of health care
costs, on average. Third,
reinsurance
programs supported
by the Patient and State Stability Fund are estimated to reduce
premiums. If
those funds were devoted to other purposes, then premium reductions would
be smaller. By 2026, average premiums for single
policyholders in the nongroup market
under the legislation would be roughly 10 percent lower
than the estimates under current
law.
The changes in premiums would vary for people of different
ages. The change in age-rating
rules, effective in 2019, would directly change the
premiums faced by different age groups,
substantially
reducing premiums for young adults and raising premiums for older people.
By 2026, CBO and JCT
project, premiums in the nongroup market would be 20 percent to
25 percent lower for
a 21-year-old and 8 percent to 10 percent lower for a 40-year-old—but
20 percent to 25
percent higher for a 64-year-old.
Revenue
Effects of Other Provisions
JCT estimates that the legislation would reduce revenues by
$592 billion over the
2017-2026 period as a result of provisions that would
repeal many of the revenue-related
provisions of the ACA (apart from provisions related to
health insurance coverage
discussed above). Those with the most significant budgetary
effects include an increase in
the Hospital Insurance payroll tax rate for high-income
taxpayers, a surtax on those
taxpayers’ net investment income, and annual fees imposed
on health insurers.8
8. JCT published 10 documents (JCX-7-17 through JCX-16-17) on March 7, 2017, relating to the legislation. For more information, see www.jct.gov/publications.html.
Direct Spending Effects of Other Provisions
The legislation would also make changes to spending for
other federal health care
programs. CBO and JCT estimate that those provisions would
increase direct spending by
about $7 billion over the 2017-2026 period.
Prevention and Public Health Fund. The legislation would, beginning
in fiscal year
2019, repeal the
provision that established the Prevention and Public Health Fund and
rescind all
unobligated balances. The Department of Health and Human Services
awards
grants through the fund to public and private entities to
carry out prevention, wellness, and
public health activities. Funding under current law is
projected to be $1 billion in 2017 and
to rise to $2 billion in 2025 and each year thereafter. CBO
estimates that eliminating that
funding would reduce direct spending by $9 billion over the
2017-2026 period.
Community Health Center Program. The legislation would
increase the funds available
to the Community Health Center Program, which provides
grant funds to health centers
that offer primary and preventive care to patients
regardless of their ability to pay. Under
current law, the program will receive about $4 billion in
fiscal year 2017. The legislation
would increase funding for the program by $422 million in
fiscal year 2017. CBO
estimates that implementing the provision would increase
direct spending by $422 million
over the 2017-2026 period.
Provision Affecting Planned Parenthood. For a one-year period following
enactment,
the legislation
would prevent federal funds from being made available to an entity
(including its
affiliates, subsidiaries, successors, and clinics) if it
is:
- A
nonprofit organization described in section 501(c)(3) of the Internal
Revenue Code and exempt from tax under section 501(a) of the code;
- An
essential community provider that is primarily engaged in providing family planning and
reproductive health services and related medical care;
- An
entity that provides abortions—except in instances in which the
pregnancy is the result of an act of rape or incest or the woman’s life is
in danger; and
- An entity that had expenditures under the Medicaid
program that exceeded $350 million in fiscal year 2014.
CBO expects that, according to those criteria, only Planned
Parenthood Federation of
America and its affiliates and clinics would be affected.
Most federal funds received by
such entities come from payments for services provided to
enrollees in states’ Medicaid
programs. CBO estimates that the prohibition would reduce
direct spending by $178
million in 2017 and by $234 million over the 2017-2026
period. Those savings would
be partially offset by increased spending for other
Medicaid services, as discussed below.
To the extent that there would be reductions in access to
care under the legislation, they
would affect services that help women avert pregnancies.
The people most likely to
experience reduced access to care would probably reside in
areas without other health care
clinics or medical practitioners who serve low-income
populations. CBO 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.
By CBO’s estimates, in the one-year period in
which federal funds for Planned Parenthood
would be prohibited under the legislation, the number of births in the
Medicaid program
would
increase by several thousand, increasing direct spending for Medicaid by $21 million
in 2017
and by $77 million over the 2017-2026 period. Overall, with those costs netted
against the savings estimated above,
implementing the provision would reduce direct
spending by $156 million over the 2017-2026 period,
CBO estimates.
Repeal of Medicaid Provisions. Under current law, states
can elect the Community First
Choice option, allowing them to receive a 6
percentage-point increase in their federal
matching rate for some services provided by home and
community-based attendants to
certain Medicaid recipients. The legislation would terminate the increase in the
federal
matching funds
beginning in calendar year 2020, which would decrease direct spending
by about $12 billion over the next 10 years.
Repeal of Reductions to Allotments for Disproportionate
Share Hospitals. Under
current law, Medicaid allotments to states for payments to hospitals that treat a
disproportionate
share of uninsured and Medicaid patients are to be cut significantly in
each year from 2018
to 2025.
The cuts are currently scheduled to be $2 billion in 2018 and
to increase each year until they reach $8 billion in 2024
and 2025. The legislation would
eliminate those cuts for states that have not expanded
Medicaid under the ACA starting in
2018 and for the remaining states starting in 2020,
boosting outlays by $31 billion over the
next 10 years.
Safety Net Funding for States
That Did Not Expand Medicaid. The legislation would
provide $2 billion
in funding in each year from 2018 to 2021 to states that did not expand
Medicaid eligibility
under the ACA. Those states could use the funding, within limits, to
supplement payments to providers that treat Medicaid
enrollees. Such payments to
providers would not be subject to the per capita caps also
established by the proposed
legislation. Any states that chose to expand Medicaid
coverage as of July 1 of each year
from 2017 through 2020 would lose access to the funding
available under this provision in
the following year and thereafter. CBO estimates that this
provision would increase direct
spending by $8 billion over the 2017-2026 period.
Reductions to States’ Medicaid Costs. The
legislation would make a number of
additional changes to the Medicaid program, including
these:
- Requiring states to treat lottery winnings and certain
other income as income for purposes of determining eligibility;
- Decreasing the period when Medicaid benefits may be
covered retroactively from up to three months before a recipient’s application to the
first of the month in which a recipient makes an application;
- Eliminating
federal payments to states for Medicaid services provided to applicants who did not provide
satisfactory evidence of citizenship or nationality during a reasonable opportunity period; and
- Eliminating states’ option to increase the amount of
allowable home equity from $500,000 to $750,000 for individuals applying for Medicaid
coverage of long-term services and supports.
Together, CBO estimates, those changes would decrease
direct spending by about
$7 billion over the 2017-2026 period.
Changes
in Spending Subject to Appropriation
CBO has not completed an estimate of the potential impact
of the legislation on
discretionary spending, which would be subject to future
appropriation action.
UNCERTAINTY
SURROUNDING THE ESTIMATES
CBO and JCT considered the potential responses of many
parties that would be affected by
the legislation, including these:
- Federal agencies—which would need to implement major
changes in the regulation of the health care system and administration of new subsidy
structures and eligibility verification systems in a short time frame;
- States—which would need to decide how to use Patient and State Stability
Fund grants,
whether to pass new laws affecting the nongroup market, how to respond to the reduction in the federal matching rate for certain
Medicaid enrollees, how to respond to constraints from the cap on Medicaid payments,
and how to provide information to the federal government about insurers and
enrollees; Insurers—who would need to decide about the extent of
their participation in the insurance market and what types of plans to sell in the
face of different market rules and federal subsidies;
- Employers—who
would need to decide whether to offer insurance given the different federal
subsidies and insurance products available to their employees;
- Individuals—who would make decisions about health
insurance in the context of different premiums, subsidies, and penalties than those
under current law; and
- Doctors and hospitals—who would need to negotiate
contracts with insurers in a new regulatory environment.
Each of those responses is difficult to predict. Moreover,
the responses would depend upon
how the provisions in the legislation were implemented,
such as whether advance
payments of the new tax credits were made reliably. And
flaws in the determination of
eligibility, for instance, could keep subsidies from people
who were eligible or provide
them to people who were not.
In addition, CBO and JCT’s projections under current law
itself are inexact, which could
also affect the estimated effects. For example, enrollment
in the marketplaces under
current law could be lower than is projected, which would
tend to decrease the budgetary
savings of the legislation. Alternatively, the average
subsidy per enrollee under current law
could be higher than is projected, which would tend to
increase the budgetary savings of
the legislation.
CBO and JCT have endeavored to develop estimates that are
in the middle of the
distribution of potential outcomes. One way to assess the range of uncertainty around
the
estimated effects of
the legislation is to compare previous projections with actual results.
For example, some aspects of CBO and JCT’s projections of
health insurance coverage and
related spending made in July 2012 (after the Supreme Court
issued a decision that
essentially made the expansion of the Medicaid program
under the ACA an option for
states) can be compared with actual results for 2016. Projected spending on people
made
eligible for
Medicaid because of the ACA was about 60 percent of the actual amount.
The number of people predicted in 2012 to purchase insurance
through the marketplaces in
2016 was more than twice the actual number. The decline in
the number of insured people
from 2012 to 2016 was projected to be 23 million, and the
decline measured in the National
Health Interview Survey turned out to be 20 million. CBO
and JCT have continued to learn
from experience with the ACA and have endeavored to use
that experience to improve
their modeling.
That comparison of projections with actual results and the
great uncertainties surrounding
the actions of the many parties that would be affected by
the legislation suggest that
outcomes of the legislation could differ substantially from
some of the estimates provided
here.
Nevertheless, CBO and JCT are confident about the
direction of certain effects of the
legislation. For example, spending on Medicaid would almost
surely be lower than under
current law. The cost of the new tax credit would probably
be lower than the cost of the
subsidies for coverage through marketplaces under current
law. And the number of
uninsured people under the legislation would almost surely
be greater than under current
law.
INCREASE IN LONG-TERM DIRECT SPENDING AND DEFICITS
CBO estimates that enacting the legislation would not
increase net direct spending or
on-budget deficits by more than $5 billion in any of the
four consecutive 10-year periods
beginning in 2027.
MANDATES ON STATE, LOCAL, AND TRIBAL GOVERNMENTS
JCT and CBO reviewed the provisions of the legislation and
determined that they would
impose no intergovernmental mandates as defined in the
Unfunded Mandates Reform Act.
For large entitlement programs like Medicaid, UMRA defines
an increase in the stringency
of conditions or a cap on federal funding as an
intergovernmental mandate if the affected
governments lack authority to offset those costs while
continuing to provide required
services.
As discussed earlier in this estimate, the legislation would eliminate
the enhanced
federal matching
rate for some future enrollees, establish new per capita caps in
the
Medicaid program, and make other changes that would affect
Medicaid spending—some
of which would provide additional assistance to states.
On net, CBO estimates that states would see an overall decrease in federal
assistance, as
reflected in
estimates of federal savings in the Medicaid program. In
response to the caps
and other changes, CBO anticipates that states could use
existing flexibility allowed in the
Medicaid program and additional authorities provided by the
legislation to cut payments to
health care providers and health plans, eliminate optional
services, restrict eligibility for
enrollment, or (to the extent feasible) change the way
services are delivered to save costs.
Because flexibility in the program would allow states to
make such changes and still
provide statutorily required services, the per capita caps
and other changes in Medicaid
would not impose intergovernmental mandates as defined in
UMRA.
MANDATES
ON THE PRIVATE SECTOR
JCT and CBO have determined that the legislation would
impose private-sector mandates
as defined in UMRA. On the basis of information from JCT,
CBO estimates that the
aggregate direct cost of the mandates imposed by the
legislation would exceed the annual
threshold established in UMRA for private-sector mandates
($156 million in 2017,
adjusted annually for inflation).
The tax provisions of the legislation contain two mandates.
Specifically, the legislation
would recapture excess advance payments of premium tax
credits (so that the full amount
of excess advance payments is treated as an additional tax
liability for the individual) and
repeal the small business (health insurance) tax credit. The nontax provisions of the
legislation would impose a
private-sector mandate as defined in UMRA on insurers that
offer health insurance coverage in
the individual or small-group market.
The legislation would require those insurers to
charge a penalty equal to 30 percent
of the monthly premium for a period of 12 months to
individuals who enroll in insurance in
a given year after having allowed their health insurance to
lapse for more than 63 days
during the previous year. CBO estimates that the costs of
complying with the mandate
would be largely offset by the penalties insurers would
collect.
ESTIMATE
PREPARED BY:
Federal
Spending
Kate Fritzsche, Sarah Masi, Daniel Hoople, Robert Stewart,
Lisa Ramirez-Branum,
Andrea Noda, Allison Percy, Sean Lyons, Alexandra
Minicozzi, Eamon Molloy, Ben
Hopkins, Susan Yeh Beyer, Jared Maeda, Christopher Zogby,
Romain Parsad, Ezra Porter,
Lori Housman, Kevin McNellis, Jamease Kowalczyk, Noah
Meyerson, T.J. McGrath,
Rebecca Verreau, Alissa Ardito, and the staff of the Joint
Committee on Taxation
Federal
Revenues
Staff of the Joint Committee on Taxation
Impact on State, Local, and Tribal Governments
Leo Lex, Zachary Byrum, and the staff of the Joint
Committee on Taxation
Impact on the Private Sector
Amy Petz and the staff of the Joint Committee on Taxation
ESTIMATE
REVIEWED AND EDITED BY:
Mark Hadley, Theresa Gullo, Jeffrey Kling, Robert Sunshine,
David Weaver, John Skeen,
Kate Kelly, Jorge Salazar, and Darren Young
ESTIMATE
APPROVED BY:
Holly Harvey
Deputy Assistant Director for Budget Analysis
Jessica Banthin
Deputy Assistant Director for Health, Retirement, and
Long-Term Analysts
Chad Chirico
AHCA = American Health Care Act; FPL = federal poverty
level.
