American Health Care Act (Trumpcare #1) Congressional Budget Office Cost Estimate

Watchdog Vigilance Home Page Health Care Public Policies American Health Care Act (Trumpcare #1) Advocacy Group Position Statements Better Care Reconciliation Act (Trumpcare #2) Congressional Budget Office Cost Estimate Affordable Care Act Summary Pertinent Historical Data Employee Health Benefits Medicare Expansion (ME)

On May 24, 2017, the Congressional Budget Office (CBO) issued a “Cost Estimate” for the American Health Care Act (AHCA) as passed by the United States House of Representatives on May 4, 2017: see https://www.cbo.gov/system/files/115th-congress-2017-2018/costestimate/hr1628aspassed.pdf.

The CBO Cost Estimate conclusions are summarized in the categories listed next.

EFFECTS ON THE FEDERAL BUDGET. The net effect of the AHCA on the federal budget deficit from 2017 to 2026 will be a $119 billion decrease from the major AHCA components listed next.
(1) $834 billion decrease in Medicaid from (a) termination of enhanced federal matching funds by reducing the federal matching rate for adults made eligible for Medicaid by the Affordable Care Act to equal the rate for other enrollees in the state beginning in 2020 and (b) per capita-based cap on Medicaid payments by capping the growth in per-enrollee payments for most children and nondisabled adults enrolled in Medicaid at no more than the medical care component of the consumer price index (CPI-M) and for most enrollees who are disabled or age 65 or older to no more than CPI-M plus 1 percentage point starting in 2020.
(2) $665 billion decrease in subsidies for nongroup health insurance from 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) beginning in 2020.
(3) $6 billion decrease from the elimination of small-employer tax credits.
(4) $21 billion decrease mainly from the effects on revenues of changes in taxable compensation.
(5) $2 billion decrease in outlays for Social Security benefits.
(6) $375 billion increase in tax credits for nongroup insurance from creating a new refundable tax credit for health insurance coverage purchased through the nongroup market beginning in 2020.
(7) $171 billion increase due to reduced penalty payments by employers from eliminating penalties associated with the requirement that large employers offer their employees coverage that meets specified standards.
(8) $38 billion increase due to reduced penalty payments by uninsured people from eliminating penalties associated with the requirement that most people obtain health insurance coverage.
(9) $117 billion increase in spending to reduce premiums from appropriating funding beginning in 2018 for grants to states through the Patient and State Stability Fund that include providing $15 billion for the Federal Invisible Risk Sharing Program (which is expected to direct funds to insurers to reduce their risk of having high-cost enrollees); $15 billion in funding to states to use for maternity coverage, newborn care, and prevention, treatment, or recovery services for people with mental or substance use disorders; and $8 billion in funding to states that obtain a waiver from the requirement for community rating to use for reducing premiums or out-of-pocket costs for people who would face higher premiums as a result of the waiver.
(10) $43 billion increase in Medicare mostly from changes in payments to hospitals that serve a disproportionate share of low income patients.
(11) There will be a $664 billion increase due to noncoverage provisions from (a) repealing the surtax on certain high-income taxpayers’ net investment income; (b) repealing the annual fee on health insurance providers; (c) reducing the income threshold for determining the medical care deduction; (d) delaying when the excise tax imposed on some health insurance plans with high premiums would go into effect; (e) repealing the increase in the Hospital Insurance payroll tax rate for certain high-income taxpayers; and (f) delaying to 2023 the repeal of the payroll tax increase.

EFFECTS ON HEALTH INSURANCE COVERAGE. In 2018, 14 million more people would be uninsured under the AHCA than under current law. The increase in the number of uninsured people relative to the number projected under current law would reach 19 million in 2020 and 23 million in 2026. In 2026, an estimated 51 million people under age 65 would be uninsured, compared with 28 million who would lack insurance that year under current law. While the CBO expects the AHCA to increase the number of uninsured broadly, the increase would be disproportionately larger among older people with lower income – particularly people between 50 and 64 years old with income of less than 200 percent of the federal poverty level. Medicaid enrollment would be lower throughout the coming decade, culminating in 14 million fewer Medicaid enrollees by 2026, a reduction of about 17 percent relative to the number under current law.
NOTE: The CBO broadly defines private health insurance coverage as consisting of a comprehensive major medical policy that covers high-cost medical events and various services, including those provided by physicians and hospitals. People who have only the following policies are described as uninsured because they do not have financial protection from major medical risks: (a) policies with limited insurance benefits (known as mini-med plans); (b) “dread disease” policies that cover only specific diseases; (c) supplemental plans that pay for medical expenses that another policy does not cover; (d) fixed-dollar indemnity plans that pay a certain amount per day for illness or hospitalization; and (e) single-service plans, such as dental-only or vision-only policies. CBO expects that some people would use the tax credits authorized by the AHCA to purchase policies that are not counted as insurance because they would not cover major medical risks.

STABILITY OF THE HEALTH INSURANCE MARKET. CBO estimates that about one-sixth of the population resides in areas in which the nongroup market would start to become unstable beginning in 2020. That instability would result from market responses to decisions by some states to waive two provisions of federal law as would be permitted under the AHCA. One type of waiver would allow states to modify the requirements governing essential health benefits, which set minimum standards for the benefits that insurance in the nongroup and small-group markets must cover. A second type of waiver would allow insurers to set premiums on the basis of an individual’s health status if the person had not demonstrated continuous coverage; that is, the waiver would eliminate the requirement for what is termed community rating for premiums charged to such people.

EFFECTS ON HEALTH INSURANCE PREMIUMS. The AHCA would tend to increase premiums for single policyholders before 2020, relative to those under current law – by an average of about 20 percent in 2018 and 5 percent in 2019, as the funding provided to reduce premiums has a larger effect on pricing. Starting in 2020, however, average premiums would depend in part on any waivers granted to states and on how those waivers were implemented and in part on what share of the funding available from the Patient and State Stability Fund was applied to premium reduction.
(1) About half the population resides in states that would not request waivers regarding the essential health benefits or community rating – in these states average premiums in the nongroup market would be about 4 percent lower in 2026 than under current law, mostly because a younger and healthier population would be purchasing the insurance. The changes in premiums would vary for people of different ages. Relaxing the current-law requirement that prevents insurers from charging older people premiums that are more than three times larger than the premiums charged younger people in the nongroup and small-group markets would directly alter the premiums faced by different age groups. Under the AHCA, 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 be only twice the size of the credits for younger people – as a result (a) net premiums on average for older people with lower incomes would be much larger than under current law, (b) net premiums for younger people with lower incomes would be about the same or smaller depending on the state’s approach to regulation, and (c) net premiums on average for people with higher incomes would be reduced among people of most ages.
(2) About one-third of the population resides in states that would make moderate changes to market regulations. In these states average premiums in the nongroup market would be roughly 20 percent lower in 2026 than under current law, primarily because, on average, insurance policies would provide fewer benefits. Under current law, insurance coverage in the nongroup and small-group markets must include 10 major categories of essential health benefits, and that coverage must be equal to the scope of benefits provided under a typical employment-based plan. Also, current law limits the maximum out-of-pocket payment that an insurer can require, and insurers cannot limit the cost or amount of services that they cover within a year or over the course of a lifetime. The AHCA would allow states to waive the essential health benefit requirements beginning in 2020 by submitting their own set of essential health benefits. Benefits included in an insurance plan that are not part of the essential health benefits may have higher out-of-pocket payments or may include caps on the amount of services that are covered. In addition, the AHCA removes the requirement beginning in 2020 that insurers who offer plans in the nongroup market generally must offer plans that cover at least 60 percent of the cost of covered benefits. The AHCA reductions for younger people would be substantially larger and those for older people substantially smaller.
(3) About one-sixth of the population resides in states that would obtain waivers involving both the essential health benefits and community rating and that would allow premiums to be set on the basis of an individual’s health status in a substantial portion of the nongroup market. As in other states, average premiums would be lower than under current law because a younger and healthier population would be purchasing the insurance and because large changes to the essential health benefits requirements would cause plans to a cover a smaller percentage of expected health care costs. In addition, premiums would vary significantly according to health status and the types of benefits provided, and less healthy people would face extremely high premiums, despite the additional funding that would be available under the AHCA to help reduce premiums. Over time, it would become more difficult for less healthy people (including people with preexisting medical conditions) in those states to purchase insurance because their premiums would continue to increase rapidly. As a result of the narrower scope of covered benefits and the difficulty less healthy people would face purchasing insurance, average premiums for people who did purchase insurance would generally be lower than in other states – but the variation around that average would be very large. CBO does not have an estimate of how much lower those premiums would be.

EFFECTS ON OUT-OF-POCKET PAYMENTS. Although premiums would decline, on average, in states that chose to narrow the scope of essential health benefits, some people enrolled in nongroup insurance would experience substantial increases in what they would spend on health care. People living in states modifying the essential health benefits who used services or benefits no longer included in the essential health benefits would experience substantial increases in out-of-pocket spending on health care or would choose to forgo the services. Services or benefits likely to be excluded from the essential health benefits in some states include maternity care, mental health and substance abuse benefits, rehabilitative and habilitative services, and pediatric dental benefits. In particular, out-of-pocket spending on maternity care and mental health and substance abuse services could increase by thousands of dollars in a given year for the nongroup enrollees who would use those services. Moreover, the ban under current law on annual and lifetime limits for covered benefits would no longer apply to health benefits not defined as essential in a state – as a result some enrollees could see large increases in out-of-pocket spending because annual or lifetime limits would be allowed. That could happen, for example, to some people who use expensive prescription drugs. Out-of-pocket payments for people who have relatively high health care spending would increase most in the states that obtained waivers from the requirements for both the essential health benefits and community rating. In addition, the AHCA requires insurers to impose a 30 percent surcharge on premiums for people who enroll in insurance in the nongroup market if they have been uninsured for more than 63 days within the past year. As a result of the narrower scope of benefits included in many plans, enrollees who would use services that were not covered by the available plans would face substantial increases in their out-of-pocket costs.

ESTIMATED IMPACT ON STATE, LOCAL, AND TRIBAL GOVERNMENTS. The AHCA would impose no intergovernmental mandates as defined in the Unfunded Mandates Reform Act.

This page was last updated on 07/29/17.