American Health Care Act
March 13, 2017 - Congressional Budget Office
Cost Estimate
CBO and JCT estimate that enacting the American Health
Care Act would reduce federal deficits by $337 billion over the coming decade
and increase the number of people who are uninsured by 24 million in 2026
relative to current law.
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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 Actfs (ACAfs) 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
taxpayersf 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 premiumsf
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 JCTfs 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 agenciesf 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 agenciesf 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 JCTfs
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 gmajor
legislation,h as defined in the rules of the House of Representatives. 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.
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).