CBO Score of Final House Bill Reveals Threats to Insurance Market Stability

May 25, 2017Client Advisory
Perspectives on Health Care and Life Sciences

The Congressional Budget Office (CBO) on May 24 released its much-anticipated score of the House Republicans’ bill to repeal and replace the Affordable Care Act (ACA), officially known as H.R. 1628, the American Health Care Act (AHCA). The House narrowly passed the bill on May 4 without waiting for CBO to update its March 23 score to account for crucial amendments that were made to the bill days before the final vote to appease members who initially withheld support—the so-called MacArthur and Upton amendments.

The Senate can now proceed to consider the House-passed bill, though as has been reported widely, the Senate is trying to write its own bill and is struggling to gain the consensus among Republicans to pass a bill without any Democrats getting on board. Many Republican senators are troubled by the AHCA’s deep cuts to Medicaid.

As predicted, given the changes made since CBO scored the pre-amendment House bill, CBO still foresees millions of Americans losing health insurance coverage under the AHCA. To be exact, CBO projects 14 million more people will be uninsured by 2018 and 23 million fewer people will have health coverage 10 years after passage, in 2026. The original score foresaw the 10-year coverage loss as 24 million. Of the 23 million losing coverage, somewhat more than 14 million will be dropped from Medicaid, while more than eight million will fall out of the non-group commercial insurance market.

CBO projects the net impact on federal spending over 10 years as a savings of $119 billion. The principal reduction in federal outlays comes from $834 billion of Medicaid cuts: part from eliminating enhanced federal matching payments for the adult expansion population, and part from imposing per capita caps on federal contributions to states’ Medicaid spending.

The main offsets to savings are due to the elimination of most of the ACA’s taxes, ranging from the taxes on high earners to the fines levied on people who did not take up coverage pursuant to the individual mandate and the various industry fees.

Another cost is $117 billion to go toward the patient and state stability grants—essentially the premium subsidies to individuals and high-risk pools that states are expected to set up. Many analysts believe this funding will fall well short of the amount needed cumulatively to pay for the care of high-cost patients.

A significant wrinkle in the final H.R. 1628 that was not in the first CBO-scored bill is the option for states to choose different paths to reform. States could elect to waive ACA-style rules on essential health benefits (EHBs) and community rating if they establish high-risk pools. By giving states choices, the House complicated CBO’s scoring task.

To create a meaningful score, the agency had to guess how many states—and even which ones—would take up waivers. The agency estimated that one-half of the population resides in states that will not seek waivers of the EHBs or community rating rules, one-third of the population lives in states that will seek moderate waivers, and one-sixth are in states that will choose to substantially alter benefit and rating standards. The report does not name which states are in which category.

We think CBO’s most significant new finding about the amended bill is this, which is focused on the states that will waive EHBs and community rating:

[A]verage 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 EHB requirements would cause plans to 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 H.R. 1628 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.