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Rundown of the CBO's Score of House Republican Leaders' ObamaCare Replacement

03/13/2017

The Congressional Budget Office (CBO) has released its much-anticipated score of the American Health Care Act (AHCA). Over the next ten years, the CBO estimates that federal revenues will decline by $882.8 billion as a result of the repeal, delay, or zeroing out of most of ObamaCare's taxes, and federal spending will be reduced by $1.219 trillion. Overall, the deficit would be reduced by $336.5 billion from FY 2017 through FY 2026 under the proposed legislation.

The impact the bill has on taxes, as well as the expansion of health savings accounts (HSAs) and the modernization of Medicaid are positive reforms. There are, however, some really big sticking points or uncertainties in the CBO score that are worth diving into here.

Medicaid Expansion: A substantial part of the deficit reduction in the AHCA comes from the repeal of Medicaid expansion, as well as the modernization of the 52-year old program, which is a positive reform. The CBO estimates that $880 billion in savings comes by way of the reduction in Medicaid outlays. "That reduction," the CBO says, "would stem primarily from lower enrollment throughout the period, culminating in 14 million fewer Medicaid enrollees by 2026."

The concern here is that the bill sets up an ObamaCare “cliff” in 2019, ahead of the 2020 presidential election. This is not unlike the so-called “fiscal cliff” in 2012 when tax cuts passed under President George W. Bush were set to expire and the first round of the sequester under the Budget Control Act of 2011 was set to take effect. A deal was reached to keep tax cuts for low- and middle-income earners and raise taxes on high-income earners. The first round of sequester cuts were delayed for two months.

The sequester has since been delayed two additional times, in the Bipartisan Budget Act of 2013, which was orchestrated by then-House Budget Committee Chairman Paul Ryan (R-Wis.) and Senate Budget Committee Chairwoman Patty Murray (D-Wash.), and the Bipartisan Budget Act of 2015.

Additionally, Congress had routinely delayed the Medicare Sustainable Growth Rate (SGR), which became law under the Balanced Budget Act of 1997. The SGR was meant to control Medicare costs by preventing yearly increases in expenses, including payments to physicians, from surpassing the growth in gross domestic product (GDP).

Congress went through the exercise of delaying the SGR by including language in legislation to prevent the cuts. This frequent routine became known as the “doc fix.” The SGR was ended in April 2015 with the Medicare Access and CHIP Reauthorization Act.

Because states will be allowed to continue to enroll people under expansion until through 2019 and states can expand Medicaid through the same time period, the circumstances in a presidential election year will make the repeal of Medicaid expansion a political football for President Trump and congressional Republicans. Given the previous actions of Congress to avert difficult decisions, it is highly likely that the repeal of Medicaid expansion will never happen.

ObamaCare Tax and Cost-Sharing Subsidies vs. AHCA's Advanceable, Refundable Tax Credit and Patient and State Stability Fund: The AHCA repeals ObamaCare's advanceable, refundable tax credit and cost-sharing subsidies, saving $673 billion over ten years. But the proposed bill replaces ObamaCare's tax and cost-sharing subsidies with another advanceable, refundable tax credit at the beginning of 2020. The AHCA's tax credit will cost $361 billion between 2020 and 2026.

Separately, the bill would also include $80 billion (the legislative text calls for $100 billion) for the Patient and State Stability Fund. While these this fund can be used by states to pay for high-risk pools, the money can also be used to lower out-of-pocket costs for consumers, including but not limited to those who are high-risk or have a high rate of health care utilization. This is effectively the same function as ObamaCare's cost-sharing subsidies.

In total, these the AHCA's advanceable, refundable tax credit and the Patient and State Stability Fund will cost $441 billion over the ten year period. Yes, it's a net reduction in government spending for tax credits and cost-sharing, but this is swapping out one entitlement for another.

Impact on Insurance Premiums: The CBO predicts that health insurance premiums on the individual market will see a short-term spike of 15 percent to 20 percent under than the AHCA. This will last for two years, in 2018 and 2019. By 2026, premiums would be 10 percent lower than under ObamaCare. The CBO assumes that the spike will be caused by fewer healthier people enrolling in health insurance coverage because the individual mandate will not apply.

While the AHCA does change the actuarial value (AV) standards, House Republican leadership hasn't targeted the essential health benefits codified in Section 1302 of ObamaCare for repeal, the same place the AV standards live, which means health insurers will still have to offer plans with those benefits, keeping premiums unnecessarily high.

Impact of the Continuous Coverage Surcharge: The surcharge levied by a health insurer on top of an individual's base premiums if the individual hasn't maintained continuous coverage for more than 63 days isn't expected to have much of an overall impact. "[R]oughly 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 CBO explains. "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."

There are several talking points that Democrats will use in the media while the AHCA is working its way through Congress. The two most prominent will be that the CBO estimates that 24 million fewer people will have coverage by 2026, 14 million of whom would have been eligible for Medicaid expansion, and that individuals aged 64 years and older will pay substantially more in premiums because of the modification of ObamaCare's age-rating requirement, seeing their annual costs rise from $1,700 to $14,600. This increase, however, may not take into account cost-sharing subsidies available from the Patient and State Stability Fund.

None of this is to say that FreedomWorks agrees with the CBO's assessments, but the score and related impact will be used to hammer the AHCA, for which House Republican leaders are already having a difficult time getting conservative support because the bill doesn't go far enough to repeal ObamaCare and effectively repeals one entitlement to create another.