More Detailed Summary of the CBO Analysis of the House Republican’s Repeal and Replace Proposal
The bill would do the following:
1. Eliminate the penalties on individuals and employers requiring the purchase, offer and acceptance of coverage beginning in 2017.
2. Reduce the federal Medicaid matching rate for the new eligibles to the state’s traditional match beginning in 2020; in California this would reduce the match from 90/10 to 50/50 for new medically indigent adult eligibles from that point forward.
3. Cap the growth in federal Medicaid matching payments to the growth in the medical CPI beginning in 2020
4. Repeal the income and cost adjusted refundable tax credits for individual coverage and replace them with flat, age adjusted refundable tax credits beginning in 2020. Extend them to out of market plans.
5. Appropriate $80 billion for state grants to stabilize the individual market beginning in 2018
6. Replace the 3/1 age rate band with a 5/1 age rate band in 2018
7. Eliminate the 60% actuarial value floor for coverage sold in the individual and small employer markets beginning in 2020
8. Require a 30% premium surcharge on individual coverage if an individual is uninsured for more than 63 days a year
9. Repeal the surcharges on the Medicare payroll tax for high income individuals in 2018 – savings of $275 billion
10. Repeal the annual tax on health insurers in 2018 – savings of $145 billion
11. Delay the Cadillac benefits excise tax until 2026 – savings of $48 billion.
Impacts of eliminating the mandates: CBO estimates that eliminating the “mandate” penalties for employers, employees and individuals would cause about 14 million people to lose coverage as some employers would stop offering coverage and some individuals would stop enrolling in Medicaid, the Exchanges or their employment-based coverage. About $240 billion in revenues (mostly from employers) would be lost between 2017 and 2026. This would also cause premiums in the individual market to rise by 20-25% between 2017 and 2020 as some healthier individuals exit while others with more costly medical conditions stay in.
Impacts on Medicaid of the Per Capita Cap and Reducing the Federal Matching Rate for New Eligibles: The two features would reduce federal Medicaid spending by 25% by 2026. For the most part these changes would kick in between 2020 and 2026 and CBO concludes states would curtail eligibility, eliminate services and reduce reimbursement rates as a result. CBO concludes that 14 million Americans would lose Medicaid coverage. This includes both individuals in the 31 states who have already expanded coverage and some in the 20 states who would otherwise have extended eligibility during this tame frame. The 31 states who have already expanded coverage account for 50% of the nation’s potential new Medicaid eligibles; CBO concludes that absent the Republican legislation this would increase to 80% of all eligibles as new states take advantage of the enhanced federal match and that absent the cap, Medicaid expenditures would grow about 4% per annum.
Impacts of Changes to the Individual Market before 2020: Extending tax credits for plans purchased by individuals outside the Exchanges would allow 2 million more Americans to receive tax credits; (these tax credits do not extend to cost sharing and are not advanceable, but rather would be claimed on the end of the year tax returns). These changes would benefit 2 million more Americans. The changes in 2019 to the tax credits would advantage younger individuals and disadvantage older individuals, leading to a decline in older Americans with insurance and an increase in individually insured younger Americans; the net impact is 1 million more Americans with coverage. Beginning in 2018, states would receive $80 billion in federal matching grants to help stabilize premiums in their individual markets. CBO expects these funds will be used to reimburse insurers for high cost individuals – i.e. reducing the risk profile of the individual market.
Beginning in 2019, insurers would be required to impose a 30% premium surcharge on individuals who were uninsured for more than 62 days in the prior year. CBO projects that one million more Americans would buy insurance to avoid the surcharge in 2018 and two million more Americans (mostly young and healthy) would not buy insurance and thus be uninsured in subsequent years due to the higher premiums of the surcharge.
The House legislation would increase the age rating rate band from 3/1 to 5/1 for older Americans; CBO found that most of those immediate adverse impacts for older low and moderate income Americans would be mitigated by the existing refundable tax credits; about 500,000 older middle income Americans would newly qualify for ACA tax credits due to the changes in age rating. Older Americans with incomes above 400% of FPL would be adversely impacted by the switch to 5/1 age rating and may choose less costly plans or coverage during this period.
Impacts of Changes to the Individual Market during and after 2020: During and after 2020, the premium assistance and out of pocket tax credits would change from sliding credit based on an individual’s income and the cost of local coverage, to a flat tax credit that varies on a 2/1 basis for age and has no assistance for out of pocket. CBO projects that the reduced and eliminated subsidies will lead many individuals to buy less coverage with much higher copays and deductibles or no coverage because it is unaffordable.
In addition, the tiers of coverage: catastrophic, bronze, silver, gold and platinum will be eliminated as well as the minimum actuarial value requirements. Tax credits would be available regardless of whether an individual purchases through Exchanges or not. As a result, individuals will be less able to compare price, value and coverage options due to the elimination of the actuarial values and the central organizing and purchasing roles of the Exchanges.
Individuals in high priced regions (i.e. rural Americans), individuals with lower incomes (rural Americans and Americans living in Southern states) and individuals with higher costs (i.e. older Americans) would all be exposed to much higher care and coverage costs as a result of the proposed House Republican tax credits. They will be less likely to purchase coverage and if they do purchase coverage, more likely to purchase coverage with very high cost sharing.
Table 4 of the CBO report perfectly illustrates this. For an individual 64 years old with an annual income of $26,500, under the ACA his/her premium is $15,300, the refundable tax credit is $13,600 and the individual pays $1700 a year. Under the House Republican plan, her/his premium is $19,500, the refundable tax credit is $4900, and the individual must pay $14,600 (more than half his/her annual income) for coverage. Meanwhile for the 21 year old making an annual income of $68,200, under the ACA, his/her annual premium is $5,100, the refundable tax credit is $0 and the individual pays the entire cost. Under the House Republican plan, the premium is $3900, the refundable tax credit is $2450 and the individual pays $1450 annually (2% of his/her annual income for coverage).
The proportions of individuals purchasing coverage would therefore shift – a higher proportion of young and higher income people and a lower share of older and lower income persons would have coverage. The resulting shift in the demographic composition in the individual market would reduce overall costs and premiums in the individual market.
The extent of federal assistance via refundable tax credits in the House Republican plan would fall to 60% of the health cost assistance offered by the ACA and by 2026 it would fall to 50% of the assistance offered under the ACA because the growth of the tax credits are linked to the growth in the medical CPI rather than to the growth of premiums in the individual market. Thus fewer individuals would purchase coverage, and more would become uninsured.
CBO projects that states would use their share of federal stability grant funds ($80 billion) to lower the price of coverage in the individual markets by reinsuring insurance companies for their high cost individuals. This could help reduce premiums in the individual market. States must match the federal grant funds growing from a 7% match in 2020 to a 50/50 match in 2026.
The House Republican plan would provide refundable tax credit subsidies to individuals over 400% of FPL up to and above 600% of FPL. This would lead individuals in this income range to purchase more expensive coverage in the individual market. CBO projects it would also lead some employers, particularly those with younger and better-paid workers, to cease offering coverage for their employees.
The CBO projects that the individual markets will not enter a death spiral due to the House Republican changes because the revised tax credits will attract younger and healthier enrollees and states will use their federal grant funds to reinsure insurers for their most costly subscribers. Premiums will increase and enrollment will decline during the 2018-2020 period due to the House Republican changes, but premiums will decline and enrollment will increase during the 2020-2026 period due to a more favorable demographic enrollment. The CBO also notes that the individual markets will not enter a death spiral under the ACA because the individual mandate plus the refundable tax credits will assure balanced enrollment.
Impacts on the numbers and composition of individuals with coverage: CBO projects that in 2017, the number of uninsured would increase by 4 million due to the House Republican proposal to eliminate any penalties for the individual and employer mandates. In 2018 14 million more people would be uninsured compared to the ACA: about 6 million less with individual coverage, 5 million fewer with Medicaid and 2 million fewer with employment based coverage. In 2020, 21 million more people would be uninsured compared to the ACA and by 2026, 24 million more people would be uninsured. The growth would be most pronounced among those individuals with incomes under 200% of FPL between the ages of 50 and 64 who can least afford premiums or the costs of their health care.
· About 9 million fewer people would be covered by Medicaid in 2020, growing to 14 million in 2026.
· About 9 million fewer people would be covered by the individual market in 2020, declining to 2 million in 2026.
· About 2 million fewer people would have employment-based coverage in 2020 growing to 7 million in 2026 as employers drop coverage and employees shift into the tax subsidies newly available in the individual market.
Impacts on the Premiums in the Individual Market: CBO projects premium increases of 15-20 during 2018 and 2019 as healthy individuals drop coverage due to the repeal of the individual mandate. CBO projects lower premiums during the 2020-2026 timeframe due to a younger demographic attracted by the age rating and tax credit changes, state reinsurance policies for the most costly subscribers, and health plans offering less extensive (lower actuarial value) coverage. Premiums during this time frame would be 20-25% higher for 64 year olds and 20-25% lower for 21 year olds.
Other Important Changes:
· Repeal of the Prevention and Public Health Fund – savings $9 billion
· Defunding Planned Parenthood -- $234 million
· Increased funding for Community Health Centers – cost of $422 million
· Repeal of the Community First Option for Medicaid Long Term Care Services -- $12 billion
· Repeal of the reductions in hospital DSH Funds – cost of $31 billion
· Increased allotments to states that did not expand Medicaid – cost of $8 billion
The House Republican proposal appears to meet none of the President’s avowed health reform purposes: it covers fewer people at greater cost to them with considerably higher copays and deductibles. It is hard to imagine how it could be implemented in a manner satisfactory to President Trump’s constituencies among older, working class voters in the Midwest, Appalachia and Southern states.
Prepared by: Lucien Wulsin
Dated: March 15, 2017