On May 24, 2017, the Congressional Budget Office (“CBO”) and the staff of the Joint Committee on Taxation (“JCT”) released a cost estimate for H.R. 1628, known as the American Health Care Act of 2017 (the “AHCA”). The CBO and the JCT issued cost estimates for prior versions of the AHCA on March 23, 2017 and on March 13, 2017. A summary of the key CBO and JCT estimates is provided below.
Federal Deficit Estimated to Decrease, But Not as Significantly as in Prior AHCA Versions
The CBO and the JCT estimated that enacting the version of the AHCA passed by the House of Representatives on May 4, 2017 would result in a net reduction of the cumulative federal deficit of $119 billion over the course of the 10-year period from 2017 to 2026.
This estimate results in $31 billion less in savings than the March 23, 2017 CBO estimate (which estimated a $150 billion deficit reduction) and $218 billion less in savings than the March 13, 2017 CBO estimate (which estimated a $337 billion deficit reduction). As was the case in prior estimates, the primary source of deficit reduction is the curtailment of outlays for Medicaid and the replacement of premium and cost-sharing subsidies under the Affordable Care Act (“ACA”) with a new tax credit program for nongroup health coverage. The primary source of deficit increase is the repeal of ACA-related taxes.
Number of People Uninsured Estimated to Increase, But Not as Significantly as in Prior AHCA Versions
The CBO and the JCT estimated that, in 2018, 14 million more individuals will be uninsured under the AHCA than under the ACA. Further, it is estimated that the number of uninsured individuals will rise to 19 million in 2020 and to 23 million in 2026. These numbers are equal to or slightly less than the prior CBO estimates, as shown in the chart below:
- The CBO and the JCT indicated that the small reduction of expected uninsured individuals would stem, in part, from employers viewing the nongroup insurance market as less favorable to employees, which would lead more employers to offer group health coverage.
States Would Have the Flexibility to Waive “Essential Health Benefits” and “Community Rating” Requirements, Resulting in Significantly Different Coverage, Premium, and Out-of-Pocket Experience Based on State Residency
As enumerated in our May 4th blog entry on the passage of the AHCA, the legislation would allow states to waive the ACA provision that restricts how insurance providers determine premium rates (under the ACA, insurers in the individual and small group market can only take into consideration the coverage tier, community rating, age (as long as the rates do not vary by more than 3 to 1), and tobacco use).
In addition, the legislation would allow states to waive the essential health benefits (“EHBs”) requirement under the ACA. Waiver of the EHBs requirement could result in higher out-of-pocket costs to individuals, according to the CBO and the JCT, because the ACA’s prohibition on annual and lifetime limits only apply to EHBs. Thus, a less restrictive definition of EHBs means that more services can be subjected to annual or lifetime limits.
The AHCA’s impact on nongroup insurance premiums would depend on whether the states waive ACA requirements. For the 2020 to 2026 period, the CBO and the JCT estimate that:
- Approximately 1/2 of the population will reside in states that will not seek waivers to the EHBs requirement or the community rating requirement. As was noted in the prior CBO estimates, premiums in these states are expected to be approximately 10% lower on average than under current law after 2020.
- Approximately 1/3 of the population will reside in states that will make moderate changes to the EHBs requirement and/or the community rating requirement. Premiums in these states are expected to be approximately 20% lower on average than under the ACA after 2019, since the coverage is expected to generally be less comprehensive than under current law.
- Approximately 1/6 of the population will reside in states that will seek waivers to the EHBs requirement and/or the community rating requirement. Premiums in these states are expected to vary significantly depending on a person’s health condition and level of benefits coverage. Premiums would be significantly lower for individuals with low expected health care costs, but “less healthy people would face extremely high premiums,” according to the CBO and JCT report. This premium disparity could result in a highly volatile nongroup insurance market, which would ultimately cause many individuals to forego insurance coverage.
The CBO and the JCT highlighted that the above percentages of estimated state activity remain uncertain and are subject to a number of key factors. These include the actions and coverage decisions of states prior to the enactment of the ACA, current market conditions, and the concerns of state insurers and market participants.
Impact on Employer-Sponsored Plans Minimal
The CBO and JCT report indicates that the AHCA impact on employer-sponsored plans will be minimal. Nevertheless, the AHCA may lead to greater flexibility in employer-sponsored benefit design because employers with large group and self-insured plans could design their EHBs package on a state that has waived the ACA’s EHBs requirement. See our May 4th blog entry for more information on the EHBs requirements for large group and self-insured plans.
Next Steps for the AHCA
Although the AHCA has been passed in the House and a cost estimate has been provided by the CBO and the JCT, there remains a considerable amount of uncertainty surrounding the legislation. The AHCA is now being reviewed by the Senate, which will likely take the CBO cost estimate into account when analyzing the legislation.