Interpreting the CBO Report: Just the Facts

The political posturing surrounding the release of the Congressional Budget Office assessment of the American Health Care Act’s (AHCA) impact on costs and coverage began even before its release Monday. Throughout the weekend prior, sponsors of the AHCA orchestrated an attack on the accuracy of the CBO’s prior forecasts associated with the passage of the Affordable Care Act in March, 2010.

As history notes, the initial CBO estimate (March, 2010) for additional coverage (60 million) was too high and its estimated cost relatively close ($1.1 trillion/10 years). After the Supreme Court ruling (June, 2012), the CBO revised its concluding: 
•    The number of nonelderly (under age 65) people lacking insurance would drop to 30 million in 2016—slightly higher than the actual (27.9 million). 
•    The health exchange enrollment for 2016 would be 23 million vs. actual (10.4 million). 
•    The numbers with insurance was forecast at 89%; at year end, it was 89.7%. 
•    And Medicaid expansion was anticipated to be 10 million vs. 14.4 million who’ve enrolled in the 31 states that expanded. 

Those are the facts. The CBO didn’t get it exactly right but their estimates prompted bean-counters like me to ponder their assumptions to understand their predictions. 

Monday, a new CBO report came out offering an independent view about the coverage and cost implications of the American Health Care Act. Using 2016 data as their baseline, the CBO team assumed the AHCA was implemented as written and looked 10 years forward to determine its impact. Their underlying assumptions do not include major changes to Medicare, acceleration or cessation of value-based payment programs, implementation of MACRA or a slowdown in drug prices. These fall outside the boundaries of the law and would inject added subjectivity in their exercise.  So, the report’s estimates are based on the specific provisions of the AHCA:  here are excerpts from the 37-page report:

Financial Impact: “CBO and JCT estimate that enacting the legislation would reduce federal deficits by $337 billion over the 2017-2026 period…. Outlays would be reduced by $1.2 trillion over the period and revenues would be reduced by $0.883 trillion. The largest savings would come from reductions in outlays for Medicaid ($880 billion) and from the elimination of the Affordable Care Act’s (ACA’s) subsidies for nongroup health insurance. The largest costs would come from repealing many of the changes the ACA made to the Internal Revenue Code (total $599 billion) including an increase in the Hospital Insurance payroll tax rate for high-income taxpayers, a surtax on those taxpayers’ net investment income, and annual fees imposed on health insurers—and from the establishment of a new tax credit for health insurance…"

Coverage: “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 (loss of 5 million enrollees) 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...”

Insurance Market Stability: “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 JCT’s assessment, however, the nongroup market would probably be stable in most areas under either current law or the legislation. Under the legislation, in the agencies’ 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 agencies’ view, lower average premiums enough to attract a sufficient number of relatively healthy people to stabilize the market."

Premiums: “In 2018 and 2019, according to CBO and JCT’s estimates, average premiums for single policyholders in the nongroup market would be 15- 20% 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% lower than under current law…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.”

Keeping in mind this report did not address Medicare, the biggest federal health program, here’s my take based on this report:  

1-Fewer will be covered under the AHCA in the near term. It’s just a matter of how many. Even if annual premium increases settle at 10% in 10 years, there are 5 election cycles, 10 enrollment periods and a myriad of domestic issues and challenges in the interim. Though premiums for the younger and healthy will moderate, premiums for the sick, old and underinsured will spike. 

2-Federal spending cuts will ultimately put added pressure on states and providers. The AHCA reduces federal spending by cuts to Medicaid and cuts to individuals who use subsidies to purchase coverage (The funds saved from the premium support in the Affordable Care Act ($673 billion) are double what the AHCA plans to pay for tax credits ($361 billion)). That means shrinking capitated payments from the feds to the states that put state legislators and Governors in fiscal distress and doctors and hospitals in a position of providing more services at less than their costs.

3- ‘Repeal and Replace’ will be Issue One in Campaign 2018. The GOP plans a three-phase rollout led by the AHCA. The CBO report will fuel partisan rancor and stoke emotions on all sides. 

These are the facts.

Paul