Republican’s Obamacare Replacement Faces Challenges from CBO Report

Update 3/16/2017: The House Budget Committee voted to advance the American Health Care Act to the full House floor in a 19-17 vote on Thursday. Democrats on the committee were joined by three Republicans in opposing the measure, Representatives Dave Brat (Va.), Gary Palmer (Ala.) and Mark Sanford (S.C.), all of whom are members of the House Freedom Caucus. No amendments will be added in committee, but Republicans are considering attaching non-binding recommendations to make the plan look better to more conservative members of the House.

Original story continues:

The House Budget Committee will mark up Paul Ryan's American Health Care Act on Thursday. The bill flew through both the House Energy and Commerce and Ways and Means Committees, but its future is less clear as the Budget Committee prepares to meet.

Members of the Freedom Caucus have called the bill Obamacare-Lite and are threatening to vote no on any plan that stops short of full repeal. The Freedom Caucus takes issue with the tax credits offered in the bill because they see the credits as new entitlements. Three members of the Budget Committee are in the Freedom Caucus, and if they vote no, only one other Republican would have to cross over to kill the bill in committee.

President Trump is urging Paul Ryan to make changes to the bill to try to appease more conservative members of the party. He signaled he is even willing to allow controversial measures like work requirements, premiums and co-pays for Medicaid, in addition to the cuts already proposed in the plan. However, more moderate Republicans in both the House and Senate have voiced concerns about how many people, particularly seniors, are likely to lose health insurance coverage should the bill become law. It is not clear how making the bill more conservative will appeal to these lawmakers.

What is in the numbers behind the Republican plan to replace the Affordable Care Act?

The non-partisan Congressional Budget Office released its official scoring of the bill on Monday, and it was not good news for Republicans. The CBO estimates that 24 million Americans will lose health insurance under the Republican plan to replace the Affordable Care Act (ACA). The analysis also states that premium costs would initially spike under the plan, before starting to fall long-term, and that the federal deficit would be reduced by $337 billion over the next 10 years.

According to CBO estimates, if the Republican's American Health Care Act (AHCA) becomes law, 14 million people will lose insurance by 2018, largely because consumers would no longer have to pay a tax penalty if they do not have coverage. However, the number of uninsured will continue to rise due to premium increases and cuts to Medicaid. By 2026, according to the report, 52 million people will lack health insurance, almost one in five Americans under 65. That is higher than the number of uninsured before the ACA became law.

If the bill manages to make it through the House, Senate Republicans plan to pass it with a simple majority through a process called budget reconciliation. According to Senate rules, all changes passed through reconciliation must have direct impact on the federal budget. The AHCA therefore, has major impacts on Medicaid and taxation, while leaving non-budgetary provisions of the ACA intact.

Individual and employer mandates

The AHCA would repeal the ACA's individual and employer mandates, retroactive to January 1, 2016. Repeal of the mandate is one of the most popular features of the plan, although it may make some popular provisions of the ACA unworkable.

The fundamental goal of the ACA was to increase the number of Americans with health insurance by providing as many people as possible with affordable, high-quality coverage. One way the law accomplishes this goal is to open markets to individuals who were previously uninsurable by prohibiting insurance companies from denying coverage to people with pre-existing conditions. The law also removed annual and lifetime coverage caps and allowed young adults to stay on their parents' insurance until age 26.

To ensure there is enough money in the system to cover those who need expensive care, a lot of people must pay in. However, healthy people lack an incentive to purchase insurance, especially if they know they cannot be denied coverage once they get sick. Therefore, the ACA required everyone to purchase insurance or pay a tax penalty, a provision that became known as the individual mandate. Businesses with more than 50 employees have to offer coverage or pay a similar penalty.

People have consistently favored reforms targeting insurance companies while rejecting mandated coverage. According to a CNN/ORC poll conducted the first week of March, 87 percent of Americans support maintaining protections for individuals with pre-existing conditions, while only 50 percent support the mandate.

Incentivized continuous coverage

Republicans recognize that repealing the tax penalty for individuals and businesses will cause young, healthy people to drop out of the insurance market. To incentivize continuous coverage, the AHCA allows insurance companies to add a 30 percent surcharge to monthly premiums for a full year if an individual lacked insurance coverage for more than 63 days the prior year.

Since the amount of the proposed coverage penalty would be based on premium costs instead of income, it will affect older individuals, those with low to moderate incomes and those living in rural areas, where insurance is often more expensive. According to an analysis by the Commonwealth Fund, a 50-year-old making $30,000 a year with a four-month coverage gap would pay a $232 tax penalty under the ACA but could face premium surcharges of $2,161 under the GOP plan.

Tax cuts and deficit reduction

According to the CBO, the AHCA will reduce the federal deficit over ten years while cutting taxes. The two largest tax cuts for individuals solely affect wealthier Americans. One is the repeal of a 3.8 percent tax on investment income — capital gains, dividend, and interest income — for families making over $250,000. This is coupled with the repeal of a 0.9 Medicare surtax, again levied only on families earning over $250,000 per year. In total, the plan contains $883 billion dollars in tax cuts.

These cuts are offset by a $1.2 trillion reduction in spending. The largest savings are in the form of an $880 billion cut to Medicaid. Another $9 billion in savings comes from cuts to a fund for public health and prevention programs.

Additional cuts ($673 billion) come from a change in the way insurance premiums are subsidized. Currently, subsidies are calculated based on the cost of insurance plans and the incomes of those purchasing them. This premium tax credit structure would be phased out after 2020 and replaced with a flat tax credit based on age, ranging from roughly $2000 for people under 30 to $4000 for people over 60.

According to Edward D. Kleinbard, a former chief of staff for the Joint Committee on Taxation, “Repeal-and-replace is a gigantic transfer of wealth from the lowest-income Americans to the highest-income Americans.”

Ken Jacobs, chair of the UC Berkeley Labor Center, says, that the overall effect of the GOP proposal “is a very large distribution” of income from those of moderate means to the more affluent. Speaking at a town hall event in California, Jacobs said, “I think the question here before us is will we continue with a health system that shares risk and shares responsibility, or will we return to a market-driven system where individuals are on their own?”

Structural changes to Medicaid

Over 11 million people have gained insurance through a Medicaid expansion. The ACA replaced a patchwork of state rules with a universal eligibility level for adults of 138 percent of the poverty line. The federal government pays 100 percent of the cost of expansion to the states through 2016, and 90 percent in 2020 and beyond. The AHCA ends the Medicaid expansion, potentially causing 14 million people to lose coverage by 2026 and violating President Trump's assurance that any ACA replacement will provide “insurance for everybody.”

The bill also changes the way Medicaid is funded. Currently, the federal government matches state spending on Medicaid based on a multiplier formula. This allows funding to be dispersed proportionally to the areas it is most needed. Connecticut, for example, receives $1 for every Medicaid dollar it spends, while Mississippi receives $3.11 for every dollar. The AHCA eliminates this formula and replaces it with a per capita cap. Every state will receive a set amount per beneficiary, regardless of need. The CBO projects that Medicaid spending in 2026 will be 25 percent less than it would with no changes to the law.

Dr. Grant Colfax, Marin County Health and Human Services Director and former head of the White House Office of National AIDS Policy, says that the Medicaid cuts are one of the “most egregious parts of this bill.” According to Colfax, “There's no way that state and local governments can make up the financial loss that this bill will create.”

That, says Ken Jacobs will force states to make some “very difficult choices about cuts in eligibility and cuts in service” as need surpasses federal outlays.

Premiums and promises

Congressional Republicans and Donald Trump have made a lot of promises about health care and insurance. In January, Donald Trump told ABC that everyone had to be covered, saying, "We're gonna come up with a new plan that's going to be better health care for more people at a lesser cost." He also promised on the campaign trail that he would not touch Social Security, Medicare or Medicaid. Office of Management and Budget director Mick Mulvaney has claimed that the administration does not want “anyone who currently has insurance to not have insurance.”

Republicans, anticipating the CBO score, began walking back promises of coverage last week and instead started focusing on cost. The CBO's analysis does claim that under the AHCA, premiums beyond 2026 will level off at approximately 10 percent less than current projections. However, individual premium costs are predicted to jump 15 to 20 percent before leveling off after 2020.

The eventual savings are also not evenly distributed. The GOP bill allows insurance companies to charge older adults five times more than younger adults. The CBO report states that the plan will “substantially” raise premiums for older adults, by 20 to 25 percent and “substantially” lower them for younger adults, again by 20 to 25 percent.

Finally, the AHCA changes the percentage of benefits an insurance plan must cover. Currently, individual plans cover at least 60 percent of the cost of benefits. The plan removes that requirement. Insurance companies will be able to offer cheaper plans because they will pay fewer benefits. This may bring overall premium costs down for some consumers, but the tradeoff is higher deductibles and increased out-of-pocket expenses for medical care.

Speaking at a town hall event in San Rafael, CA on Monday, Congressman Jared Huffman (D-CA2), said it was important to put statistics in perspective. “Beyond these numbers,” said Huffman, “it's important to remember that there are real lives at stake in this conversation about health care. We need to remember that numbers are important, but until that person represented by the number is your sister, your brother, your friend, your parent, it may not be totally real.”

Those most affected

The CBO report, among others, estimates that those most affected by ACA repeal will be older, lower-income Americans and those living in rural areas. Federal outlays, to both Medicaid and to individuals in the form of tax credits, are flat. A 55-year-old, who could be charged five times more than a 25-year-old for insurance, will not see a comparable increase in subsidy. A sparsely populated state that needs more money to cover high costs at rural clinics will not receive a correspondingly larger Medicaid reimbursement.

The Kaiser Family Foundation has built an interactive map that compares subsidies under current law with those that would be available under the proposed bill. According to its calculations, a 60-year-old earning $30,000 a year living in one of several rural Pennsylvania counties would be eligible for a $12,750 subsidy under the ACA but only a $4000 credit under the AHCA.

According to chair of the Board of Directors of the National Committee to Preserve Social Security and Medicare, Carroll L. Estes, premium increases and subsidy decreases, paired with a raise in the Medicare eligibility age could leave up to half of seniors age 65 to 67 without health insurance.

A matter of philosophy

Coverage numbers aside, there is good news for Republicans in the CBO report. The bill is not projected to add to the federal deficit, and premiums will be less expensive for some. The tradeoff is that fewer people will receive health coverage through the private market and Medicaid.

Speaking moments before the CBO numbers were released, Ken Jacobs said, “Part of what they're doing is they're going to make health insurance a lot more expensive for older people and a lot less expensive for younger people.” Jacobs predicted, “There is some tradeoff here... if they get a good score on the budget, it means there is going to be a really big drop in the number of people who are insured.”

The question is, how many people will find this tradeoff acceptable?