A Brief Analysis of the CBO Report on the American Health Care Act

The Congressional Budget Office ("CBO") has scored the American Health Care Act (which I like to pronounce as "Ahaaa").  It is only 37 pages and can be found here.  I've summarized it and my thoughts on it into one page below.   

20% to 50% Reduction in Taxpayer Costs

•  Taking the CBO at its word, the proposed bill reduces federal deficits by $337 billion over the next 10 years. (About a 20% reduction in the cost of Obamacare if we assume PPACA was at roughly $1.7 trillion.)

• However, the CBO views tax cuts as costs. Those footing the bill, taxpayers, view it as savings. Therefore, this bill really saves closer to $0.9 trillion - or just over half the cost of Obamacare.  (See David Henderson for a more detailed explanation on that front.) 

Fewer Americans Covered Under Taxpayer Funded Insurance

• In 2018, 14 million fewer people would be insured than under current law. However,
• 11 million people fewer will be dependent on taxpayer funded healthcare; and 
• 5 million fewer people forced into a failing Medicaid system.

A 10% to 25% Reduction in Premiums for Most Americans by 2026

• The proposed legislation would reduce prices enough overall to stabilize the insurance market by enticing younger and healthier people to purchase healthcare and do so with fewer taxpayer handouts. I.e., free market improvements with less reliance on government. (Top of P. 3 in CBO report.)

• By 2026, premiums in the non-group market would be 20% to 25% percent lower for a 21-year-old and 8% to 10% lower for a 40-year-old—but 20 percent to 25 percent higher for a 64-year-old. (Page 22 in CBO report.) This is actuarially correct but politically challenged. 

• For those with household income exceeding 150% of the Federal Poverty Level ("FPL"), the legislation would generally reduce the percentage of income that younger people had to pay toward their premiums and increase that percentage for older people. (Bottom of page 11 in CBO report.) This helps to correct the PPACA underwriting perversions that unduly burden young Americans.

Minor Improvements in Insurer and Employer Ability to Offer Creative Free Market Healthcare Plans

• This bill fails to eliminate the 10 categories of “essential” benefits as defined by PPACA and therefore limits the ability for insurers to sell cheaper, mini-med or catastrophic types of policies to people who do not want or need full blown high-dollar coverage. This is a clear shortcoming. (Page 14 of CBO report.)

• However because somewhat lower actuarial values will be allowed and because HSAs will be expanded, this bill does incrementally improve individual healthcare consumerism and lessen taxpayer reliance on governmental subsidies. 

• A Safety Net, Not a Safety Hammock: In an illustrative example, CBO and JCT estimate that a 21-year-old with income at 175 percent of the FPL in 2026 would be eligible for a premium tax credit of about $3,400 under current law; the tax credit would fall to about $2,450 under the legislation. (Page 16 in CBO report.)

IRS Still Involved in Healthcare and Employers Still Reporting. Unfortunately, this bill did add in an income limit for the tax credit test (earlier versions were solely based on age; not income). This means that the IRS will still have to be involved in determining who gets tax credits and employers will still have to engage in the onerous reporting that PPACA spawned.  In theory, however, this reporting could be less detailed. 

Reduction in the Tax on Work and Saving. Less Punishment for Work - in another example, CBO and JCT estimate that a 21-year-old with income at 450% of the FPL in 2026 would be ineligible for a credit under current law but newly eligible for a tax credit of about $2,450 under the legislation. (Page 16 in CBO report.)

Less Reliance on Government and More Personal Responsibility: “total federal subsidies for nongroup health insurance would be significantly smaller under the legislation than under current law for two reasons. First, by the agencies’ projections, fewer people, on net, would obtain coverage in the nongroup health insurance market under the legislation. Second, the average subsidy per subsidized enrollee under the legislation would be significantly lower than the average subsidy under current law. In 2020, CBO and JCT estimate, the average subsidy under the legislation would be about 60 percent of the average subsidy under current law. In addition, the average subsidy would grow more slowly under the legislation than under current law.” (Page 17 in CBO report, the italics are mine.) This is a significant improvement on PPACA in terms of fostering more individual responsibility and keeping deficits under control.