John Locke Update / Research Brief

What The CBO Says About Reconstructing Obamacare

posted on in Health Care, Health Care & Human Services
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This week, the non-partisan Congressional Budget Office (CBO) released its score of the Republican Obamacare repeal bill, known as the American Health Care Act (AHCA). The 28-page document reports that, over a ten-year projection, AHCA will reduce federal deficits by $337 billion. It also estimates that a total of 52 million people by 2026 would be uninsured, compared to 28 million without coverage if Obamacare were still intact at that point in time.

Savings

$935 billion in savings largely comes from changes to the financial design of Medicaid– the state-federal health insurance program that provides medical assistance to low-income children, parents, aged, and disabled. For example, starting in 2020, North Carolina will no longer be able to receive two dollars from the federal government for every state dollar spent on medical care for most patient groups. Rather, the feds will begin to cap the costs for medical services provided to those patients based on 2016 average spending patterns.

This monumental change will push states to act more responsibly over their Medicaid spending. They will be incentivized to measure success for patient care not by how much is spent, but by a closer monitoring of health care outcomes. Imagine if a portion of capped Medicaid funds could be distributed as vouchers for low-income patients who could gain immediate access to basic primary care through a direct care physician or other transparent health care models. This is just one of many ways in which limited federal funds will incentivize states to be more creative with how they can improve the quality of Medicaid, and prioritize spending for the most vulnerable patients.

Other significant federal deficit reductions result from repealing the federal health law’s cost-sharing and premium subsidies for people who purchase health insurance on their own.

Spending

Meanwhile, AHCA’s $599 billion in spending is largely attributed to replacing Obamacare’s premium subsidies with age-based refundable tax credits for people who don’t receive health insurance through their job. The bill also reverses cuts to supplemental payments for hospitals that serve an overwhelming number of Medicare and Medicaid patients. Moreover, scrapping the tax imposed on people and employers for not purchasing federally qualified health coverage also comes with a cost – resulting in a revenue loss of $210 billion.

The other major line item is the $100 billion patient stability fund (federal insurance subsidies) that can be used by states beginning in 2018 to offset the costs of high-risk policyholders who purchase health insurance on their own. States also have the freedom to use these funds to develop and administer separate high-risk pools for qualifying patients.

Uninsured Rate

The reasoning behind the projected reduction in the number of Americans with health insurance is because the federal government plans to phase out its generous “match” rate to pay for new Medicaid expansion enrollees (low-income adults without children) starting in 2020. Any additional enrollees who otherwise would qualify under “expansion” eligibility could possibly be accepted or denied by the states’ authority, depending on whether they will continue to accept these patients since they will be paying for a larger share of their health care services.

The end of both the individual and employer mandates could also add to the total increase in the uninsured rate (although this could be a temporary measure, depending on which premium-hiking insurance regulations are kept, which are discarded, and when). For example, healthier Americans may be less inclined to purchase insurance until after 2020 because insurers will have to wait for certain actuarial value regulations to be lifted in order for them to be able to sell less expensive plans in the non-group market. In the meantime, patients with pre-existing conditions will remain in the non-group market until states take the time to set up and administer separate high-risk pools under AHCA’s Patient Stability Fund. This, too, could temporarily result in even higher premiums and drive younger consumers away from purchasing insurance.

Lastly, don’t forget that CBO Director Keith Hall discounts “skimpy” health insurance plans as “adequate” coverage.

Keep in mind that the CBO’s score reflects just the first of three necessary parts to enact a new version of health reform. Part one is getting AHCA through budget reconciliation, a special legislative process which permits only changes to taxing, spending, and debt limit provisions to the standing federal health law. It is the vehicle to repeal and replace Obamacare. Securing a Senate simple majority (51 votes) – enough to withstand any filibustering – will be necessary to partially gut the law. Otherwise, a sweeping repeal requires 60 Senate votes, and that’s just not politically viable.

Part two of a revised health reform entails getting rid of burdensome regulations – specifically those that drive up the cost of health insurance premiums. That responsibility will primarily fall to Department of Health and Human Services Secretary Tom Price.

Part three is additional legislation that promotes more health care competition and may help to lower costs. The companion bill could include the following; allowing more people to contribute towards tax-free health savings accounts (HSAs), permitting individuals and small businesses to band together to form their own insurance risk pools and malpractice limits.

However, for such a bill to pass, it would need Democrat support beyond 52 Republican votes in the Senate. And before that bridge is even crossed, the House GOP is going to need negotiating room with fellow colleagues on the reconciliation bill.

Katherine Restrepo is the Director of Health Care Policy at the John Locke Foundation. Before joining the John Locke Foundation, she interned at the Cato Institute under the direction of Michael Cannon, Director of Health Policy Studies. … ...

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