AHCA Would Reduce Premiums by 20 Percent, CBO Estimates

Published June 8, 2017

The House-approved version of the American Health Care Act (AHCA) would reduce health insurance premiums by 20 percent in one-third of states and by greater percentages in other states, the Congressional Budget Office (CBO) reports.

The bill would let states apply for federal waivers allowing them to opt out of the Affordable Care Act’s essential health benefits (EHB) and certain community rating mandates, which increase the cost of insurance.

In scoring the bill, CBO assumed “half the population resides in states that would not request waivers,” according to a cost estimate released on May 24. Premiums would decrease by four percent in those states under AHCA, the estimate states.

Premiums would decrease by 20 percent in the one-third of states that CBO estimates would use AHCA waivers to implement moderate changes to the existing law. In addition, one-sixth of states would use waivers to implement significant changes.

The House approved AHCA by a 217–213 vote on May 4. To facilitate passage by the Senate, House Republican leaders drafted AHCA as a budget reconciliation bill, which Senate rules exempt from the filibuster.

Not Yet Reconciled

Robert Graboyes, a senior research fellow and health care scholar at the Mercatus Center at George Mason University, says Congress’ budget reconciliation process is an inadequate vehicle for sweeping heath care reform.

“The most important improvements likely can’t be done, because of the limits of reconciliation,” Graboyes said.

Under AHCA, federal taxpayers would subsidize state-sponsored pools of individuals whom private health insurers have deemed too high-risk to insure unless those individuals pay drastically higher premiums than healthy patients. AHCA plans for these patients to buy subsidized insurance from a high-risk pool.

The costs of AHCA’s approach to ensuring high-risk individuals can buy insurance are difficult to predict with accuracy, Graboyes says.

“The AHCA does try to alter how we finance care for people with pre-existing conditions,” Graboyes said. “But making them work is likely to require more funding than what is currently in the bill. The numbers of enrollees, the cost per enrollee, the definition of ‘pre-existing conditions,’ and the specifics are largely unknowable at this time.”

Guaranteeing high-risk individuals can afford health insurance is a good intention with a bad price tag, Graboyes says.

“No denial of coverage for pre-existing conditions is a humane and caring impulse, but it comes at considerable financial cost and can destabilize insurance markets,” Graboyes said.

‘Santa Claus Politics’

Linda Gorman, director of the Heath Care Policy Center at the Independence Institute, says Congress insists on preserving ACA instead of repealing and replacing it.

“Congress washes its hands of the mess that’s been made,” Gorman said. “It says, ‘Go ahead states, do your thing. And by the way, we’ll keep the subsidies flowing. And we’ll see your subsidies and up them again with direct payments to insurers for high claims.'”

In avoiding true health care reform, AHCA would further entrench entitlements once exclusive to Obamacare, Gorman says.

“It’s Santa Claus politics all the way down, which means they have to figure out how to subsidize more than Obamacare did,” Gorman said. “This just further attenuates any market impulses in health care, increases dependency, and decreases innovation. Costs go up.”

Faulty Premises

Graboyes says congressional Republicans ceded hope of passing several free-market reforms by excluding them from AHCA.

“Some possible reforms are effectively off the table because AHCA supporters have essentially accepted some of the ACA’s central promises: no denial of coverage or benefits based on pre-existing conditions, no lifetime limits on coverage, dependents up to age 26 can stay on parents’ plans, preservation of job-based health insurance, and more,” Graboyes said.

Neither ACA nor AHCA addresses the unintended consequences of tying federal tax breaks to employer-sponsored health insurance, Graboyes says.

“The employer-based health insurance system restricts competition and detaches consumers from their health care decisions,” Graboyes said. “It is a major source of distortions in the health care system.”

Matthew J. Bolduc ([email protected]) writes from Washington, DC.

Internet Info:

Michael T. Hamilton, “Six ‘Ifs’ Stand Between AHCA and Successful Passage,” PJ Media, May 12, 2017: https://pjmedia.com/news-and-politics/2017/05/12/six-ifs-stand-between-ahca-and-successful-passage/

Michael T. Hamilton, “Policy Diagnosis: Today’s Health Insurance Crisis Stems from Federal Interference in 1943,” Health Care News, The Heartland Institute, January 12, 2017: https://heartland.org/news-opinion/news/policy-diagnosis-todays-health-insurance-crisis-stems-from-federal-interference-in-1943

Gary Wolfram, “Health Care,” Public Policy from a Constitutional Viewpoint, Hillsdale College, April 2017: https://online.hillsdale.edu/courses/public-policy/lecture-7

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