On May 24, the Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT) released an updated estimate on the budget impact of H.R. 1628, the American Health Care Act (AHCA), which passed the U.S. House of Representatives on May 4. Since CBO last estimated the bill, amendments by Representatives Tom MacArthur (R-NJ), Mark Meadows (R-NC) and Fred Upton (R-MI) only made a bad bill worse for seniors. The AHCA would benefit wealthy households and insurance and drug companies at the expense of low and moderate-income individuals who would be harmed by radical cuts to Medicaid and much reduced premium tax credits to purchase health care in the Affordable Care Act’s marketplaces.
According to CBO/JCT projections, over the next decade, 23 million people will lose health insurance under the proposed legislation compared to current law. CBO/JCT project that losses will occur due to the proposal’s repeal of the Medicaid expansion, restructuring of the Medicaid program into per capita caps, changes to the Affordable Care Act’s (ACA) individual market reforms, and repeal of the individual mandate. Seniors and near retirees would make up the largest demographic group to lose health care coverage under the AHCA.
CBO estimates that changes to Medicaid will result in 14 million fewer Medicaid enrollees by 2026, a reduction of about 17 percent relative to the number under current law. Changes to the ACA’s individual market reforms will cause the number of individuals age 50-64 without insurance to climb from just over 10 percent under current law to nearly 30 percent.
Private Insurance Changes
Under the ACA, marketplace plan enrollees, including “near seniors” age 50 to 64, can be charged no more than three times what a 21-year-old would pay. The House bill would broaden the age bands to 5 to 1, allowing insurers to charge the oldest consumers five times more than younger ones. CBO predicts that by 2026 this provision would substantially raise premiums for older people, e.g., 20-25 percent higher for a 64-year-old.
The amended AHCA would only compound the problems faced by near seniors who are more likely than younger individuals to have a preexisting condition. Under the MacArthur/Meadows amendment, states could apply for a waiver that would enable them to allow insurance carriers to charge certain enrollees with preexisting conditions thousands of dollars more than healthier individuals. This proposal would be particularly harmful to the 40 percent of enrollees age 50 to 64 who have one or more preexisting conditions.
CBO and JCT predict that community-rated premiums would rise over time. As a result, people who are less healthy (including those with preexisting or newly-acquired medical conditions) would not be able to secure coverage at premiums comparable to those under current law.
The amendment would require states receiving this waiver to set up high-risk pools where people with preexisting conditions could buy health insurance. However, most high-risk pools have failed because they did not have enough money to cover sicker enrollees and the AHCA has the same problem. While an amendment by Representative Fred Upton (R-MI) would add $8 billion over five years to fund high-risk pools, CBO and JCT found that this additional funding would be insufficient to avoid loss of coverage for these individuals.
Essential Health Benefits
The MacArthur/Meadows amendment creates a waiver to allow insurance carriers not to offer essential health benefits like prescription drugs, chronic disease management and maternity care. In waiver states, that means insurance plans might not cover chemotherapy for cancer patients or insulin for diabetics.
Changes to premium tax credits
The American Health Care Act would drive up seniors’ out-of-pocket costs by repealing the ACA’s subsidies, based on income and the cost of health insurance, that help defray the cost of premiums. The AHCA would provide refundable tax credits ranging from $2,000 to $4,000, based solely on age. For many people age 60 and older, a $4,000 tax credit would fail to make comprehensive coverage affordable.
According to CBO, for individuals with income over 150 percent of the federal poverty level, the legislation would reduce the percentage of income younger people have to pay toward their premiums while increasing that percentage for older people.
The American Heath Care Act replaces the ACA’s individual mandate with a different mechanism to encourage individuals to purchase insurance. Individuals who don’t maintain continuous health insurance coverage would have to pay a 30 percent surcharge on their premiums for 12 months when reenrolling after a break in coverage of more than 63 days. This would ultimately drive healthier individuals, who would be unwilling to pay the surcharge, out of the individual market, which would drive up premium costs for those who remain.
IMPACT ON SENIORS
As a result of these changes, CBO finds that people between 50 and 64 years old with income of less than 200 percent of the federal poverty level (FPL) would make up a larger share of the uninsured, from just over 10 percent under current law to nearly 30 percent under AHCA.
Over time, CBO/JCT predict that the impact on premiums will vary based on: 1) whether states choose to seek waivers of federal underwriting and essential health benefits rules, 2) a person’s age, and 3) a person’s health status. In states that apply for waivers to allow for underwriting, community rated premiums would rise over time, creating instability in the market for individuals with higher than average health care costs.
For older people with lower incomes, CBO/JCT estimate that on average net premiums would be much larger than under current law. For younger people with lower incomes, net premiums would be about the same or smaller (depending on the state’s approach to essential health benefits (EHB) and preexisting conditions). Individuals would face “substantial increases” in their out-of-pocket costs under plans that narrow their scope of benefits for services that would be covered under existing law but not under AHCA.
As a result of these changes to market regulations under AHCA, CBO/JCT find that net premiums for some near seniors would go up dramatically. For example, in some states, net premiums for individuals with incomes of about $26,500 (175% of the federal poverty level) would increase by 847 percent — from $1,700 under current law to $16,100 per year — a clearly unaffordable price.
Changes to Medicaid
Millions of Medicare beneficiaries rely on Medicaid to help fill in Medicare’s coverage gaps. Medicare does not pay for most long-term services and supports; consequently, middle-class Americans often rely on Medicaid for long-term services and supports when they exhaust their savings. Medicaid also helps seniors through innovative programs such as Community First Choice, which allows people in need of long-term care to remain in their homes. Additionally, the Medicare Savings Programs administered through Medicaid help low-income seniors pay for their Medicare premiums, copays, coinsurance and deductibles.
Under the ACA’s Medicaid expansion, the federal government pays for 90 percent of the cost for enrollees in states that expand Medicaid eligibility, a higher rate than for the non-expansion Medicaid population. Beginning in 2020, the House bill would end this enhanced match for all new enrollees made eligible under the ACA’s Medicaid expansion. Funding for these new enrollees would instead revert to the regular federal Medicaid matching rate – on average, 57 percent of Medicaid costs. States wishing to continue covering this population would have to pick up the other 43 percent for any new enrollees made eligible by Medicaid expansion.
While the House bill allows states to get the ACA expansion matching rate for current beneficiaries, obtaining the enhanced match is contingent upon these beneficiaries staying continuously enrolled in the program. But Medicaid beneficiaries often churn in and out of the program. As a result, most current enrollees are likely to fall off the rolls after two years. As a result, within a few years, most federal Medicaid expansion funding would lapse to the pre-ACA matching rate.
The House-passed bill would restructure the way federal funding is provided to the states – changing from the current matching rate formula to per capita caps. Per capita caps limit federal funding for state Medicaid programs to an arbitrary per beneficiary funding level. This would ultimately shift costs to states by eliminating the guarantee of additional federal funds if state costs increase because of underlying health care costs, demography or complexity of care. For example, as the baby boom generation nearly doubles the senior population, state Medicaid programs would be unable to keep up with demands for long-term services and supports.
Repealing Community First Choice
Under current law, states can elect the Community First Choice State Plan Option, allowing them to receive a six-percentage point increase in their federal matching rate for some services provided by home and community-based attendants to certain Medicaid recipients. CBO finds that AHCA would cut $12 billion dollars over 10 years from this vital program that allows disabled individuals to stay in their homes.
IMPACT ON SENIORS
Over time, states that lose money under per capita caps would have to make up the funding themselves, by cutting benefits and/or limiting eligibility, if federal funds do not keep up with their Medicaid population’s needs. States that expanded their Medicaid programs under the Affordable Care Act would be especially hard hit if the Medicaid expansion is eliminated or reduced as part of ACA repeal.
States could address their funding shortfalls in ways that would harm seniors and their families, including:
- Scaling back nursing home quality, service and safety protections.
- Requiring patients’ spouses, children or other family members to cover the cost of nursing home care, exhausting much or all of their savings.
- Tightening eligibility criteria for home and community-based services, resulting in more individuals moving into nursing homes.
- Limiting the number of people served.
Impact on Medicare
Repeal of the High Wage Earner Medicare Payroll Tax
The ACA includes a 0.9 percent Hospital Insurance Trust fund payroll tax on wages above $200,000. By repealing this tax on high wage earners, the House bill would accelerate the exhaustion of Medicare’s Part A Trust Fund by three years, from 2028 to 2025, according to the Chief Actuary of the Centers for Medicare & Medicaid Services in a letter to Senator Ron Wyden (D-OR). CBO estimates that the Part A Trust Fund would forgo $58.6 billion over ten years if the ACA Medicare payroll tax is repealed. In addition to raiding the trust fund, this could lead to cuts in Medicare, including privatizing the program, that would be detrimental to current and future beneficiaries.
Increase in Medicare Disproportionate Share Hospital Payments
Medicare makes “disproportionate share hospital” (DSH) payments to facilities that serve a high percentage of uninsured patients. Given that the AHCA would increase the number of uninsured people and decrease the number of beneficiaries covered by Medicaid, CBO projects that Medicare DSH payments would increase by $43 billion between 2018 and 2026. Since part of DSH payments are paid by the Part A Trust Fund, this spending increase – in addition to the repeal of the ACA high wage earner Medicare payroll tax – would reduce the fund’s solvency.
According the Chief Actuary of the Centers for Medicare & Medicaid Services, the AHCA repeal of the tax on manufacturers will drive up Part B premiums by $8.7 billion over the next 10 years.
Government Relations and Policy, May 2017