What the CBO Report on the American Health Care Act Actually Says (updated)

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By now. most people have seen headlines or soundbytes about the report.  The Congressional Budget Office is a nonpartisan group. The head of the CBO was actually appointed by the GOP. The purpose of the office is to provide Congress with a source of “objective” information about the financial impact of legislation that is independent from information provided by the Executive Branch. In a complex world, this actually makes sense.

 

What the CBO report actually says:

  • Health insurance costs for individuals will under the new act (the AHCA is also known as “Trumpcare”), will increase through the year 2020 and may decrease after that.  The CBO expects increases in health insurance premiums under the new law of between 15% and 20% for 2018 and 2019 under the new law.  However, the CBO argues that by 2026, premiums might be 10% lower than under the ACA.
    • Some professionals refer to these as “hockey stick” forecasts, with a positive result occurring sometime in the remote future.  That could happen, but usually unforeseen events preempt the desired result.
  • Healthcare costs should decline for people in their 20s, but will increase sharply for older Americans.  The proposed tax credits will be insufficient to cover the cost increase.
  • The CBO estimates a $337 decrease in the Federal deficit from the AHCA law, mostly due to the repeal of Medicaid expansion and the end of subsidies for health insurance.  (As noted, the tax credits are smaller than the current subsidies.)  That averages out to about $33.7 billion per year.
    • The current US deficit is $441 billion in the current fiscal year.  Obviously, any reduction is good, but a savings of less than 10% of the deficit isn’t a cause for celebration.
    • The US budget deficit is expected to expand by over $10 trillion over the next decade, after shrinking during the Obama administration.
  • The Medicaid rollback will cost 14 million people their healthcare coverage immediately.  That plus the increase in out of pocket expense will ultimately mean that 24  million people will be forced to do without health insurance.
    • The CBO expects that some states will lose Federal funding for Medicaid in 2020 by their failure to provide the matching funds required under the new law.  That will further reduce Federal spending.
    • The matching funds requirement simply moves part of the tax burden from the Federal government to the states, and may require increases in state taxes.
  • Existing law requires the CBO to provide guidance on the impact of the law on the economy.  However, the CBO claims it has not had sufficient time to do this.
    • My argument is that anything that takes money away from consumers will be a drag on economic recovery.  This law does, by raising health care out-of-pocket expenses for most people.

Sources:

  1. Congressional Budget Office, “Cost Estimate,” 13 March 2017.  https://www.cbo.gov/publication/52486 I’ve downloaded a pdf of the report from the CBO website, and will share it on request.
  2. Emily Stephenson, “U.S. deficit forecast to shrink in 2017 but climb over next decade,” Reuters, 24 January 2017.  http://www.reuters.com/article/us-usa-congress-budget-idUSKBN158217
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5 thoughts on “What the CBO Report on the American Health Care Act Actually Says (updated)

    • Stephen Kaplan

      I think you have some errors in your numbers. I think the total savings over ten years is $337 billion, or $33.7 billion/year on average. I don’t remember who said it, but the best description I’ve heard is that this bill is really a tax cut for the rich paid for mainly by taking health insurance away from (or raising health insurance premiums for) poor people. Also, shifting Medicaid costs to the states guarantees huge problems later. In the next recession, need for Medicaid will soar (as it does when people lose their jobs), but the states will not be able to increase spending in response, because they face balanced-budget laws. Under current law, federal Medicaid spending can increase automatically as need grows.

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      • You’re correct, the decimal is in the wrong spot. I don’t think that takes away from the point that the portion of the deficit attributable to healthcare is the metaphorical “drop in the bucket.” In terms of the bill being a gift to the rich, it is, but that’s not in the CBO report, obviously. The bill helps the rich and gives insurers another opportunity for a massive rate increase. Doctors and hospitals are against it, as most consumers should be.

        There are people who voted for Trump in the hope that insurance rates would return to pre-ACA levels. They’re in for a shock when the rates jump almost 50% in the next two years, which is likely.

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  1. I corrected the math in the original post. Medicaid deserves more attention. The bill goes beyond rolling back coverage for individuals recently made eligible, it also drops Federal requirements for what Medicaid programs provide, and allows states to cut back on these programs in the future. With the reduction in Federal support, many of the neediest states (e.g., Alabama) will probably do just that. There is also a push to remove Medicaid as a resource for those needing financial help with Long Term Care (nursing home) costs. That was not addressed int he CBO discussion.

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