The Sub-Optimal CBO Numbers

The Congressional Budget Office (CBO) released its score of the American Health Care Act (AHCA), and the results are not good. They concluded that under the AHCA, approximately 24 million fewer people would be insured by 2026. The analysis projected a coverage loss of up to 14 million people next year, and said that premiums could go up by as much as 15% in the short term, though they predict premiums will dip below their current levels within 10 years. The report’s sole piece of good news for Republicans was its conclusion that the bill’s passage would reduce the deficit by over $300 billion.

These numbers are much higher than earlier analyses projected. Standard and Poor (S&P) put the coverage loss at between 6 and 10 million, and the Brookings Institute pegged the number between 10 and 15 million. The CBO estimate of 24 million is much higher than that, though it’s important to note that each of these analyses are at odds with the Republican talking points on the bill. The official website of the for the AHCA includes a FAQ section that says:

Won’t millions of Americans lose their health insurance because of your plan?

No. We are working to give all Americans peace of mind about their health care. We will have a stable transition toward a system that empowers patients with more choices and lower costs.

In the days leading up to the CBO report, Republicans were preemptively encouraging skepticism. White House Chief Economic adviser Gary Cohn said on “Fox New Sunday”, “In the past, the CBO score has really been meaningless.” Paul Ryan seemed more prepared to accept the CBO numbers at face value, but argued that the drop in coverage would be due to the bill’s repeal of Obamacare’s individual mandate.

It’s fair to be skeptical about the CBO report. It’s a projection, and projections aren’t perfect. It’s also important to understand the reasons why so many Americans will lose their coverage. Paul Ryan isn’t wrong; some people will “lose” coverage because they simply choose to forgo it. They are repealing the individual mandate, and for many that will be sufficient reason to decide they no longer need coverage. Ryan isn’t telling the whole truth, though, because the bill is doing two things, in particular, that will adversely affect coverage.

First, they are replacing Obamacare’s subsidies with blanket tax credits. The subsidies and tax credits are not fundamentally different things – both give money to people to buy health insurance – but the way they are being applied is drastically different. Under Obamacare, subsidies were given based on income and the cost of insurance where a person lived. The government determined, based on a person’s  income, how much they could afford to pay for insurance, and then pitched in the remainder needed to buy a mid-level plan in that person’s area. This way, a person making $30,000 in Fairbanks, Alaska would receive a larger subsidy than a person making $30,000 in Houston.

Under the AHCA, the government will give tax credits to individuals making $75,000 or less based solely on age. People aged 27-40 will get a $2,000 credit, people aged 40-60 will get $3,000, and people 60-64 will get $4,000. It doesn’t matter what the cost of the plan is where a person lives, they will get the same credit as every one else. A 40 year-old making $30,000 in Fairbanks will get a $3,000 credit, and a 40 year-old making $30,000 in Houston will get…a $3,000 credit.

This isn’t a trivial change. It will make health insurance more affordable for some, especially people who made too much to receive subsidies under Obamacare, but for many individuals – especially poorer and older individuals – the tax credits will not be sufficient cover the cost of decent health insurance. (Note: The Kaiser Family Foundation has put together a very useful interactive tool visualizing this. I encourage you to go play with it and see for yourself.) It’s not hard to imagine many of the people who received subsidies under Obamacare simply being unable to afford insurance under the AHCA. The tax credits just won’t be sufficient for them.

The second feature of the bill that will lead to a drop in coverage is the sunset of the Medicaid expansion. Under the AHCA, enrollment into Obamacare’s Medicaid expansion will be frozen in 2020. No new people will be able to sign up then. People who drop out of the program for any reason will not be able to get back on. As a consequence, Medicaid is going to shrink, and many of the people who were on it will be unable to afford insurance on their own.

In principle, lower coverage numbers are not a problem for most Republicans. It simply isn’t a primary goal to cover more people. Politically, though, this is potentially disastrous, and they know it. It is especially problematic for Republican politicians, like the President, who have been saying that implementation of their ideas would lead to more coverage. It won’t. We know it won’t, and they do, too.

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