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American Health Care Act

Matt Kukla, PhD Health Economist

The following is a summary of the AHCA that was recently approved by the House of Representatives.
I've presented below its potential effects, if passed into law in its current form. This bill is the same as
the one released in March, but some changes were made to ensure the House had enough votes for
the bill to pass. Anything in normal font reflects content in the AHCA bill presented before Congress in
March 17 and its projected outcomes (as scored by the Congressional Budget Office). Because the
CBO has not yet scored this latest bill, I have added in red areas that have changed. Please note that,
like the ACA, the AHCA may impact everyone differently.

The AHCA will be significantly revised in the Senate, for which Republicans hold a small majority and
are more politically moderate. If voted on and passed in the Senate, the Senate version would then
need to be voted on and passed again in the House. This is one of many reasons why passing health
care legislation is extremely difficult. It is thus highly unlikely that the AHCA, in current form, would be
passed into law.

SUMMARY

Federal Deficit: The CBO projected that the AHCA would reduce the federal deficit by roughly $200
billion over 10+ years. This was due to a reduction in federal spending on Medicaid by $880 billion, as
well as the elimination of marketplace cost-sharing subsidies and a reduction in marketplace premium
subsidies ($673 billion combined). These savings would offset the $750 billion in lost tax revenue,
$200 billion in revenue from mandate penalties, and $43 billion in increased Medicare spending (due
to more uninsured). The new changes would likely reduce the federal deficit by more than the $200
billion cited previously by the CBO. The exact amount depends on the number of "waiver" states
choosing to opt out of the ACA's regulations. This would stem from more uninsured in waiver states
and thus less federal spending on subsidies not from improved efficiency in health spending. [Note:
This figure does not account for lower economic growth or tax revenue associated with a larger
uninsured population, such as death or lower productivity].

Insurance Coverage: The CBO projected that the AHCA would result in 24 million Americans losing
health insurance over the 10 years. This would put the figure at 52 million Americans uninsured
higher than before the ACA was implemented. This stems from fewer individuals enrolled in Medicaid
(14 million), the individual marketplaces (3 million), and by employers (7 million). The number of
individuals losing health insurance should exceed the 24 million last projected by the CBO. This
increase would be concentrated in states that obtained a waiver and would primarily affect
those getting private health insurance through the marketplaces or their employers. The number of
additional uninsured would depend on the number of states choosing the waiver.

Premiums & Cost-Sharing: As discussed above, the CBO projects premiums and total out-of-pocket
spending to rise among some groups (sick, older, poor) yet fall among others (younger, wealthier). On
average, premiums will rise by 15-20% through 2020 and fall by 10% through 2026. In waiver states,
premiums would decline for some individuals [such as those who purchase bare-bones plans] but
would rise for other individuals [such as those who had a lapse in insurance and have poor health].
Total out-of-pocket spending for many individuals with private health insurance in waiver states
[premiums + deductibles + co-insurance + copays] would rise.

DETAILS

Taxes: According to the CBO report, the original AHCA would eliminate roughly $750 billion over 10
years in tax revenue currently used to finance the ACA. These tax cuts would be beneficial to high-
income earners (such as the 3.8% tax on unearned income), insurers, as well as pharmaceutical and
medical device companies.
Individual Mandate: The AHCA repeals the ACAs relatively weak mandate that applies to all
Americans. In its place, the AHCA creates a continuous coverage incentive or a 30% increase in
premiums only for individuals who purchase insurance on the marketplaces but were previously
uninsured. The CBO projects that:

These changes would result in a substantial loss in insurance coverage and higher premiums,
particularly for those aged 50-64, in poor health, and with low incomes.
The penalty would deter healthy individuals from buying insurance on the marketplaces and
would reduce tax revenue for the federal government. States could apply for a waiver to opt
out of the 30% continuous coverage incentive [and obviously the individual mandate]. Private
health insurers operating in those waiver states instead would be allowed to partially
underwrite any individual who has just had a 2 month lapse in health insurance. In other
words, insurers could charge different premiums based on those individuals personal
characteristics or health status [such as pre-existing conditions]. Waiver states are required to
set up high-risk pools for individuals that are unable to find affordable private health insurance.
It is unlikely that those high-risk pools will be effective [for several reasons not discussed].

Employer Mandate: The AHCA eliminates the employer mandate for large companies (small and
mid-size firms were always exempt from the mandate). The CBO projects that:

This would result in 7 million individuals losing health insurance over the next 10 years, but it
would ease the cost burden for large companies.

Health Insurance Marketplace Subsidies:

Cost-Sharing Subsidies: The AHCA eliminates these subsidies, which cover the cost of deductibles, co-
pays, and co-insurance for individuals earning under 250% of the federal poverty line (near poverty)
that buy insurance on the marketplaces. The CBO projects that:

This change would reduce insurance coverage and increase out-of-pocket spending for the near
poor.

Premium Subsidies: Under the ACA, these are premium subsidies for anyone making under 400% for
the poverty line that buys insurance on the marketplaces. The AHCA increases the income threshold
so that higher income people qualify for subsidies. It also allocates subsidies according to age, but
not income or geography. Total government spending on these subsidies would decline by 50%, and
subsidies would be allocated less equitably than they were under the ACA. Finally, the bill expands
eligibility for these subsidies to insurance purchased outside of the marketplaces, but it restricts
certain groups from receiving premium subsidies if they can receive insurance elsewhere (e.g.
veterans). The CBO report projects that these changes would:

Reduce insurance coverage and increase premiums for those in the middle income bracket or
below, those with poor health, those aged 50-64, and those living in high cost regions;
Increase insurance coverage and reduce premiums for those in the middle-upper income
bracket, the young, and those living in low cost areas.

Insurance Cost-Sharing Regulations: Under the ACA, all insurance plans must meet a minimum
coverage threshold for non-premium related costs (e.g. co-insurance). These regulations protect
people from significant out-of-pocket spending once insurance has been purchased. The AHCA eases
these restrictions, thus allowing insurers to sell a plan with a low premium but very low co-insurance
rate (meaning that the insured would pay a larger percent of the final health care bill). The AHCA
would also allow insurers to charge older individuals up to 5x as much as younger ones, compared to
3x under the ACA. Finally, the AHCA maintains out-of-pocket spending limits for those covered by
insurance, which will prevent people from going bankrupt The CBO projects that these changes would:

Enable more people to buy insurance, but that coverage wouldnt be as meaningful if the
person got sick;
The number of insurance plans for sale would rise, but it would be more complicated for
individuals to choose the best insurance option;
The elderly would pay more but younger individuals would pay less. States can apply for a
waiver to remove the cap on individual out-of-pocket spending limits for private health
insurance. Individuals purchasing private health insurance in waiver states, even those
obtaining insurance through their employers, could face substantially greater out-of-pocket
spending.

Insurance Benefits Regulations: These regulations include, but are not limited to, coverage for
individuals under age 26, coverage of pre-existing conditions, coverage of essential benefits, and
requirements that insurers cant drop people when their health status changes. These perks would
stay in place under the AHCA. The CBO projects that:

Without the individual mandate, insurers could lose money, increase insurance premiums, offer
less comprehensive plans, or exit certain markets. However, other factors (not discussed)
would probably stabilize insurance marketplaces and prevent a death spiral. States can apply
for a waiver to opt out of the 10 essential health benefits covered by all private health insurers
under the ACA. Private health insurers operating in waiver states would thus be allowed to
offer bare-bones plans, even those obtained through employers, at much lower premiums.
Given the ACAs other regulations, insurers in an attempt to remain profitable would have
little incentive to cover costly benefits [such as pre-existing conditions].

Medicaid Expansion: Under current law, states manage Medicaid but the federal government
matches them $0.50 to $0.75 per dollar to pay for Medicaid. Under the AHCA, there is a work
requirement on nondisabled, nonelderly, and non-pregnant adults to be eligible for Medicaid. States
can also continue to expand their eligibility threshold for Medicaid in the short term. However, the
AHCA over time reduces and reallocates funding that the federal government currently gives to states
to help cover their Medicaid population. The federal government will also stop matching funds and
instead transition Medicaid to a block grant program.

The CBO projects that these changes will save the federal government $880 billion over 10
years but result in 14 million individuals losing insurance coverage. This is because many
states would struggle to finance their Medicaid programs.

Medicare/Medicaid Pilots: Under the ACA, Medicare and Medicaid are piloting new ways to
pay/reimburse providers and deliver services. The purpose is to improve quality, improve the
programs' long-term solvency, and reduce costs for members. This has bipartisan support and hasnt
attracted public ire, so the AHCA changes nothing.