Don’t Panic Over the CBO Repeal Report
The Congressional Budget Office (CBO), at the request of Senate Democrats, recently released a report estimating the effects of a reconciliation bill passed in 2015 but vetoed by President Obama (HR 3762). The bill would repeal the Affordable Care Act’s (ACA) individual and employer mandates and, after a two-year delay, repeal the ACA’s Medicaid expansion and subsidies for insurance purchased on the ACA exchanges. The predicted results are dire but no one should pay too much attention. No one is proposing re-passing HR 3762 without other measures and CBO’s predictions are simply not believable.
The CBO starts the report cautioning that its estimates “are uncertain” and concludes that “If the Congress considers legislation similar to H.R. 3762 in the coming weeks, the estimated effects could differ from those described here.” Truer words were never written.
The CBO estimates that in the first year after full repeal, but before Medicaid expansion and insurance subsidies are eliminated, 18 million people would become uninsured — 10 million fewer in the nongroup market, 5 million fewer with Medicaid coverage, and 3 million fewer with employment-based coverage — and premiums in the nongroup market would rise 20-25 percent higher than under current law. These effects “would stem primarily from repealing the penalties associated with the individual mandate.”
Attributing such massive changes to individual mandate repeal is unbelievable. The chief architect of the ACA, economist Jonathan Gruber, has reported that the individual mandate had no significant effect on increasing coverage — eliminating it should have minimal effect. The mandate is riddled with exceptions that allow people to avoid buying insurance. The mandate also does little to motivate insurance purchase because penalties for failing to obtain coverage are low compared to insurance premiums. The IRS reports that during the 2016 tax season 11 million people claimed exemptions and 5.6 million people paid an average penalty of $442 – far less than the cost of insurance.
The CBO’s projections of where the coverage losses come from are also suspect. CBO estimates 10 million people will become uninsured in the non-group market. Approximately 20 million people gained insurance due to the ACA. More than half of the gain is attributed to increased Medicaid enrollment meaning that fewer than 10 million new people signed up in the non-group market. It is not credible that all these new enrollees plus people who were previously in the non-group market would drop out in the first year after enacting HR 3762, which delays repeal of the subsidies to buy in the non-group market for two years. Moreover, there is no explanation for CBO’s prediction that the 5 million with Medicaid coverage would become uninsured. Most people with incomes low enough to qualify for Medicaid are exempt from the individual mandate. And HR 3762 delays repeal of the Medicaid expansion for two years. Repeal should not lead to any immediate Medicaid losses.
Even if the CBO predictions were credible, no one is proposing doing what they studied - repeal through reconciliation alone by re-enacting HR 3762 and doing nothing else. All Republican plans call for altering the ACA’s insurance market reforms and include new programs. The generous and expensive ACA minimum essential benefits package will likely be eliminated allowing consumers to select insurance that they want, need, and can afford. The ACA’s arbitrary 3-to-1 limitation on age adjustments for insurance premiums between older and younger enrollees will also likely revert to the more realistic 5-1 ratio that prevailed before the ACA, making insurance cheaper for the young, healthy consumers it is critical to attract. Refundable tax credits and expanded access to Health Savings Accounts will replace the ACA subsidies that lock patients into buying on the exchanges, leaving consumers with more options to obtain affordable plans.
Sadly, the CBO – at the request of partisan forces – has engaged in an unnecessary and misleading exercise. President Trump has already announced he wants ACA repeal to coincide with replacement. Most Congressional Republicans now concur with that strategy. Hopefully the CBO can provide an accurate assessment once an actual Republican proposal is advanced.