The GOP Should Listen to the CBO
The Congressional Budget Office (CBO) has been criticized many times by both parties since it began issuing budget projections and cost estimates for legislation in the 1970s. So it was not surprising to hear the Trump administration and many Republicans in Congress complain when the agency released an unflattering assessment of the House-passed American Health Care Act (AHCA).
What was different this time, though, was the attempt by OMB Director Mick Mulvaney to discredit CBO entirely. He said in an interview that the agency’s time “has probably come and gone,” and implied that policymaking in Congress would be better if the agency ceased to exist.
This is absurd.
No one agrees with everything that comes out of CBO. I don’t. The agency has gotten plenty of things wrong over the years. But it would be hard to find an agency that provides more useful information to the policymaking process in the legislative or executive branches of government. In many legislative debates, the only useful information available to the House and Senate that does not come from interested parties is produced by CBO.
Ironically, it was CBO’s cost estimate of the Clinton health care plan in 1994 that helped sink the effort to pass it. At the time, CBO argued that the proposal’s extensive governmental controls required the agency to display most insurance premium payments required under the law as federal receipts and reimbursements for medical services as federal outlays. The Director of the agency at the time, Robert Reischauer, was appointed to the position by key congressional Democrats. And yet it was his testimony explaining the cost estimate of the plan that was the beginning of the end for President Clinton’s most important domestic initiative.
There are reasons to question some aspects of CBO’s cost estimate of the AHCA. The agency used its March 2016 baseline as the starting point for the analysis. That was a mistake. CBO expected a year ago that enrollment in the Affordable Care Act’s exchanges would increase to 18 million people in 2018. That’s not going to happen. Enrollment in the exchanges this year is 12.2 million people, down from 12.7 million in 2016. The baseline also assumes many more states will agree to expand Medicaid in coming years under the terms of the ACA, leading to an additional five million people enrolling in the program by 2026, who would then lose that coverage if the AHCA were enacted. But it is hard to see many states moving forward with an expansion of Medicaid with an administration and a majority in Congress determined to roll back federal funding for such coverage.
CBO’s cost estimate also assumes about half of the states will move forward with insurance regulation waivers under the terms of the MacArthur amendment to the AHCA. States will be allowed to implement insurance coverage requirements that differ from the ACA’s essential health benefits, and to modify the ACA’s community rating rules for premiums. The overall effect of these waivers would be to lower premiums for younger and healthier enrollees and to raise them on those with more expensive health conditions. These ideas are not popular in Congress, which is why the AHCA doesn’t modify the rules directly but allows the states to do so under certain conditions. The political considerations that make undoing some of the ACA’s insurance rules impossible to pass in Congress are likely to be important in state capitols too.
Still, even with these flaws, there’s no reason to question CBO’s basic assessment of the AHCA, which is that it will cut spending and taxes substantially, and that there will be a large increase in the number of people going without health insurance. Republicans complain that CBO is overly invested in the effectiveness of the ACA’s individual mandate. And it may be true that CBO assumes the mandate is more effective than it is in practice. But even assuming an ineffective mandate, there’s little question that the AHCA would lead to a rise in the uninsured because of the rollback of enhanced funding for the expansion population in Medicaid and the reduction in the value of refundable tax credits available to lower income households.
Instead of complaining about CBO, Republicans should listen to what the agency is telling them about the House-passed bill and use that information to produce a better plan in the Senate.
The key features of an improved proposal are clear enough. Republicans should strike a compromise on Medicaid that reforms the program but also accepts that Medicaid must serve as the nation’s safety-net insurance program for the lowest income households. That means accepting that there will be an income below which all households will be eligible for Medicaid. It is not necessary for the GOP to agree to the ACA’s level of 138 percent of the federal poverty line (FPL). A compromise could provide strong incentives to the states to make all persons and households with incomes below 100 or 110 percent of the FPL eligible for the program. States that fell short would lose substantial financial support, and states providing coverage above that level would have to pay for much of it out their own resources.
In addition, the Senate bill must provide additional subsidization into coverage for people with incomes above Medicaid eligibility but below around 250 percent of FPL. These households get substantial support under the ACA, and much less under the AHCA, which is why CBO assumes many of them will drop out of coverage. Again, it is not necessary for the GOP to match ACA’s spending, but it will be necessary to do more than proposed in the House-passed bill.
Senate Republicans should take a further step and build an automatic enrollment system into their proposal, so that people who would otherwise not use their tax credits, and would therefore go without coverage, would be enrolled in insurance plans providing, at a minimum, catastrophic insurance protection. An effective auto enroll provision could improve take-up of insurance under a GOP plan.
Each of these changes would improve the coverage estimates in a Senate bill compared to the House version, which is exactly what is needed to improve the political viability of the GOP effort to pass a health care reform proposal.
The basic problem for the GOP is not the CBO. It is that many in the party haven’t accepted that their plan needs to be realistic about enrollment in health insurance. There are many legitimate criticisms of the ACA that can and have been made, but one of them is not that too many people gained health coverage. One way or another, it should be the norm for everyone in the United States to be enrolled in insurance that protects them from catastrophic medical expenses. With the right policies, this is feasible in a plan that is less expensive and federally-controlled than the ACA. The GOP should stop wasting its time criticizing CBO and instead work with the agency to produce that plan.
James C. Capretta is a resident fellow and holds the Milton Friedman chair at the American Enterprise Institute.
