AHCA expected to reduce federal expenditures by $323B from 2017 to 2026


June 14, 2017

The Office of the Actuary has prepared a memorandum which estimates that the financial effect of the American Health Care Act of 2017 (AHCA) will be to reduce federal healthcare spending by more than $328 billion over the fiscal years 2017-2026, primarily because of lower Medicaid spending. The memorandum also estimated that the number of uninsured in 2018 will be 4 million higher than under current law, and that by 2026 overall Medicaid spending will be $105 billion lower. Other findings estimate a lowering of average gross premiums by 13 percent by the end of the ten fiscal-year period measured (CMS Letter, June 13, 2017).

Background. The Office of the Actuary (OA) in its capacity as an independent technical advisor to both the Administration and Congress, has prepared a memorandum which summarizes its estimates of the financial and coverage effects through 2026 of selected provisions of the AHCA which was passed by the House of Representatives on May 4, 2017. The memo identified the OA’s best estimates as to costs, savings, and coverage impacts for the AHCA.

Included in the memo are the estimated impacts on net federal expenditures, health insurance coverage, Medicaid enrollment and spending by eligibility group, gross and net premiums and out-of-pocket costs in the individual market, total National Health Expenditures, and the financial status of the Medicare Hospital Insurance (HI) trust fund. However, not included in the estimates are the impacts of provisions that would affect other parts of the federal budget—such as those associated with repealing taxes or fees that do not have a direct effect on the Medicare or Medicaid program—and federal administrative costs. The OA’s introductory disclaimer noted that the statements, estimates, and other information provided in the memorandum are those of the OA and do not represent an official position of either HSS or the Administration.

Key provisions taken into consideration. The memo described key provisions of the AHCA which were considered by the OA in estimating the impacts on various costs and coverage, including, but not limited to:

  • Repeal of Medicaid expansion beginning in 2020 (while allowing those already enrolled prior to 2020 to remain enrolled) and allocation to the states per capita amounts to be used in the provision of medical assistance.
  • Elimination of the penalties charged to individuals and employers for not having or offering health insurance coverage, effective retroactively to December 2015.
  • Beginning in 2020, elimination of the advanced premium tax credits (APTCs) and cost-sharing reduction subsidies (CSRs) available under current law for those purchasing coverage in the individual market, and providing of a refundable tax credit based on the age of the enrollee who is purchasing coverage in the individual market.
  • For insurance coverage offered on the individual market: (1) implementation of a 30 percent penalty on premiums beginning in 2019 for enrollees who did not maintain continuous coverage for more than 63 days over the prior year; (2) change in the permissible age variation in premiums to 5-to-1 beginning in 2018; and (3) removal of the requirement—beginning in 2020—that plans must offer coverage of at least 60 percent of the cost of covered benefits.
  • Opportunity by the states to apply for a waiver from some current-law requirements, such as regarding age rating, Essential Health Benefits (EHBs), and community rating, as early as 2018.

Estimated effects on federal expenditures. The OA noted that because provisions of the AHCA have varying start dates, and because their calculations assumed transition effects over several years before full implementation of all AHCA provisions, the cost estimates presented in the memorandum did not represent a full 10-year cost for the new legislation. However, the estimate of a net total decrease in federal expenditure of $328 billion was based on the following ACHA provisions affecting the Federal Budget either by way of reductions or additions:

  • -$160 billion in federal subsidies for those purchasing coverage in the individual insurance market. This amount reflects the net effect of spending reductions associated with the APTCs and CSRs in current law and spending increases associated with the refundable tax credit under the AHCA.
  • +$135 billion in expenditures associated with the Patient and State Stability Fund (PSSF).
  • -$42 billion in expenditures for the elimination of the Basic Health Program (BHP).
  • +$121 billion increase in federal Medicare expenditures or reduction in federal Medicare revenues associated with the repeal of the (1) elimination of the deduction for expenses allocable to the Medicare Part D subsidy; (2) additional Medicare tax on high-income earners; (3) fee on prescription medications; and (4) health insurance fee. This amount also includes the impact on DSH spending under Medicare Part A.
  • -$383 billion in Federal Medicaid expenditures associated with the repeal of the Medicaid expansion and the implementation of the per capita allotment, as well as other Medicaid provisions.

Estimated effects on health insurance coverage and costs. In addition to the Federal Budget impact, the memorandum also described the estimated impacts of the AHCA on insurance coverage during calendar years 2017 through 2026. The baseline estimates for health insurance coverage and spending were taken from the National Health Expenditure projections that were released on February 15, 2017. The impact on insurance coverage reflects the net effect of several major AHCA provisions, most notably the repeal of the Medicaid expansion, the elimination of the individual and employer mandates, changes to the tax credits associated with individually purchased insurance, and funding associated with the PSSF.

In 2018 and 2019, under current law, the number of uninsured is projected to amount to roughly 27 million. Under the AHCA, it is estimated that the number of uninsured will increase to 31 million in 2018 and to 32 million in 2019. The additional 4 to 6 million people who would become uninsured in 2018 and 2019 reflect the net impact of two main factors: (1) the repeal of the individual mandate, leading to a reduction of about 2 million with individually purchased coverage and a reduction of 1 to 2 million with employer-sponsored coverage; and (2) a reduction of roughly 1 million with Medicaid coverage, which is associated with more frequent eligibility redeterminations, the repeal of retroactive eligibility, and optional state work requirements for adults.

Reduction in Medicaid enrollees. Beginning in 2020 and extending through the end of the projection period (2026), significant changes to the Medicaid program and the individual insurance market are expected to affect health insurance coverage in the U.S. For Medicaid, the change in eligibility for adults under the AHCA relative to current law is anticipated to reduce the number of Medicaid enrollees by roughly 4 million in 2020 and by 8 million by 2026. For employer-sponsored insurance, the continued impacts regarding the choice of employers to offer coverage and the choice of employees to take coverage is estimated to result in 3 million fewer people with such insurance by 2026.

Enrollment in the individual insurance market reflects the combination of (1) changes to the tax credits available to those eligible to purchase coverage; (2) incentives to stay enrolled continuously; and (3) the effects of the PSSF. Additionally, some who will lose Medicaid or employer-sponsored insurance are estimated to purchase individual insurance. By 2020, these factors are estimated to reduce enrollment in individually purchased coverage by roughly 2 million relative to current law and that, over the period from 2021 to 2026, approximately 1 to 2 million fewer individuals will be covered through individually purchased insurance.

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