The Congressional Budget Office’s new analysis of the American Health Care Act seems to provide plenty of ammunition for Obamacare’s defenders. But if the last few years have proven anything, it’s that we shouldn’t put too much faith in the CBO’s predictions — especially about the future.
The report simultaneously exaggerates the potential benefits of Obamacare and downplays the ways in which the AHCA could improve access to affordable, quality health coverage.
The CBO’s assessment of the GOP bill is no doubt an honest and thorough effort. But it relies on a host of questionable assumptions.
Take, for instance, the much-publicized projection that the AHCA will make 24 million more people uninsured by 2026, relative to Obamacare.
That estimate is based on the CBO’s March 2016 baseline projections for insurance coverage — projections that have already proven inaccurate. According to that analysis, enrollment in Obamacare’s exchanges was expected to rise from 12 million in 2016 to 15 million this year — and eventually level off at 18 million starting in 2023.
But as the Centers for Medicare and Medicaid Services announced last week, exchange enrollment actually dropped by about half a million between 2016 and 2017 — to 12.2 million this year. That suggests that the number of marketplace customers has already begun to contract.
This is hardly the first time that the CBO has been overly optimistic about Obamacare. As recently as 2015, the agency predicted that marketplace enrollment would reach 25 million this year — more than double the actual total.
The CBO also drastically overestimates the power of the individual mandate to compel Americans to purchase coverage. The analysis predicts that, 6 million Americans will drop individual-market coverage in 2018 without the individual mandate penalty, which is $695 or 2.5 percent of income, whichever is greater.
But as the last few years have demonstrated, the individual mandate isn’t a very powerful motivator. Even Jonathan Gruber, an MIT professor and one of Obamacare’s architects, has concluded as much. In a jointly authored paper, he and his co-authors “did not find that overall coverage rates responded to” the individual mandate.
The CBO also predicts that 5 million people will drop Medicaid coverage in 2018 absent the individual mandate. Although there may be amendments to the bill that end Obamacare’s Medicaid expansion next year or even earlier, at present, the AHCA doesn’t begin to roll back Medicaid eligibility until 2020. Even then, expansion enrollees who signed up before 2020 could remain in the program.
In other words, the CBO believes that there are 5 million current Medicaid beneficiaries who have only enrolled to avoid a tax penalty. That’s dubious, not least because Medicaid is effectively free for its enrollees. Moreover, many enrollees earn so little that they are exempt from the mandate altogether.
But assume that the CBO is right — and that millions of Medicaid beneficiaries will voluntarily leave the program under the AHCA. Why should that be an indictment of the GOP plan? Such an outcome would demonstrate that the beneficiaries of Medicaid’s expansion don’t view it as the gift that Obamacare’s partisans do.
The CBO’s estimates also downplay how the GOP’s proposed reforms will make individual-market plans more attractive and affordable.
For instance, the AHCA does away with Obamacare’s requirement that insurers charge older, sicker patients no more than three times what they charge younger, healthier ones. This provision shifts health costs from the old to the young — and makes it far less likely that young patients will choose to purchase coverage.
The GOP’s 5:1 age rating ratio corrects this market distortion and allows insurers to offer more affordable policies to young, healthy people. Some older Americans will end up paying more for coverage. But they’ll also get bigger tax credits.
The 5:1 age rating also reflects the fact that older Americans are generally better-off financially than younger Americans. Obamacare deliberately shifted health costs from this wealthier segment of the population to young people, a significantly poorer segment of the population.
What’s more, the AHCA provides $100 billion over 10 years to help states bring down the cost of coverage for high-risk, high-cost patients. This money could be used, for instance, to fund state high-risk pools, to provide cost-sharing subsidies, or to establish a reinsurance program to help insurers keep premiums reasonable.
Then there are other reforms that Republican leaders can pursue alongside the AHCA that, by necessity, the CBO did not consider in its analysis of the bill.
For instance, the Trump administration is planning to use its executive authority to eliminate Obamacare’s “essential health benefits” requirements. These rules mandate that all insurance plans cover a federally approved list of services and treatments — including maternity care and pediatric dental care. In effect, the provision bans insurers from offering basic, more affordable plans.
Such changes would move our health system closer to the kind of vibrant, diverse individual market in which more Americans have access to a quality plan they can afford. Unfortunately, the CBO’s static forecasting model fails to capture this process — and thus sells short the bill’s potential to bring more Americans into the insurance market.