Unbiased Analysis of Today's Healthcare Issues

How the AHCA will affect the Federal Budget

Written By: Jason Shafrin - Mar• 23•17

On the positive side, the American Health Care Act (AHCA) will decrease the federal budget deficit due largely to reductions in Medicaid spending and subsidies for the Health Insurance Exchanges enacted by the Affordable Care Act (ACA).  On the other hand, the AHCA will greatly increase the number of people without health insurance.

Federal Spending

The Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT) report on the impact of the AHCA on federal finances found that:

…enacting the legislation would reduce federal deficits by $337 billion over the 2017-2026 period.

They reach these conclusiosn using their microsimulation model (more details here).

The key provisions include a $880 of reduced Medicaid spending.  The primary driver for reducing Medicaid spending is “…lower enrollment throughout the period, culminating in 14 million fewer Medicaid enrollees by 2026, a reduction of about 17 percent relative to the number under current law.”  Some benefits would also likely decline due to the new block grant nature of the program under AHCA.

Also, the change in nongroup health insurance subsidies will save money.  Eliminating the ACA subsidies for nongroup health insurance (refundable tax credits) would save $673 billion but the addition of the AHCA tax credit would add $361 billion to the budget, for a net savings of $312 billion.  Whereas the ACA subsidies were largely based on income, the AHCA subsidies would be based largely on age. Additionally, whereas the ACA would advance eligible individuals funds for their insurance, under the AHCA people would only receive these funds later as a tax credit for participating in the exchange.  Note that under the AHCA, “People would generally be eligible for the full amount of the tax credit if their adjusted gross income was below $75,000 for a single tax filer and below $150,000 for joint filers…”

On the cost side, the elimination of the penalties on uninsured individuals and employers that do not offer insurance will reduce federal revenues by $210 billion.  Although the direct hit to federal revenues from removing the penalties is higher, the CBO estimates that removing the penalties will reduce the number of people who see insurance through the health insurance exchanges and thus the estimated subsidies to the nongroup market will likely fall.

Insurance rates

By 2026, the CBO estimates that there would be 24 million additional uninsured nonelderly individuals under the AHCA compared to the ACA. This can be decomponsed into:

  • 14 million fewer individuals on Medicaid
  • 2 million fewer individuals insured through the non-group market
  • 7 million fewer individuals on insured through their employer

In short:

CBO and JCT estimate that 48 million people under age 65, or roughly 17 percent of the nonelderly population, would be uninsured in 2020 if the legislation was enacted. That figure would grow to 52 million, or roughly 19 percent of the nonelderly population, in 2026. (That figure is currently about 10 percent and is projected to remain at that level in each year through 2026 under current law.)

Summary

To summarize, the AHCA reduces costs to the federal government but is likely to increase the number of uninsured. To the extent that removing the individual mandate decreases health insurance, some may argue that if people do not want to buy insurance at the price given, these decreases in insurance may be a good thing as they free up funds for families to use these funds for other activities (e.g., education, housing, starting a new business).   On the other hand, most people would prefer to have insurance if it were affordable.  Reducing subsidies and funding for Medicaid mean that the poorest among us are likely to have difficulty access the care they need without some financial assistance.  The degree to which you favor more redistribution to less likely will determine your opinion of the AHCA relative to the ACA.

 

 

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