Yesterday, the Congressional Budget Office published its estimate of the Senate’s draft health care legislation, the Better Care Reconciliation Act. Democrats are trumpeting the claim that under the GOP bill, 22 million fewer people will have coverage than under Obamacare in 2026. But the CBO’s estimates are deeply flawed.
If you want to understand the head-scratching nature of the CBO’s predictions of health insurance coverage under GOP health care proposals, all you have to do is look at the three major GOP health care bills from the last two years: The Restoring Americans’ Healthcare Freedom Reconciliation Act (H.R. 3762), the American Health Care Act, and the Better Care Reconciliation Act.
Even though these three bills spend vastly different sums on trying to cover the uninsured, the end result—in the CBO’s mind—seems to always be the same.
1. Full repeal of Obamacare & no replacement: Minus–22 million
The Restoring Americans’ Healthcare Freedom Reconciliation Act was a bill passed via reconciliation in both the House and the Senate that repealed Obamacare’s individual mandate, repealed Obamacare’s Medicaid expansion, repealed all subsidies for Obamacare’s insurance exchanges, and repealed all of Obamacare’s tax hikes. Notably, the RAHFRA included no replacement of Obamacare; i.e., no funds to help the uninsured buy coverage post-repeal. (The bill was vetoed in 2016 by then-President Obama.)
In a December 11, 2015 report, the CBO and its sister organization, the Joint Committee on Taxation, estimated that “enacting H.R. 3762 would increase the number of people without health insurance—relative to current-law projections—by about 22 million people in most years after 2017.” (In an additional report published in January 2017, CBO said that RAHFRA would reduce coverage by 22 million in 2026 if it also repealed Obamacare's insurance regulations; the version of the bill that passed, which preserved Obamacare's regulations in their entirety, would reduce coverage by 32 million.)
Ok, so far, so good. Obamacare has increased the number of people with health insurance by about 15 million; but it’s theoretically possible that by 2026, more people would gain coverage under the law. Since RAHFRA contained no replacement in terms of financial assistance for the uninsured, CBO’s estimate that 22 million fewer people would have health insurance in what effectively is a pre-Obamacare status quo ante is quite plausible.
But wait—we’re just getting started.
2. Gradual defund of Obamacare & flat tax credit replacement: Minus–23 million
The American Health Care Act, the Obamacare replacement bill passed by the House of Representatives this past spring, had some major differences relative to the old RAHFRA bill. For one thing, the repeals of Obamacare’s Medicaid expansion and exchange subsidies are phased out over several years. Also, the bill would repeal the regulations that do the most to drive up Obamacare premiums: overcharging young people through 3:1 age bands, and actuarial value mandates.
Most importantly, the House bill replaces Obamacare with its own system of flat tax credits which are largely unadjusted for income. Over 10 years, CBO and JCT estimate that the bill would spend $375 billion on these new tax credits.
What’s the end result, according to CBO? A bill that, in 2026, would “increase the number of uninsured people relative to the number under current law [by] 23 million in 2026.”
You read that right. The earlier GOP bill that included no replacement would reduce coverage by 22 million, whereas a bill with a $375 billion replacement would reduce coverage by 23 million.
It’s right to say that there would be some decrement in coverage under the House bill. As I discussed at the time, the bill insisted on offering high- and low-earners the same amount of financial assistance, which has the effect of oversubsidizing the high-earners and undersubsidizing the low-earners.
3. Gradual defund of Obamacare & means-tested tax credit replacement: Minus–22 million
So the Senate bill does the right thing, by junking the House bill’s flat tax credit and replacing it with a means- and age-adjusted tax credit, something we’ve talked about extensively on this blog. In the Senate bill, the focus of financial assistance is on low-income Americans: as it should be.
The end result of the means-testing is that the Senate bill spends more on its replacement: approximately $616 billion over 10 years, as compared to $375 billion in the House bill; an increase of $241 billion. Not only does the bill spend more on the replacement, but the spending is focused on the low-income population. So, surely, all that extra cash should mean more people have health insurance, right?
Wrong, according to the CBO’s motley collection of spreadsheets. “The Senate bill would increase the number of people who are uninsured by 22 million in 2026 relative to the number under current law,” wrote CBO in its most recent report. In effect, CBO believes that $241 billion over six years leads to only one million more people having health insurance. And if you compare to the first bill, in which there was no replacement at all, CBO believes that $616 billion in spending on subsidies for low-income Americans would result in zero improvement on coverage.
The CBO’s addiction to the individual mandate
The principal way to explain these three results from the CBO model—nearly identical coverage numbers despite substantially divergent resources directed to low-income individuals to afford coverage—is to remember that the CBO’s model is heavily tied to the idea that the individual mandate is forcing all sorts of people to buy coverage that otherwise would not.
In the latest report, the CBO estimates that 15 million people would voluntarily drop out of the market in 2018 due to the repeal of the mandate. That’s nearly three-quarters of the total coverage loss, in one year.
Another factor is the fact that the minus-22 million coverage score for RAHFRA assumed that all of Obamacare's regulations were repealed. The House and Senate bill repeal or revise the costliest of these regulations, but not all of them. Another way to think about this is that Republicans could have cut spending by another $616 billion if they had the power to repeal all of Obamacare's regulations via reconciliation (they don't).
There’s a simple way for Republicans to highlight the CBO’s mandate dependence: have CBO score one version of the bill with an individual mandate, and one version without. It’ll make as plain as day what those of us who follow this stuff see up close: that the mandate is the secret sauce driving the CBO’s faulty coverage predictions.
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UPDATE: This piece has been revised to reflect the updated January 2017 CBO report on RAHFRA.
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