Hospital Impact: CBO report reveals Republican healthcare bill is political poison

Jonathan H. Burroughs headshot

The much-awaited American Health Care Act was released for public review on March 6, 2017, as the Republican Party’s best effort thus far at replacing the Affordable Care Act with something more sustainable and affordable. On March 13, 2017, the Congressional Budget Office released its equally awaited report analyzing the probable impact of the AHCA on the federal budget, on the number of individuals with health insurance coverage, and the health insurance industry as a whole. The report sent shock waves through Washington, D.C., causing many Republicans and most Democrats to distance themselves from what they perceived to be political poison. The following represents a summary of the CBO’s key findings and how it arrived at these conclusions.

Federal budget

The CBO estimates that the net cost savings of the AHCA to the federal budget will be $337 billion over a 10-year period. The largest savings will come from reductions in support for Medicaid programs through block grants to states that will significantly reduce benefits to those currently on the program. The second largest savings will be from dropping the federal subsidies to individually purchased (nongroup) health insurance. These subsidies will be replaced with tax credits based on age ($2,000 for ages 27-39, $3,000 for ages 40-59, and $4,000 for age 60 and up) that will benefit those in higher income brackets. The greatest losses to the federal budget will be from fewer federal taxes on hospital insurance payroll, taxpayers’ investment income, low-deductible, high-cost policies (the Cadillac tax), and of course, the proposed tax credits.

Number of Americans with health insurance coverage

The CBO estimates that over the next 10 years, 24 million Americans will become uninsured, increasing the uninsured total to 52 million from the current total of 28 million. The first 14 million will likely be those who choose to no longer purchase health insurance due to discontinuation of the unpopular individual and employer mandates, the purpose of which was to dilute high risk pools and lower the cost of insurance for everyone. Another 10 million are predicted to lose their health insurance due to rollbacks in federal Medicaid subsidies and decisions by states to either not expand Medicaid or to roll back their programs. This will increase charity care and bad debt for both physicians and healthcare systems and will exacerbate the cost shifting that is required to achieve modest margins.

Impact on the health insurance industry

The challenge for the insurance industry will be the loss of low risk/low cost individuals who choose to no longer purchase health insurance, leaving high-risk pools that increase the cost for individuals (15%-20% higher premiums over the next three years) and decrease the margins for smaller insurance companies, causing many to drop out of the private and public exchanges. After the first three years (2020), premiums are predicted to stabilize and even to drop by 20% to 30% because of grants to states (under the Patient and State Stability Fund), fewer restrictions on insurance companies that enable them to narrow the scope of coverage, and the influx of younger, low-cost individuals. However, premiums for older individuals will sharply increase, and insurance companies will be permitted to charge older individuals (e.g., 60-64) five times more than younger individuals.

Why is this political poison?

Like Social Security, healthcare coverage is now considered an “entitlement” to most Americans, and “taking away” an entitlement is tantamount to waging war on the electorate. Thus, once the CBO report was released, all congressional Democrats and an increasing number of Republicans began to distance themselves from the AHCA, and many of President Donald Trump’s most loyal supporters are encouraging him to do the same, as The Washington Post has reported. Finally, the insurance industry does not consider this bill a good fix, and the proposal is likely to drive smaller companies out of the exchanges and make the goal of offering insurance across state lines a distant reality.

RELATED: Hospital Impact: GOP repeal, replace bill is dead on arrival

To say that the replacement of the ACA is complex is a gross understatement, as all disparate parties (people of all ages and income brackets, the insurance industry, the pharmaceutical industry, etc.) must feel that it is a sustainable model that is affordable, accessible, reliable and can fix the weaknesses of the current law without undermining its strengths.

Jonathan H. Burroughs, M.D., MBA, FACHE, FAAPL, is a certified physician executive and a fellow of the American College of Healthcare Executives and the American Association for Physician Leadership. He is president and CEO of The Burroughs Healthcare Consulting Network and works with some of the nation's top healthcare consulting organizations to provide "best practice" solutions and training to healthcare organizations.