On March 13, the nonpartisan Congressional Budget Office (CBO) released its cost estimate of the effects of the proposed Affordable Care Act (ACA) repeal/replace legislation.

Deficits Down but Number of Uninsured Up

According to the CBO, in conjunction with the Joint Committee on Taxation (JCT), enacting the legislation would:

• Reduce federal deficits by $337 billion over the 2017-2026 period. That total consists of $323 billion in on-budget savings and $13 billion in off-budget savings. Outlays would be reduced by $1.2 trillion over the period, and revenues would be reduced by $0.9 trillion.
• Increase by 14 million the number of uninsured Americans in 2018. That number would rise to 21 million in 2020 and 24 million in 2026, stemming in large part from changes in Medicaid enrollment. By 2026, the CBO estimates, 52 million people would be uninsured, compared with 28 million who would lack insurance that year under the current law.

The increase in the number of uninsured, concludes the CBO, would be “disproportionately larger among older people with lower income; in particular, people between 50 and 64 years old with income of less than 200 percent of the [federal poverty level] would make up a larger share of the uninsured.”

Market Likely to Remain Stable

The market for individual (i.e., nongroup) insurance would “probably be stable in most areas under either current law or the legislation,” notes the report—meaning that insurers would participate in most areas of the country and premiums would not rise in an “unsustainable spiral.”

The CBO concludes that even though the proposed tax credits would be structured differently from the subsidies currently offered by the ACA, and would generally be “less generous” for those currently receiving subsidies, the proposed changes would “lower average premiums enough to attract a sufficient number of relatively healthy people to stabilize the market.”

But there’s a caveat: As a result of the elimination of the individual mandate penalties, predicts the CBO, “nongroup enrollment in 2018 would be smaller than in 2017, and the average health status of enrollees would worsen.”

Premiums Up in the Short Term but Down in the Long Term; Large Variance by Age

“The legislation would tend to increase average premiums in the nongroup market prior to 2020 and lower average premiums thereafter, relative to projections under current law,” says the CBO.

However, the effect is markedly different for those of different ages: Because the proposed legislation allows insurers to charge older enrollees five times more for coverage (rather than three times more as under current law), premiums would be substantially reduced for young adults and substantially raised for older people.

Additionally, the first few years could be rocky: “[S]ignificant changes in nongroup subsidies and market rules would occur each year for the first three years following enactment, which might cause uncertainty for insurers in setting premiums,” the report notes.  

Estimates are Inherently Uncertain

“The ways in which federal agencies, states, insurers, employers, individuals, doctors, hospitals, and other affected parties would respond to the changes made by the legislation are all difficult to predict,” says the CBO, “so the estimates in this report are uncertain. But the CBO and the JCT have endeavored to develop estimates that are in the middle of the distribution of potential outcomes.”

Effect on Employers

What does this all mean for employers?

Due to the elimination of the employer mandate, the CBO predicts that, over time, fewer employers would offer health insurance.

Additionally, tax credits available to individuals who lack offers of employment-based insurance would be available to individuals with a broader range of incomes than the current tax credits are, a change “that could make nongroup coverage more attractive to a larger share of employees.”

“Consequently, in CBO and JCT’s estimation, some employers would choose not to offer coverage and instead increase other forms of compensation in the belief that nongroup insurance was a close substitute for employment-based coverage for their employees.”

However, the CBO says that the average subsidy would be smaller under the proposal than under current law, and would grow more slowly than healthcare costs over time. Also, employment-based coverage would continue generally to cover a larger share of enrollees’ expenses than nongroup coverage would, and comparison shopping would likely become more difficult.

For these reasons, “CBO and JCT expect that businesses that decided not to offer insurance coverage under the legislation would have, on average, younger and higher-income workforces than businesses that choose not to offer insurance under current law.”

It’s also important to remember that nondiscrimination requirements contained in the tax code would still apply to self-funded plans—so a company that wanted to offer health insurance only to, for example, highly paid executives would be out of luck; it would need to offer health insurance to the rest of the workforce as well.

Don’t Forget About the Dreaded Cadillac Tax

Finally, the current legislation assumes that the Cadillac Tax—the steep 40% excise tax on  certain employer-sponsored plans—would stick around and go into effect on January 1, 2025.

If this does in fact happen, employers and employer-sponsored plans will be greatly affected—presumably in negative fashion. If the Cadillac Tax is ultimately repealed, however, an alternate source of revenue will be necessary to fund the healthcare reforms retained by the proposed legislation (such as dependent coverage to age 26 and the elimination of coverage exclusions based on preexisting conditions).

It is not yet clear whether these costs would be borne by employers, individual taxpayers, or both.