Premium Spin

Democrats have stressed that the GOP’s American Health Care Act would increase health insurance premiums, while Republicans have said it would lower them, both citing the Congressional Budget Office. Which is it? A little of both.

Rep. Steny Hoyer of Maryland cited the CBO on the House floor before lawmakers voted on the AHCA on May 4, saying the bill would “raise premiums 24 to 29 percent on average over each of the next two years. CBO says that, not me.” House Speaker Paul Ryan, meanwhile, said on ABC News’ “This Week” on May 7: “So what we’re trying to do here is have a system where we have more choices, more competition, and lower prices. And yes, this CBO score does say it lowers premiums.”

The nonpartisan CBO and the Joint Committee on Taxation said in a March analysis of the legislation that it would increase premiums for single policyholders in 2018 and 2019 in the individual market on average by 15 percent to 20 percent, compared with current law. Hoyer misleadingly adds in a 9 percent increase the CBO had previously expected under current law. His spokeswoman told us this gives a “true picture” of the increases people will experience. But it also gives the false impression that the GOP bill is responsible for all of that increase.

Ryan, on the other hand, refers to what CBO said about premiums in 2026. By then, the average premium would be 10 percent lower than it would be under current law, CBO estimated. But for older Americans, the legislation would increase average premiums, making them “20 percent to 25 percent higher for a 64-year-old,” CBO said.

There’s a lot more in the CBO report on why it expects these premium changes would occur, and how the bill would affect costs for individuals based on age and income.

We’ll note that CBO said it will release a new analysis of the House-passed bill early in the week of May 22. That version of the bill included new amendments such as one allowing states to get waivers from insurance requirements on covered benefits, and how plans are priced based on age or health status. That amendment could lead to higher premiums for some with preexisting conditions, if they don’t maintain continuous coverage, and lower premiums for those without medical conditions in states obtaining a waiver. The information we have so far, and that lawmakers have cited, is from March analyses of the bill.

For now, here are some things to know about the CBO’s analysis of the AHCA and its impact on premiums:

It’s all about the individual market. While politicians don’t always make this clear, these claims about premiums concern the individual, or nongroup, market, where those who buy their own insurance get coverage. About 7 percent of Americans buy individual market plans, while 49 percent get coverage through employer plans.

Hoyer, who has made the claim about premiums increasing 24 percent to 29 percent a few times, mistakenly said in a May 4 press conference that those figures would apply to employer and private market plans. His office told us he misspoke. We find that politicians — on both sides of the aisle — rarely specify that they are only talking about premiums for those who buy their own insurance. These claims can leave a false impression that they apply to employer-provided insurance, the main source of insurance in the country.

Why do premiums go up in 2018 and 2019? CBO estimated that premiums for single policyholders on the individual market would be 15 percent to 20 percent higher under the GOP bill than they would be under current law in the next two years, because the bill eliminates the individual mandate to have insurance or pay a tax. Those who were only buying insurance to avoid the penalty are expected to drop it, and they’ll likely be healthy individuals. “Eliminating those penalties would markedly reduce enrollment in the nongroup market and increase the share of enrollees who would be less healthy.” That less-healthy risk pool would drive up premiums.

For those who receive subsidies under the ACA to purchase insurance, however, the CBO doesn’t expect the bill in these early years to affect out-of-pocket premium payments by much. That’s because the Affordable Care Act’s tax credits, which largely remain for the first two years, cover all but a certain percentage of premiums for a benchmark plan. The bill calls for some age-based adjustments in 2018 and 2019 to give younger people more than older people, but CBO expects less than 500,000 people on net to gain coverage in the nongroup market in 2019, “the net result of higher enrollment among younger people and lower enrollment among older people.”

Why do premiums go down later? Beginning in 2020, average premiums would be lower than they’re expected to be under current law, “roughly 10 percent lower” by 2026. CBO cites three factors that would begin to offset the initial premium increase: States would use money from a new Patient and State Stability Fund to lower insurance companies’ costs of covering high-cost enrollees; insurers could offer plans with lower actuarial values; and the individual market would have “a younger mix of enrollees.”

The second factor pertains to the elimination of an ACA requirement that plans have a minimum 60 percent actuarial value, which means that the plan would pay 60 percent of a standard population’s medical expenses, with the policyholders paying the other 40 percent through deductibles or other copays. “The higher the actuarial value, the less patient cost-sharing the plan will have on average,” explains the Kaiser Family Foundation. The ACA’s bronze, silver, gold and platinum plans have increasing levels of actuarial values, with platinum plans at 90 percent. Those metal levels would also be eliminated. CBO says this will lead to lower average actuarial values, which would lower average premiums, but tend to increase deductibles, compared with what’s expected under current law. “In addition, cost-sharing subsidies would be repealed in 2020, significantly increasing out-of-pocket costs for nongroup insurance for many lower-income enrollees,” CBO said.

Premiums vary more by age. The premium changes we’ve described “would differ significantly for people of different ages because of a change in age-rating rules,” CBO said. Under the GOP bill, insurers can charge older people five times as much as they charge younger people, or even more if a state opts to do so. Under the ACA, that age-rating ratio was 3:1.

So while there’s a 10 percent average lower premium, compared with current law, in 2026, that change varies by age. “By 2026, CBO and JCT project, premiums in the nongroup market would be 20 percent to 25 percent lower for a 21-year-old and 8 percent to 10 percent lower for a 40-year-old — but 20 percent to 25 percent higher for a 64-year-old.”

What about the subsidies? The CBO says that the new tax credits under the GOP bill “would generally be less generous for those receiving subsidies under current law.”

CBO, March 13, 2017: [T]he average subsidy per subsidized enrollee under the legislation would be significantly lower than the average subsidy under current law. In 2020, CBO and JCT estimate, the average subsidy under the legislation would be about 60 percent of the average subsidy under current law. … By 2026, CBO and JCT estimate that the average subsidy under the legislation would be about 50 percent of the average subsidy under current law.

In addition, the changes the law makes to currently available tax credits would impact people differently, mainly depending on their income level and age, and also where they live.

Under the ACA, tax credits are based on income, and can vary geographically, based on the local cost of a policy. This limits the out-of-pocket premium costs for lower-income individuals (those earning between 100 percent and 400 percent of the federal poverty level) to a certain percentage of their income. The GOP bill changes that to age-based tax credits in 2020.

Those earning under $ 75,000, or $ 150,000 for a married couple, in modified adjusted gross income, would get the same, fixed amounts for their age groups — starting at $ 2,000 a year for those under age 30, increasing in $ 500 increments per decade in age, up to $ 4,000 a year for those 60 and older. (The tax credits are phased out for those earning above those income thresholds, and they would increase annually by the consumer price index plus 1 percentage point.)

These age-based tax credits would be smaller than the ACA’s tax credits for “many lower-income people,” CBO said, and larger for those with higher incomes. The CBO gives some examples (see Table 4): A 21-year-old earning $ 26,500 in 2026 would be eligible for a premium tax credit of $ 3,400 under current law and $ 2,450 under the GOP bill. A 21-year-old earning $ 68,200 in 2026 wouldn’t get a tax credit under current law, but would be eligible for $ 2,450 under the bill.

Under both scenarios, however, that 21-year-old would pay less for premiums on net under the GOP bill, while 40- and 64-year-olds would pay more in the lower-income example and pay less in the higher-income scenario. (The Republican bill includes placeholder funding that the Senate could use to increase the tax credits for older Americans to mitigate the negative impact on low-income individuals. We don’t yet know what the Senate will do.)

Cost-sharing subsidies under the ACA, which lower out-of-pocket costs for low-income individuals, would also be eliminated. “As a result, CBO and JCT estimate, fewer lower-income people would obtain coverage through the nongroup market under the legislation than under current law,” and enrollment by higher-income people would tend to increase.

Also, because the age-based credits, unlike the ACA’s credits, don’t adjust based on premium costs in a given location, “people living in high-cost areas would be responsible for a larger share of the premium.” (The Kaiser Family Foundation created an interactive map showing the change in tax credits from the ACA to the Republican AHCA.)

The bottom line, as we found under the Affordable Care Act, is that the change in premiums and out-of-pockets costs would vary, depending on individual circumstances. And politicians are prone to citing the figures that bolster their positions, while glossing over the finer details.

We expect to see a new round of spin once the CBO releases its analysis of the latest version of the Republican health care bill.

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