How the AHCA would create 'Three Americas' for health care

Topics: Health Care Reform, Insurance, Exchanges, Medicaid, Politics and Policy, Federal Government

By Josh Zeitlin, Editor

What's the current state of health care in America?

As Margot Sanger-Katz of the New York Times pointed out a few years ago, the answer depends on which "America" you're referring to.

There's one America of states that have expanded Medicaid under the Affordable Care Act, where the uninsured rate has dropped 9 percentage points since 2013 to about 9 percent, and hospitals' uncompensated care costs have fallen significantly.

And there's another America in non-expansion states, where the ACA's coverage growth has been much more limited, dropping the uninsured rate by only 5 percentage points to about 18 percent, and hospitals on average have lower profit margins.

So what would the state of health care in the United States look like under the House GOP's ACA replacement plan?

A new report issued this week by the Congressional Budget Office (CBO) indicates that, in essence, the American Health Care Act (AHCA) would turn today's two Americas—divided by Medicaid expansion— into three Americas, divided by how states decide to regulate their insurance markets.

Each America would include some people who would fare better in the individual market than under the ACA, and some who would fare worse—but the differences from the status quo would be quite stark.

From 'Two Americas' to 'Three Americas'

According to CBO's best guess, which it acknowledged was uncertain, these would be the three Americas of the individual market under the AHCA:

America 1: Where average individual market premiums are highest—and financial protection from health risks is highest, too

One America—which CBO estimated would include one-half of the U.S. population—would include those states that choose not to modify the ACA's essential health benefits (EHBs) and community rating provisions under the new GOP health reform bill.

In this America, average non-group premiums likely would drop slightly—by about 4 percent in 2026 relative to current law, CBO estimated—as insurers offered plans with lower actuarial values than under the ACA. But this first America would still retain several of the ACA's insurance reforms. Insurers would still be required to provide coverage in the non-group and small-group markets for a well-defined set of EHBs. And they couldn't charge sick patients more for coverage than healthy patients (although premiums could vary greatly based on a consumer's age).

America 2: Where average premiums are lowest—and financial protection from health risks is lowest, too

A second America—which CBO estimated would include one-sixth of the U.S. population—would live in states that receive waivers to "substantially modify" EHB and community rating requirements, thereby allowing "premiums to be set on the basis of an individual's health status in a substantial portion of the non-group market," according to the report.

In this America, CBO said average premiums would be "significantly lower for those with low expected health care costs," partly because plans would cover fewer benefits and partly because fewer people with health conditions would sign up for coverage.

But these changes would have a major downside: CBO estimated that out-of-pocket costs for people with health conditions would be the highest in this America. It projected that "a few million people would buy policies that would not cover major medical risks," although it said that estimate "is highly uncertain." And CBO said that "over time, less healthy individuals ... would be unable to purchase comprehensive coverage with premiums close to those under current law and might not be able to purchase coverage at all." In other words, CBO projected that the insurance market for such individuals might collapse altogether.

America 3: Where both premiums and financial protections fall 'in between'

A third America—which CBO estimated would include one-third of the U.S. population—would live in states that fall somewhere in the middle. They'd receive waivers under the AHCA to "make moderate changes" to current EHBs and/or community rating requirements, but they wouldn't go as far as some states.

CBO estimated that average premiums in these states would range from 10 percent to 30 percent lower than under current law, depending on the extent of changes to EHBs. In addition, CBO projected that out-of-pocket spending would rise "substantial[ly]" for some people, particularly for those who use maternity, mental health, or substance misuse services or expensive prescription drugs that may no longer be covered. But overall, CBO projected that insurance "would still offer financial protection from most major health risks."

Some major caveats

There are some shortcomings to the concept of "three Americas" that are important to spell out.

First, CBO stressed that its estimates of how many states would request waivers were uncertain and based off a series of assumptions, although it "endeavored to develop estimates that are in the middle of the distribution of potential outcomes."

Second, there are several reasons "three Americas" (like "two Americas" before it) would be an oversimplification, including that states under the AHCA would likely make a wide range of changes to their Medicaid programs'  eligibility, benefits, and payment rates in response to AHCA funding cuts. CBO estimated that the AHCA would reduce Medicaid enrollment by 14 million by 2026.

There also would arguably be many health care Americas within a given state, as different individuals would face very different premiums depending on their age and health status. Just look at CBO's projected non-group market premiums after accounting for tax credits:

CBO projection for average net premiums in 2026

But here's the bottom line: The House-passed AHCA would substantially increase the degree to which where you live affects the price you would have to pay for health coverage on the individual marketplace and the level of financial security that comes with that coverage.

For the young and healthy, that might mean good news and lower premiums. For the old and sick, that could create hardships. For hospitals and health systems, that could mean vastly different uncompensated care costs state-by-state.

Ultimately, health policy is full of tradeoffs and hard choices. Lawmakers need to be open and honest about that as the health care debate moves to the Senate.