CBO Scores Alexander-Murray Bill

November 1, 2017

On Oct. 25, the Congressional Budget Office (CBO) and the Joint Committee on Taxation released their cost estimate for the Alexander-Murray Bipartisan Health Care Stabilization Act of 2017. The CBO projects that the legislation would reduce the deficit by $3.8 billion over the 2018-2027 budget window and would not substantially change the number of people with health insurance coverage. In addition, the legislation—developed by Senate HELP Committee Chairman Lamar Alexander (R-Tenn.) and Ranking Member Patty Murray (D-Wash.)—is not expected to increase budget deficits in any of the four consecutive ten-year periods beginning in 2028.

The CBO believes that the changes that the stabilization package would make in Affordable Care Act section 1332 state innovation waiver rules would not have a significant net budgetary effect. The changes are mainly procedural, but they do affect the calculation of the funds that the federal government passes through to the states for savings from reductions in the cost of federal premium tax credits and cost-sharing reduction payments (pass-through payments). The CBO acknowledges that states may choose to implement waivers when pass-through payments turn out to be high and not when the payments turn out to be low, increasing the cost of innovation waivers, but the agency notes that implementation of waivers might also result in other federal savings—for example, by reducing the cost of tax-subsidized employer coverage. CBO expects that the legislation would increase the number of 1332 waiver requests, but not in general their net cost to the federal government.

The CBO also projects that the stabilization package’s funding of the cost-sharing reduction (CSR) payments, terminated by President Donald Trump, will not affect the deficit. Under the federal budget laws that govern CBO cost-estimates, entitlements are assumed to be fully funded. The CBO has consistently taken the position, therefore, that the CSR payments appropriated by the stabilization package ($18 billion for 2018 and 2019 and $99 billion for 2018-2027) are already included in the budget baseline. President Trump’s decision to terminate the payments has no effect on this determination.

The CBO projected in August that termination of the CSR payments would increase the budget deficit by $194 billion. The CBO assumes that an appropriation to cover the CSRs, rather than terminate the CSR payments, would not increase federal expenditures because they are already fully accounted for in the baseline. It acknowledges that premium increases for 2018 caused by the termination of the CSRs is already increasing federal costs, although they should come down for 2019.

The CBO projects, however, that the “claw-back” provisions of the stabilization package would result in $3.1 billion in increased revenues or decreased outlays for the federal government. These provisions would require insurers to rebate excess premium tax credits they have received to cover the increased premiums charged to make up for losses caused by the termination of the CSR payments. Whether the rebates the states require to claw-back excess payments result in increased revenues or decreased outlays would depend on the approach states take, but the CBO assumes half would use one approach and the other half the other approach.

The stabilization package would allow any consumer in the individual market to purchase a catastrophic (copper) plan as of 2019. Currently catastrophic plans are only available to individuals under the age of 30 or those who would face a hardship in purchasing higher actuarial value coverage. The CBO projects that this change would attract healthier individuals into the market, but, since the copper plans would be in the same risk pool as other plans, reduce premiums overall, saving the government about $1.1 billion in premium subsidies over the 2019-2027 period.

The stabilization package would require the Department of Health and Human Services to spend $105.8 million on outreach and enrollment for each of 2018 and 2019. This money would come out of existing user fees and not from an additional appropriation. The CBO notes that this could increase enrollment, and thus federal expenditures, or improve the risk pool of subsidized enrollees, decreasing expenditures. The CBO has no way of predicting its exact effects.

Finally, the CBO concludes that the stabilization package would have only a small impact on state, local, and tribal governments or on the private sector.

The CBO does not address changes to the stabilization package that have been proposed by the White House or by conservative Republicans in the House or Senate, which would likely change estimates both as to cost and coverage.