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What the CBO Gets Wrong About Obamacare Repeal

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What the CBO Gets Wrong About Obamacare Repeal

March 16, 2017

This week, the Congressional Budget Office released its cost estimate of the House Republicans' American Health Care Act. CBO concluded that the proposal would reduce deficits by $337 billion over the next decade, but would result in an increase in the uninsured of 14 million people in 2018 and 24 million in 2026 when compared to current law.

CBO has a poor record of predicting coverage. In 2013 CBO predicted that 24 million people would be on the Obamacare exchanges, that law's health insurance marketplaces, in 2017. This year, 9.5 million are enrolled.

CBO's new estimate neglects the behavioral effects that would result from the Republican plan. By dismantling Obamacare, insurance companies would be able to offer a wider variety of plans and people would be more enthusiastic about buying them. CBO states that average premiums would decline after 2020, and this would lead to more enrollment.

Those who recall the outrage over canceled plans after passage of the Affordable Care Act, and the fury over the increased premiums over the past two years, will realize that insurance companies are not being permitted to offer plans that people want to buy. Giving them that ability again will increase coverage.

Under Obamacare, insurance companies are limited in what plans they can offer on the exchanges. All plans must contain broad, generous coverage, including maternity care, mental health coverage, drug abuse coverage and pediatric dental coverage – even for those with no children.

Grace-Marie Turner of the Galen Institute tells me, "Americans want health insurance, but they have rejected being forced to purchase the Ferrari-level coverage Obamacare requires."

The Republican plan will roll back many of these requirements so that insurance companies, subject to state regulation, will offer plans that people want to buy. Insurance companies will need to compete to attract customers. This will keep the costs down and the quality up. Just as food stamp recipients can choose their grocery stores and their food, people will be able to choose their insurance companies and their preferred policies.

Low- and middle-income Americans who are not covered by government health care programs would receive an advanceable, refundable tax credit so they could go out and buy their own insurance. The credits increase with age, and are capped at $14,000 per family.

The CBO report states that many "reductions in insurance coverage between 2018 and 2026 would stem in large part from changes in Medicaid enrollment – because some states would discontinue their expansion of eligibility." However, states would receive funds to cover low-income residents, and to cover those with serious health conditions. People could be covered at lower cost with state programs than under Medicaid. Seema Verma, architect of Indiana's successful Healthy Indiana Plan for low-income residents, has just been confirmed to lead the Centers for Medicare and Medicaid Services, and will be able to spearhead this effort.

Repeal of the employer mandate will reduce the cost of employing workers at the low end of the income scale, resulting in more employment and fewer jobs offshored. Middle- and upper-income Americans could see higher cash wages, as employers return to these workers some of the higher cost of health insurance.

More young people will enroll under the Republican plan. Under Obamacare, older Americans were not allowed to be charged more than three times as much as younger Americans for health insurance premiums. Before 2014, older people paid five times the premium. The new bill moves the ratio back to five to one, and gives states the option to set their own ratios. This will lower the cost of insurance for young Americans, raising their voluntary participation.

Insurance companies don't want to sell Obamacare-compliant plans and people don't want to buy them. Under the Republican plan companies will offer plans people want to buy and enrollment will rise. Only a Moscow central planner could believe that coverage will fall.

 

This article originally appeared on U.S. News.

Diana Furchtgott-Roth is a senior fellow and director of Economics21 at the Manhattan Institute. Follow her on Twitter here.

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