Older Americans Would Pay $8,510 More for Care Despite Promised Reserve Fund

President Donald Trump talks with House Speaker Paul Ryan, March 2017.

After it was made public, the Affordable Care Act, or ACA, repeal bill proposed by Republican Congressional leadership came under criticism for increasing the cost of health care for older Americans. In response to this particular weakness in the bill, the news media reported, Congressional Republicans are promising to set aside a reserve fund of about $75 billion to $85 billion intended to lower premiums for people ages 50 to 64. Unfortunately for near-elderly Americans covered through the individual market—including workers without access to employer-sponsored coverage, early retirees, and entrepreneurs—even with a full payout of the reserve fund, costs would still rise an average $8,510 for per individual by 2026 under the bill.

The higher costs for older enrollees arise from the bill’s key features. The American Health Care Act, or AHCA, proposes loosening the ACA’s restrictions on age rating to allow insurers to charge older people five times more than young people. The bill’s provides new tax credits for insurance premiums that increase with age, but the oldest individuals would receive just two times the amount that people under 30 would. The bill would also abolish the ACA’s rules on minimum plan actuarial value, and as a result, all consumers would foot a larger share of their medical bills. It’s no wonder, then, that analyses of the bill have found that it would hurt older Americans the most. They would receive much smaller tax credits, face higher overall costs, and be more likely to forgo coverage.

We estimate that although people ages 50 to 64 could receive $2,398 off their premiums in 2026 from an $85 billion reserve fund, their overall costs would still be several thousand dollars higher compared to costs under the ACA. This is hardly comfort to a 64-year-old whose premium is expected to skyrocket above $19,000 by 2026 in the absence of the ACA’s age rating protections. The reserve fund also fails to address the higher cost-sharing older Americans would face under the AHCA. We estimate that people ages 50 to 64 would still see their total costs rise by rise by $8,510 under the bill despite the reserve fund.

If the reserve fund were used for tax credits

To check how much a $85 billion reserve fund would improve affordability if it were dedicated entirely to lower premiums for individual market enrollees ages 50 to 64, we structured payouts as a tax credit. We also assume payouts would begin in 2020, the year the House bill’s tax credits go into effect, and that the fund would be depleted by 2026. We assume that, like the tax credits already in the AHCA, the additional tax credit for older people would be indexed to the consumer price index, or CPI, plus one.

The size of each older enrollee’s tax credit would depend on how many were enrolled in the individual market from 2020 to 2026. We combined the total number of people enrolled in the nongroup market from the Congressional Budget Office’s, or CBO’s, January 2017 baseline with the CBO’s score of the AHCA to determine the total enrollment over the period. Assuming that the overall nongroup health insurance market would have the same age composition each year as the exchanges do now, according to the Center for Medicare & Medicaid Services’ final enrollment report for 2017, tax credits would need to be spread over about 39 million enrollee life years.

We then estimated premiums, tax credits, and out-of-pocket costs for enrollees under the ACA and the House bill using the same methodology we used in earlier simulations of ACA repeal bills. We compared the total for enrollees by age under the two scenarios.

Older Americans would still pay thousands more for care

If the additional, targeted tax credits increased over time at CPI plus one, they would start out at $1,962 in 2020 and rise to a value of $2,398 in 2026. We find that, older individuals would still have substantially higher costs despite the additional tax credit. On average, the total cost of care for an individual between the ages of 50 and 64 would be $5,574 higher under the bill than under the ACA in 2020 and $8,510 higher in 2026.

While these results do not include any effect that more generous tax credits could have in bringing healthier individuals into the risk pool, any increase in enrollment among people ages 50 to 64 would also result in the fund being spread more thinly among enrollees. These two potential effects of the tax credits would place countervailing pressures on individuals’ costs: A healthier risk pool would lower insurance premiums, but greater enrollment by the eligible population would shrink the value of tax credits. Even if we were to assume that the additional tax credit was sufficient to sustain current enrollment levels and to lower rates 10 percent below the CBO’s projection for 2026, older Americans would still be paying several thousand dollars more for care by 2026 under the House bill than under the ACA.

Besides its failure to address costs, the reserve fund scheme should also raise a red flag because there is no guarantee a full $75 to 85 billion would ultimately reach its intended targets. At this point, it is nothing more than an vague promise. Neither the AHCA bill itself nor the text of manager’s amendment makes a written commitment that savings from lowering the medical expense deduction threshold will go toward bringing older Americans’ premiums down. If the bill passes the House, it will be up to the Senate to dedicate any available funds to boosting premium tax credits. Even those who have faith that the Senate will commit to tax credits should be aware that the bill would still shortchange older Americans.

Emily Gee is a Health Economist at the Center for American Progress.