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Cost-Benefit Analysis of American Health Care Act’s Impact on Young Adults

By Tom Allison, Deputy Director of Policy and Research 

Despite media narratives that young adults would benefit from lower costs under the American Health Care Act (AHCA), the legislation would actually cost billions for this age group. While the bill makes changes across the health insurance system, three groups of young people would be particularly impacted, totaling 17 million 18-29 year-olds:

  • Those currently buying insurance on the individual market;
  • Low-income people currently enrolled in Medicaid;
  • Currently uninsured young people making future decisions about their coverage.   

In order to analyze the AHCA’s impact on young people, we reviewed how changes to the tax structure, cuts to Medicaid and phase out of Medicaid expansion, surcharges to young adults who do not maintain continuous coverage, and an elimination of cost-sharing reductions (CSRs) all negatively impact young adults trying to afford health insurance.  We found that of these 17 million young adults most directly impacted, nearly 10 million, or about 58 percent, would pay a total of at least $23 billion more for health insurance annually – or $2,400 per person (Table 1).

This number is likely an underestimate, as our analysis does not include increased costs that many young people may face due to shifts to plans with higher deductibles, changes in essential health benefits, or discriminatory premiums that may result from the MacArthur amendment.  Given that the most recent enrollment report for which we have age and metal type selections data shows that more than three in four young adults (76 percent) shopping on the federal marketplace selected health plans with actuarial values above 70 percent, the expected reductions in availability of higher quality plans likely means that even those who see lower premiums will see higher out of pocket costs, an effect not captured in our analysis.

Table 1 V3

IMPACT ON CURRENT OR POTENTIAL MARKETPLACE CONSUMERS

Part of the reason why young adults would lose under the AHCA is the way the bill structures tax credits to help people buy insurance. These tax credits replace the subsidies under the Affordable Care Act (ACA), which used a sliding scale based on income and cover a portion of the cost of health insurance premiums. The tax credit in the AHCA for young adults is a flat $2,000 benefit for individuals earning below $75,000, regardless of where you live or how expensive health insurance costs in your market.

This change specifically hurts low-income young adults (who on average earn lower incomes than older workers) by, in many cases, cutting tax credits to help pay for premiums as well as eliminating the cost-sharing reductions that offset out of pocket costs and deductibles.  In order to calculate how AHCA-tax credits (combined with changes in age rating) compare to existing ACA tax credits, we used CBO’s estimate of premium changes by the year 2026 at different poverty levels, the impact of age rating across this age cohort, and the CBO’s valuation of cost-sharing reductions.  We then adjusted for the declining purchasing power of AHCA tax credits using CMS premium projections, and assumed that a share of the population would be hit with the continuous coverage provision, or Millennial Penalty, based on existing research on coverage gaps for young people.

We found that low- and moderate-income young individuals would pay more under the AHCA than under current law, ultimately impacting 4.4 million young people, and harming the lowest-income young people the most.  As an example, Table 2 shows how a 27-year old earning $27,000 per year would pay $1,900 more in insurance costs for lower quality coverage under the AHCA. If that 27-year old is one of the millions of young adults who experience a lapse in coverage throughout the year, they can expect to pay $3,100 more per year in insurance costs. But a 27-year-old earning $75,000 would pay between $1,900 and $3,100 less under the AHCA, depending on whether they are hit by the continuous coverage provision.  A 27-year-old earning $95,000 would pay $700 and $2,000 less in premiums, though also see increased out-of-pocket expenses and receive a lower quality plan.

Table 2 V3

IMPACT ON CURRENT OR POTENTIAL MEDICAID ENROLLEES

About half of those negatively impacted are the 5 million young adults who would lose Medicaid coverage (Table 3). We calculate these coverage losses by assuming that the proportion of young people who lose coverage under the CBO’s analysis of Medicaid coverage losses is the same as the proportion of current Medicaid enrollees.  We then take into account the removal of coverage options for young people who are not currently enrolled in Medicaid but could have been if their state had expanded Medicaid in the future, an option that AHCA removes.

These deep coverage losses are not surprising: about 3.8 million young people have gained Medicaid coverage in the past half decade, representing one of the most important ways the ACA has impacted Millennials.

Table 3 V3

CONCLUSION

The AHCA would be a financial disaster for millions of young adults under the age of 30: nearly 10 million lower-income young adults could lose up to $23 billion. The 7 million higher-income young adults who might see lower premiums under the AHCA could save in premiums costs, but will also receive lower quality coverage and higher out-of-pocket costs. This results in an annual net loss of $11 billion for the Millennial generation.

This conservative evaluation of the law’s financial impact does not include diminished value of coverage from removing required essential benefits, increased deductibles, or unintended consequences from removing millions of people from Medicaid. Even without measuring that impact, we see that the AHCA results in skyrocketing costs for the lowest income young adults, while shifting small benefits to higher earners. There are smarter, more cost-effective methods Congress should pursue to improve young adults’ access to quality and affordable health insurance. We urge the nation’s lawmakers to go back to the drawing board and discard the fundamentally flawed AHCA.

METHODS

In their scoring of the American Health Care Act (AHCA), the Congressional Budget Office (CBO) projected insurance premiums and credits for specific ages and at two different income brackets. Using the CBO’s assumptions and incorporating the effects from other changes the AHCA makes to the health insurance market, Young Invincibles conducted a cost-benefit analysis of the effects of the legislation on the cost of health insurance for young adults. In brief, we estimate the change in health insurance costs for every year of age between 18 and 29 years-old, along relevant income-to-poverty thresholds. We then used Census data to estimate the number of young adults, at each age, either eligible for Medicaid or currently on the individual market for health insurance.  Other assumptions include:

CBO estimates of premiums – Our analysis relied on CBO’s projections of an earlier version of the bill than what passed the House for insurance premiums in 2026. However, CBO does not fully adjust for increased costs stemming from healthier young people leaving the market and impacts on costs due to Medicaid disruption. We suspect this underestimates the projected premiums under the AHCA. The CBO also assumes a steeper per year increase in the price of premiums than in recent years as their current baseline. This produces a potentially inflated estimate for 2026 premium prices under current law.

Federal Poverty Levels – CBO estimated the 2026 costs for 21-year olds earning 175 percent and 450 percent of the federal poverty level under current law and the American Health Care Act. CBO estimates that in 2026 these poverty levels would reflect $26,500 and $68,200 adjusted gross income. In other words, the FPL would be $15,143. This projection reflects the 2 percent annual rate of inflation. The AHCA phases out the tax credit once individuals begin earning above $75,000. Using CBO’s projections for the FPL in 2026, we estimate $75,000 will equate to 495 percent of FPL and the tax credit will completely phase out at $95,000, or 627 percent of FPL.

Age Rating Adjustments – CBO assumes most states will employ the 5:1 age rating allowed in the AHCA to project premium costs for 2026. We applied a year-by-year age rating schedule to expected premiums along a schedule modeled by the Millman Consulting firm. This reflects CBO’s estimates that a 21-year old earning 175 percent of FPL will pay $5,100 under current law and $3,900 under the AHCA’s age rating adjustment. The AHCA allows states to adopt their own age rating, but was not considered in this analysis.

Cost Sharing Reductions – CBO acknowledges that cost-sharing reductions would amount to $1,100 for a 21-year old and $3,350 for a 64-year old (in note c in Table 4). Using these assumptions we created a year-by-year schedule of CSR values, equaling roughly $50 per year of age. In reality, individuals earning below 175 percent  FPL receive a larger CSR and individuals earning between 175 percent and 250 percent would receive a lower amount. We applied the average benefit, based on CBO’s 175 percent FPL projection, to individuals earning below 250 percent FPL, a benefit removed by the AHCA.

Medicaid Eligibility The AHCA rolls back Medicaid expansion and also freezes Medicaid enrollment in a few years and transforms the program by capping federal funds. To estimate the number of young adults affected by this change we apply a 16 percent rate (the proportion of 18-29 year olds that make up all Medicaid enrollees according to the U.S. Census) to the 14 million total losses in Medicaid as estimated by the CBO, resulting in 2.3 million. This undercounts the impact as young adults would probably disproportionately be affected by the Medicaid cuts, particularly ones without a disability, and young adults without children. However, CBO also assumes that some new additional states would have expanded Medicaid by 2026, and their estimates of Medicaid coverage losses could come from states that haven’t actually expanded yet in our current baseline drawn from Census estimates. CBO does not specify which states they assume expand.  This opens up the possibility that there is some double-counting individuals in our estimates of those who would be Medicaid-eligible if they lived in states that expanded and those who would lose Medicaid under the AHCA.

Furthermore, eight states have adopted trigger statutes to undo Medicaid expansion coverage and/or benefits in the event the federal government reduces its state reimbursement. This could lead to hundreds of thousands of more young adults losing access to coverage or essential benefits. We then summed the 3 million remaining uninsured young adults whose incomes currently fall below 138 percent of FPL, who would benefit if all states expanded Medicaid, resulting in a total of 5.2 million.

We apply a benefit of $3,247 per Medicaid enrollee. Certainly individuals with chronic health problems or disabilities receive a much larger benefit, and individuals who lose Medicaid eligibility who then experience health problems would be exposed well beyond this $3,247 annual benefit.

Declining Value of AHCA Tax Credit – The AHCA provides tax credits for individuals earning below $75,000, varying in amount depending on age. The amount also increases starting in 2019, by the rate of inflation plus one percentage point. CBO estimates an annual rate of inflation of 2 percent until 2026, so the scheduled rate of increase for tax credits for individuals under age 29 would reach $2,460 by 2026. CBO rounded all estimates to the nearest $50 and so project the tax credit at $2,450. However, government data project premiums to grow by 4.7 percent per capita annually until 2026. Applying this rate to the $2,000 tax credit would result in $2,908, a $449 deficit from the the current projection.

Continuous Coverage Provision – The AHCA requires insurers to impose a 30 percent surcharge on individuals whose coverage lapsed for 63 days during the year. Young adults are much more likely to move, change jobs, and experience lapses in coverage. In fact, 33 percent of young adults could experience a lapse of coverage and receive the surcharge. We applied a 30 percent surcharge on 33 percent of the value of the penalty for young adults currently in the individual market. For young adults without health insurance, the full value of the penalty was applied.

Population Growth – We estimated for the number of young adults falling into different poverty levels using the U.S. Census’ Current Population Survey estimates for 2016. To estimate population growth over the next decade, we used the U.S. Census National Population Projections’ estimate of 8.0 percent growth in the U.S. population between 2016 and 2026. We applied this growth rate to our CPS estimates of young adults by FPL, and assumed proportional growth.