CBO Shows How to Repeal ACA Regulations

Repeal of the ACA’s insurance regulations would have enormous repercussions for millions of people – just as their enactment did.  Congress should carefully consider the pros and cons of retaining, modifying, or repealing these regulations before taking any action.

A communication from the Congressional Budget Office (CBO) suggests that repealing the Affordable Care Act (ACA)’s insurance regulations would be permitted within Congress’s budget reconciliation procedures, leaving critical policy choices open to legislators.

Federal lawmakers who intend to repeal and replace the ACA have conveyed their intent to use a privileged legislative process known as budget reconciliation.  Reconciliation will be used for repeal for the same reason it was used in 2010 to get the final form of the ACA to President Obama’s desk -- namely that the repeal effort, like the ACA’s original passage, will be fiercely contentious with legislators dividing largely along party lines. Whereas under regular order it takes a supermajority of 60 votes in the Senate to close debate and allow a final vote, moving a budget reconciliation bill only requires majority support.  The budget reconciliation process therefore offers the only plausible path to repeal.

Because budget reconciliation is a privileged process, certain rules (e.g., points of order) exist to ensure it is not abused.  One of those rules (the Senate’s Byrd rule) is that provisions can only move through reconciliation if they have a non-incidental budgetary impact – for example, if they directly alter federal spending or revenue levels.  CBO is the referee of whether provisions have such an impact, while the Senate parliamentarian rules on whether the Byrd rule is being faithfully observed.

One of the procedural challenges facing legislators is that whereas repealing many parts of the ACA would obviously have a significant budget impact, repealing others would not, and still others are open to dispute.  One of the disputed issues has been whether the ACA’s insurance regulations (such as community rating, guaranteed issue, and bands that limit the age-rating of premiums) can be repealed through reconciliation.  That issue has not been formally tested with the Senate parliamentarian; indeed, the version of repeal passed by Congress and vetoed by President Obama last year bypassed the question by leaving the ACA’s insurance regulations unaddressed.

Last month CBO published an analysis finding that a partial repeal of the ACA – specifically, repealing the law’s mandate penalties and subsidies while leaving its insurance regulations in place – would result in more Americans dropping insurance coverage than if the regulations were also repealed.  This analysis, however, did not include an explicit statement that repealing the regulations would have a non-incidental budgetary impact.

It turns out, however, that CBO has made such a statement before. On December 8, 2015, CBO published an interim score of H.R. 3762 – last session’s bill to partially repeal the ACA – as it was passed by the Senate, and before the bill was conferenced with the House. That version of the bill included more extensive provisions affecting insurance coverage than the version CBO had just scored on December 2.  In footnote “c” of its table analyzing the budgetary effects of H.R. 3762 as recently amended, CBO stated the following (emphasis added):

The projected savings from the coverage provisions of this amendment are smaller than those that would stem from repealing all of the coverage provisions of the Affordable Care Act (ACA). The amendment would leave in place certain rules established by the ACA that govern health insurance markets, including guaranteed issue and renewability of coverage, the requirement that health insurance cover certain health benefits, and rating rules that limit the extent to which premiums can vary based on individual characteristics. The amendment also retains provisions related to coverage for young adults. CBO and JCT project that repealing the subsidies and mandates established by the ACA while leaving in place the insurance market reforms would result in a less healthy population in the nongroup market and correspondingly higher average premiums. In addition, the market for nongroup insurance, particularly in smaller states, could become unstable, leading to very low to no participation by insurers and consumers.”

To connect the dots concerning how the insurance regulations affect the budget projections, CBO added the following in its footnote “d:”

“Without taking into account effects on coverage from leaving in place the ACA’s insurance market reforms while repealing the subsidies and mandates, CBO and JCT estimate that enacting H.R. 3762 would increase the number of people without health insurance coverage . . . CBO and JCT have not estimated the changes in coverage from leaving in place the ACA’s insurance market reforms while repealing the subsidies and mandates. However, the agencies expect that relative to the numbers provided above, leaving the market reforms in place would lead to a further reduction in the number of people covered in the nongroup market and an additional increase in the number of uninsured and people with employment-based insurance.”

As CBO describes them, these budget effects are non-incidental and likely substantial.  CBO explains that the ACA’s insurance regulations directly affect the net cost of coverage for individual consumers (just as its subsidies and penalties do), and that their purchase decisions will be similarly affected thereby.  This alters, among other things, the numbers of people expected to carry employer-sponsored insurance (ESI) as opposed to nongroup coverage, which has a substantial budget effect due to the income tax preference for ESI.  In sum, CBO stated here that its projected savings estimates are directly affected by whether the ACA’s insurance regulations are repealed along with its penalties and subsidies.  (The footnote was not included in the final CBO score of H.R.3762 as it was sent to President Obama and may have passed many people’s notice for that reason.)

There appears to be no dispute over whether repealing the insurance regulations would affect the federal budget.  The open question is whether the budget effect would be merely “incidental to the non-budgetary components of the provision” and thereby trigger the Byrd rule. This is where CBO’s rationale becomes especially important.  The Senate has already accepted that similar effects are germane with respect to a provision to repeal the ACA’s individual mandate penalty. 

As CBO explained in an earlier score of H. R. 3762, repealing the individual penalty would reduce federal revenues but also would “substantially reduce the number of people with health insurance coverage and, accordingly, reduce the estimated federal costs associated with some sources of health insurance coverage.” Moreover, “the estimated savings stemming from lower enrollment in such coverage would exceed the loss in revenues from eliminating penalty payments.”  That enrollment effect is the sole reason why the individual penalty’s repeal was scored and accepted as deficit-reducing for the purposes of budget reconciliation.  It would be inconsistent to treat the penalty’s effects on enrollment as germane and determinative during budget reconciliation, while on the other hand treating the regulations’ effects on enrollment as incidental. 

Another more general point transcends these particular provisions.  The purpose of the reconciliation process is to enable legislators to make informed budgeting decisions.  If certain legislative actions are agreed to have substantial implications for the federal budget, especially in combination with other provisions moving through reconciliation, it would ill-serve the public to prevent lawmakers from acknowledging and considering them.

Repeal of the ACA’s insurance regulations would have enormous repercussions for millions of people – just as their enactment did.  Congress should carefully consider the pros and cons of retaining, modifying, or repealing these regulations before taking any action.  It is worth strong emphasis that recognizing these provisions’ budget impact does not by itself suggest any particular policy choice.

Nevertheless, legislators should be aware that CBO has already written to Congress to explain how the budget impact of ACA repeal legislation will vary according to whether repeal of its insurance regulations is included.  Repealing the insurance regulations should accordingly satisfy the test of being germane for budget reconciliation purposes, leaving critical policy choices fully open to legislators.