March 23rd, 2010. Almost seven years ago health care within the United States was dramatically reformed. The Patient Protection and Affordable Care Act (ACA)—otherwise known as Obamacare—became the law of the land. Democrats loved the chance to reform health care and largely loved the changes. Republicans—at least congressional members—detested the law deeming it socialism and a “government takeover of health care” paired with looming death panels that would send Grandma to her coffin.
Now that Republicans have almost complete control of government—having 52 seats in the Senate, a majority in the House, and Donald Trump as President—they are jumping at the chance to repeal and replace the ACA once and for all. Their campaigns for office in 2010, 2012, and 2014 ran almost exclusively on this promise. Their opportunity to change the law has finally come, and it must be done before 2018 when they risk potentially losing a majority in one of the houses of Congress.
Just about 45 days into the Trump presidency, the American Health Care Act (AHCA)—what some are calling Republicare or Trumpcare—has been hastily introduced in the House of Representatives. The bill is currently working its way through its necessary committees to be amended before it can be put to the House floor for a full-member vote. The sorry news for Republican dreams is that some in the media and the Congress are already calling the bill dead on arrival. This is not due to Democratic obstructionism—that has largely no effectiveness here. Interestingly Congressional Republicans themselves are split over the bill. Party leadership loves the bill and claims that it is the only opportunity to replace the ACA, yet both moderate and conservative members find issue with it. Moderates decry it as stripping Medicaid away from their poor constituents, whereas conservative members bemoan that the bill is “Obamacare lite” simply turning one entitlement program into another. Thus, the future of the bill is uncertain, and it is bound to face some major changes as it progresses through the houses.
Regardless of whether the bill eventually passes in its current form, Americans now have the chance to finally review the Republican leadership’s plan to replace the ACA. Thus, the time is finally here to evaluate the bill and how it compares to the current health care system under the ACA. Americans deserve to know how premiums, deductibles, and coverage would change if the government does sign this bill into law. The most important metrics to observe are the uninsured rate, premium levels and growth, benefit coverage, and the federal debt. If these measures objectively improve on what the ACA has provided the last few years, the American people should approve the Republican plan. If they instead deteriorate due to the AHCA, Americans should outright reject it and demand something better.
The AHCA bill may be amended, and there may be other health care ideas out there that better improve on the ACA, but that is not relevant in the current discourse. The People under Republican leadership have essentially two options: resume with the Affordable Care Act or change course with the American Health Care Act. This choice should be made as clear as possible to voters and citizens.
As discussed previously in Obamacare: Separating Fact from Fear and Episode 5: Saving Obamacare, the health care industry is mind bogglingly complex rife with a myriad of challenges. The United States remains the only developed Western nation without universal insurance coverage for its people. The previous decade and longer have seen skyrocketing premiums and deductibles. The poor struggle to afford this necessary coverage. 27% of non-elderly adults suffer from a pre-existing condition. There are a few million sick Americans that make up just 5% of the population yet almost 50% of all health care costs.
The Affordable Care Act’s Approach
These are the challenges that the ACA sought to mediate through various vehicles and legislative changes. In order to reduce the uninsured rate, the ACA implemented a multi-pronged approach. First, an Individual Mandate coerces all qualifying Americans to purchase health insurance or else pay a smaller fine to the government. Second, income-based subsidies would hold down premiums for middle-income Americans so that costs would never rise above a given percentage of their income. Third, Medicaid would be expanded to allow more poor Americans to be eligible for what is mostly free health coverage. To the financially attuned, subsidies and expanded Medicaid sound like billions more in spending coming from the federal government. In order to offset this spending and actually reduce the deficit, the ACA instituted various taxes mostly on insurance companies, medical device manufacturers, and the wealthy.
The data reveal the effect of the ACA on the uninsured rate in the years it has been operating at full force.
Thus, the ACA largely achieved its primary goal: the uninsured rate is lower than ever in history. Now how about the deficit? While one can look at the last few years’ deficits, there is much more to the deficit than just ACA spending and revenue. Thus, it is wise to instead look to the nonpartisan Congressional Budget Office’s (CBO) analysis of the law, which details that an outright repeal of the law would increase the federal deficit by $353 billion. Furthermore, the ACA has not reduced the number of jobs in the country contrary to conservative criticism.
While the uninsured rate and the deficit receive mostly positive marks as a result of the ACA, premium and deductible growth must also be observed in order to determine whether the ACA should be kept or abandoned moving forward. Deductible growth has remained on an unsustainable yet consistent path upward for the last decade.
The ACA has not made a dent in this respect, and more Americans now have deductibles over $1,000. As for premium growth, this metric is more difficult to measure as the Great Recession struck right at the same time as the ACA was passed.
Thus, the reduced premium growth seen in the past few years compared to the early 2000’s may indeed be due to the ACA, but it may also be due to less use of health care due to the recession. (There is reason to believe this as premiums continued to grow at 27% in the 2010’s even as inflation dipped.)
Critics and especially Congressional Republicans choose this explanation arguing that the ACA is actually causing a death spiral for premiums as sick people continue to enroll while young, healthy people do not enroll to offset the cost of covering the extremely sick. Just 28% of the market consists of young, healthy people–lower than the estimated 40% needed to stabilize the market. While that indeed may be true as young people may rationally opt to pay the smaller fine rather than paying for expensive insurance, other experts argue that there is little evidence of a death spiral. Those experts argue that the premium spikes may be one-time adjustments rather than a sign of the ACA’s collapse evidenced by the continuing increase in enrollment. To the credit of the experts who do not see a death spiral, the ACA actually instituted a bailout fund to help insurers stay profitable in the adjustment years, yet conservatives de-funded it after deeming it crony capitalism. Nevertheless, the marketplaces established by the ACA have seen insurers rapidly withdrawing and insurance companies actually running losses due to the unbalanced enrollee profile.
If young people continue to reject insurance, the marketplaces will continue to become less competitive and more sickly lopsided, which will further increase premiums and make insurance even less attractive to young people. This is the argument for change given by Republicans. They argue that the system can be reformed to lower premiums to incentivize insurance coverage for young people and further decrease the uninsured rate.
The American Health Care Act’s Approach
In regard to the uninsured rate, the AHCA first repeals the Individual Mandate. Qualifying Americans would no longer be forced to buy insurance or pay a fine. The bill replaces this tax with a different action-compelling regulation: it allows insurers to charge a 30% hike on one’s premiums for one year if the person experiences any lapse in coverage over 63 days long. In reality both bills coerce Americans into buying coverage and staying covered with the alternative being to pay a fine of some sort. The ACA has the fine go to the Internal Revenue Service; the AHCA has the fine go to the insurers. However, while young, healthy people would be forced to pay that tax at the end of the year, the AHCA allows a person to avoid the fine for as long as that person goes without insurance. This mechanism punishes people less, but being so it is a weaker coercive mechanism than the Individual Mandate under the ACA. Thus, based on solely this vehicle young people may even more so refuse to enroll in coverage—hindering the uninsured rate from decreasing.
Now, Republican’s argument is that they do not wish to force people to buy insurance. Instead, they wish to make coverage so affordable that young people voluntarily enroll. How will this be achieved with premiums being so high currently? As the ACA offers income-based subsidies, the AHCA offers age-based monthly tax credits (not available for the wealthy) to subsidize the cost of insurance. The vehicle is essentially the same, yet the details are what will affect the market. Income-based subsidies have primarily helped the poor and middle class to hold down their health expenses. Age-based tax credits will provide double ($4000 annually) the amount of assistance to those over 60 years old compared to those who are younger ($2000 annually). While most sick people are older, there are still many young sick people and especially poor and middle-class sick people. However, the argument for credits based on age instead of income is to not incentivize foregoing an increase in income via a job change or promotion which could result in the loss of an income-based subsidy.
The difference between what Americans would receive in age-based tax credits versus income-based subsidies can be seen in the following examples.
While at first this policy seems to harm young people, a middle-income or wealthy young person could receive a larger tax credit than the income-based subsidy under the ACA. Further, the AHCA also changes the allowed ratio for how much older people can be charged in comparison to younger people: the ratio would change from 1:3 under the ACA to 1:5 under the AHCA. Putting these policies together, it seems reasonable to conclude that older people will not be better off financially, especially since these older people may not have much income after retirement.
Adding to the complexity are the AHCA’s efforts to reduce the cost of insuring people with pre-existing conditions. Since these are the people that increase premiums for the rest of the population, the AHCA would provide a lump sum of cash to state to administer to insurers with the requirement that it be used to control the premiums for these Americans. With costs lower for these people, the theory goes that premiums can drop for everyone else all while maintaining the popular benefits of the ACA—such as no lifetime coverage caps, parental coverage up to 26 years old, and mandated coverage of “Essential Health Benefits.”
As the CBO has not yet finished its analysis of the bill, Americans do not yet know how much the bill will cost. The monthly tax credits are sure to cost the deficit, especially since the AHCA repeals all the aforementioned ACA taxes. Additionally, whether the AHCA would lower premiums more than the ACA is remaining to be seen. Some experts even argue that the repeal of the Individual Mandate with still mandated coverage of pre-existing conditions will cause a death spiral of skyrocketing premiums. Will premiums be so low with the tax credits that people enroll in droves? Some faith is required if the People are willing to take that bet.
Perhaps the most shocking elements of the AHCA to moderates and liberals are the defunding of Planned Parenthood, the mandate that no tax credit money be paid toward plans that cover abortion, and especially the ending of the Medicaid expansion established by the ACA. The bill would end federal funding for any further Medicaid expansion after January 1, 2020. Thus, no one currently or soon-to-be enrolled in the program would lose their coverage, but the program could not expand further via federal financial support. However, the states would be given block grants to fund the program, which means that each enrollee would be limited to a certain monetary amount of health care annually rather than being covered for all expenses. This annual cap on coverage indeed controls federal spending on Medicaid, but it simultaneously limits the amount of care that poor Americans can receive. Opponents are criticizing the bill as a denial of coverage to the poor while being a billions-dollar tax break on the wealthy and insurance companies.
The ACA has made progress in decreasing the uninsured rate while not drastically reducing the rate of premium growth; competition is dwindling, and young people are largely refusing to take on the cost. Insurance plans now offer more protections than ever before, and Americans with pre-existing conditions cannot be denied coverage.
The AHCA would ensure that these protections for all Americans and especially Americans with pre-existing conditions remain in place. However, it does seem to cut coverage for the poor while eliminating taxes on the wealthy. No matter how competitive premiums become, they are likely not going to be low enough to cover the poor who will not be eligible for Medicaid after 2020. Beyond the Medicaid provisions, the law is not too dissimilar from the ACA in its goal of incentivizing coverage and keeping costs down for sick Americans. However, if income-based subsidies and a mandate were not enough to lead young, healthy people to enroll, will age-based tax credits and federal funding to control premiums for Americans with pre-existing conditions be enough to lead young, healthy people to voluntarily enroll? The question is complex, but the answer must be found if the American people are being expected to sign on to this bill.