On the Obamacare Replacement

By Sam Joyce

Democrats are understandably up in arms about the newly released GOP plan to “repeal and replace” the Affordable Care Act—the bill would do nothing less than attempt to undo the signature legislative accomplishment of the previous Democratic President, and in the process force millions of people to either pay more for healthcare or go without. For mildly less altruistic reasons, a sizable number of Republicans have also come out against this bill. The legislation does not go as far as many conservatives would like, as it keeps most elements of the Affordable Care Act intact (for now). Some of the signature provisions of the ACA, including the prohibition on insurers denying coverage on the basis of pre-existing conditions, the provision allowing children to stay on their parents’ insurance until they turn 26, and the limits on out-of-pocket maximums would remain under the GOP plan. There are a lot of tax cuts, some pretty concerning changes to Medicaid, cuts to essential public health funding, and the elimination of the ACA’s individual mandate, but it doesn’t go anywhere near as far as an outright repeal of the ACA. That, however, doesn’t mean there’s not genuine reason to be worried.

A central portion of the legislation is the same sort of policy proposals pushed by Republicans since time immemorial: more tax cuts for the very rich, saving the top 0.1% nearly $200,000 each annually. This is a problem, because some of the most popular parts of the ACA that would remain intact (like the pre-existing conditions provision) are also the most expensive. The repealed tax provisions (including the ‘Cadillac tax’ on high-cost insurance plans and the Additional Medicare Tax on high-income taxpayers, among others) amount to $593.7 billion in revenue over the next ten years, and would shorten the projected lifespan of the Medicare trust fund. The cuts to other areas in the bill do not exactly appear to cover the lost revenue. It’s difficult to see how the legislation will be revenue-neutral barring massive cuts to Medicaid.

That appears to be what the bill tries to do. While it would harm the federal budget, it appears to reserve its most devastating impact for state and hospital budgets through its changes to Medicaid. In 2020, the bill would effectively eliminate the ACA’s Medicaid expansion (shifting $253 billion in costs to the states) while also changing Medicaid to a per-capita block grant, adjusted annually based on the medical consumer price index (M-CPI). This is a problem, as Medicaid spending has typically outpaced M-CPI growth, meaning the legislation would amount to a $116 billion annual cut to Medicaid over the next ten years. Those costs, totaling around $370 billion, would be shifted to the states, which will presumably respond with large cuts to Medicaid, further increasing the number of uninsured. Other provisions, including a requirement that states re-determining eligiblity for people on Medicaid every six months, the elimination of Medicaid’s retroactive eligibility provisions, and, crucially, the elimination of Medicaid coverage for workers with coverage gaps will further contribute to millions losing coverage. Standard & Poor’s estimates that the bill will cause around 4 to 6 million people currently enrolled in Medicaid to lose their health insurance coverage.

Additionally, there are some particularly disturbing cuts to public health funding. The bill would eliminate the Prevention and Public Health Fund, which provides around $1 billion annually to the Centers for Disease Control and Prevention. Acting CDC director Anne Schuchat noted that the bulk of the funding affected goes to identifying and responding to new outbreaks and controling healthcare-associated infections, while the CDC’s own documents show that money from the fund pays for around 40% of the CDC’s immunization program. Collectively, investments in public health are only around 3% of US healthcare spending, yet the Republican proposal specifically targets public health spending to make up part of the deficit incurred by the bill’s tax cuts for the wealthy.

Most concerning, however, is the fact that the bill’s repeal of the individual mandate will accelerate the ‘death spiral’ currently underway in the ACA insurance exchanges. The legislation creates what’s known as a ‘continuous coverage requirement,’ replacing the individual mandate (buy health insurance or pay a penalty) with a system that would allow insurers to charge 30% higher premiums for 12 months to people who allow their coverage to lapse for 63 days; in most cases, this would reduce the penalty for going without health insurance. In essence, the legislation reduces the incentive for healthy people (with lower annual healthcare costs) to purchase insurance, which causes the average cost per enrollee and thus the cost of health insurance premiums to rise, by 30% or more in 2018. That obviously creates a stronger incentive for healthy people to drop their health insurance coverage. Once people drop their coverage, they will be hit by the same 30% penalty no matter when they re-enroll, and so they will have no incentive to buy coverage until they get so sick that they are unable to avoid purchasing insurance. Accelerating is an important word, as the individual marketplaces are already showing signs of a death spiral. The markets, in essence, need to be fixed or they will collapse. This bill accelerates the drive towards that collapse, and in the process makes insurance unaffordable for millions of people. It is important to note that this is not a problem unique to the Republican plan; the weak penalties for ignoring the individual mandate in the ACA means that the system is already trapped in what Princeton’s Uwe Reinhardt identifies as a mild version of a death spiral. The ACA is nowhere near a perfect bill, and a legislative fix to prevent the collapse of the exchanges is probably necessary within the next five years. The problem with the Republican proposal is that it not only doesn’t solve the problem, but makes it worse.

This is amplified by the way in which the bill shifts around the health insurance tax credits created by the ACA to help low-income individuals afford insurance coverage. The subsidies are cut (by around 36%), and shifted from being based on income to being based on age, which makes it harder for poorer people to afford insurance. This especially impacts older poor people, as while the subsidies increases with age ($2000 for a 27-year-old, $3000 for a 40-year-old, $4000 for a 60-year-old), another provision of the bill increases the age bands (the difference between the premiums an insurance company can charge younger and older people) from 3:1 to 5:1, which means insurance gets slightly cheaper for young people and much more expensive for old people (particularly those in high-cost states). The AARP has estimated that, for a 64-year-old earning $15,000 a year, the cumulative impact of the legislation would increase their premium by $8,400, while other estimates suggest the average increase for all enrollees would be around $2,409 per enrolleeS&P estimates that this would result in 2 to 4 million people losing their health insurance, while Tricia Neuman, director of the program on Medicare policy at the Kaiser Family Foundation, explains that the legislation would lead to many seniors working longer to be able to afford healthcare during retirement. The only real winner here is, as with most Republican policy proposals, people who make a lot of money (who are currently ineligible for the income-based tax credits). Lower-income people, meanwhile, will find it impossible to purchase adequate health insurance coverage.

The Republican plan for health insurance strips insurance from fifteen million people, makes healthcare more expensive for poor and middle-class Americans, and exacerbates the existing flaws of the Affordable Care Act. The legislation is an actuarial and a moral catastrophe. Democrats must do all they can to fight back.

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