Thursday, March 16, 2017

Is the GOP's Obamacare Replacement Even Worse Than Obamacare?

Ever since the Affordable Care Act (ACA), or known more colloquially and accurately as Obamacare, has become law, we have seen premiums skyrocket, enrollment numbers stay well below expectation, a sizable number of people unable to keep their preferred doctor, the cost of Obamacare as higher than projected, and less healthcare options are available. Given all the downsides, it should not shock anyone that I am not a fan of Obamacare. Up until last November, it did not look like there was an end to Obamacare in sight. Unless the Republicans were able to control both the executive and legislative branches, repealing and replacing Obamacare would have been impossible. But here we are: a government in which Republicans control both the legislative and executive branches of the federal government. Within the first 100 days, what does Congress do? They propose their plan to reform the healthcare system: the American Health Care Act (AHCA).

This 123-page bill is a partial repeal of Obamacare that uses reconciliation, which is a legislative process to pass budgetary matters through the Senate with a simple majority. Reconciliation is being used because the Democrats can filibuster if there aren't 60 Senators on board, which there are not. This is a procedural gimmick to try to reform as much as politically feasible. What exactly is it that the Republicans are looking to pass? The bipartisan Committee for a Responsible Federal Budget (CRFB) provides a good summary of the provisions here, but here is a summary list:

  • Remove the individual mandate and replace it with a "Continuous Health Insurance Coverage Incentive." The Incentive is that if someone has a two-month gap in their coverage and decides to go back to being covered, they are hit with a 30 percent surcharge. 
  • Repeal the vast majority of taxes in the Affordable Care Act.
  • Remove the regulation prohibiting insurers from charging older enrollees more than three times than younger ones. 
  • The definition of a "qualified health care" expands to the point where catastrophic coverage is legal once again, and that insurers are not mandated to sell Gold and Silver plans. 
  • Continue with Obamacare's Medicaid expansion plan for three more years, and then convert Medicaid funding to add a per-capita cap on states to reform Medicaid. 
  • Convert tax credits from being income-based to means-tested, i.e., mostly based on age but partially on income. 

There are other provisions, but those just mentioned are the main ones. Let's be clear: Obamacare needs to be repealed and replaced. However, the catch is that for "repeal and replace" to work, the replacement needs to be an improvement upon the status quo. Otherwise, what is the point? The question of the day is whether or not the AHCA better than the ACA. The nonpartisan Congressional Budget Office (CBO) came out with their much-awaited report earlier this week on cost estimates for the AHCA, which will be used as the basis for analysis here.

Effects on Federal Budget
As the chart below shows, the AHCA saves $337 billion in deficits over the next decade. Some criticize it as as a huge tax cut for the rich, but given how problematic long-term debt is, it's nice to see the U.S. government actually cut back on spending. The spending does have an effect on Medicare. Repealing the 0.9 percent Hospital Insurance tax is going to accelerate Medicare insolvency by two to three years. Medicaid is also going to be cut substantially. However, given that health care outcomes for those on Medicaid are either no better (or often worse) than no insurance at all, it should give us reason to pause.

Source: CRFB

Effects on Premiums and Overall Cost
On average, premiums will be higher by 15 to 20 percent in 2018 and 2019. However, over the next decade, premiums will be 10 percent lower on average than they would be under Obamacare (CBO, p. 3). Two main findings regarding premiums (see below): 1) If you're younger, the ACHA is a better deal. If you're older, not so much. 2) Poorer people do not fare as well, particularly those who are older. A report from Avalere, a healthcare consulting firm, also shows that low-income and older people will incur higher costs for failing to purchase health insurance because the tax credits shift the benefits more upward on the income scale. [3/26/2017 Addendum: Urban Institute provides a breakdown on the premium by income bracket].

The ACHA accomplishes the effect on the poor in two ways. One is that raises the ceiling on the age-rating rules. Under Obamacare, insurers can only charge older people up to three times what they charge younger people. Although the idea was to not bombard older people with medical bills, there are still unintended consequences that were not desirable. Now, the insurers can charge five times the amount. The idea behind this shift is to make it more affordable for younger people to opt in. The second way is that the ACHA abandons the income-based tax credits for a primarily means-based tax credit for those making less than $75,000. What this means is that because the tax credit is the same for all recipients, the financial effect is more pronounced for those who make less. Flat tax credits that are mean-based are problematic because they disproportionately affect the poor.

Effects on Coverage
The CBO report shows that  in comparison to the trajectory of the current law, there will be 24 million less people who will receive coverage as a result of the AHCA, which is much higher than Standard and Poor's preliminary estimate of 6 to 10 million. We have to ask ourselves why the enrollees are dropping. While the report admits that the subsidies for the Medicaid program play an important role, so does removing the individual mandate:

"Most of the [14 million people losing their insurance by 2018] would stem from repealing the penalties associated with the individual mandate. Some of the people would choose not to have insurance because they chose to be covered by insurance under current law only to avoid paying the penalties, and some people would forgo insurance in response to higher premiums." (CBO, p. 2)

This would mean that many of the people are not "having their insurance taken away," but rather people voluntarily making choices about what to spend their money on instead of being forced into it.[3/26/2017 Addendum: The American Action Forum took a look at the breakdown of the 24 million losing coverage (see below). 11 million are "losing" coverage because they are not being forced into buying insurance.]

Postscript: There are some questions unanswered in the CBO report, such as impact on employment, economic growth, or whether the AHCA will provide patients with more and better options or not. Even so, we can already get some answers about how this bill is, even if there is reason to believe the CBO numbers are overstated (see here and here). There are some positive features about the AHCA. Medicaid is not sustainable in its current form, and barely can provide minimal care for patients. Something needed to be done to incentivize states to innovate and focus their resources on the most vulnerable. But that is not all the positive here. We'll see premiums on average drop by 10 percent over the next decade, which will help millions of Americans. By liberalizing the definition of a qualified health plan, the AHCA also provides Americans with more choices, which makes it easier for Americans to find a plan that better suits their needs. Removing the age-rating provisions not only encourages more youth to join the exchanges, but by assessing actuarial risk, health insurance acts more like insurance and less like a subsidy for healthcare.

This does not mean the bill is great. If you are young and/or richer, then you will see benefit through lower cost. If you are poorer, it is not as good, especially if you are old and poor. The Left bemoans the AHCA as an assault on the poor and a stealth attack on Medicaid. Even the libertarian Cato Institute and conservative Heritage Foundation think that this is not a repeal, and instead is a slightly different version of Obamacare. From their point of view, the AHCA tweaks some of the financing aspects while ignoring the insurance regulations (e.g., the community-rating price controls) that drove up premiums in the first place. The AHCA might even exacerbate some unintended consequences, like the death spiral, encouraging even more people to go onto Medicaid before the window closes in 2020, or exhausting Medicaid funds. The CBO already found that a partial repeal would be worse than full repeal, so the Republicans should get their hands fully dirty and go for full repeal (heck, the 2015 reconciliation bill did more to dismantle Obamacare than the AHCA does).

We also have to remember that our choice is between the ACA (Obamacare) and the AHCA. We don't get the luxury of utopia. Even if Obamacare were left alone, it would have still been a disaster waiting to happen. Obamacare was like building a house on a lousy foundation. The replacement bill is like trying to fix this decrepit house by giving it a paint job or replacing one or two appliances. Let there be no mistake: the bill still needs plenty of work, and fortunately, the CRFB provides some ways that Congress can improve the bill. But let's be clear: unless the healthcare system gets a major renovation, the future of the quality of healthcare in the U.S. looks bleaker by the minute.

3-20-2017 Addendum: FreedomWorks came out with a good issue brief describing the good, the bad, and the ugly about the AHCA.

No comments:

Post a Comment