Another Reason to Dislike Obamacare: Fraud Rates Costing Taxpayers As Much As $25B a Year

Remember back nearly two decades when the Affordable Care Act, also known as Obamacare, was meant to expand coverage and lower costs? Guess what it ended up doing instead? Far from delivering on its promises, premiums and deductibles remained high, insurer competition was weakened, and Congress continues to spend money. 

As if those shortcomings weren't enough, a new study from the Paragon Health Institute suggests Obamacare may suffer from another serious problem: large-scale enrollment fraud and improper subsidy payments.

The Paragon Institute estimates that approximately 6.2 million people enrolled in Obamacare may be improperly receiving subsidized insurance, which accounts for can account for as much as one-quarter of total exchange enrollment. In fiscal terms, the report argues this could translate into as much as $20–25 billion in annual improper federal subsidy spending, depending on assumptions about eligibility verification and income reporting accuracy.

These issues are not coincidental; they are structural. First, eligibility for subsidies is heavily dependent on self-reported income, which is often based on projections as opposed to verified real-time earnings. This creates natural friction between reported income at the time of enrollment and actual income over the course of the year, especially for workers with variable earnings, gig income, or fluctuating hours.

Second, the system relies on delayed verification and post-enrollment reconciliation instead of strict upfront screening. This means discrepancies may not be corrected until after coverage has already been granted and subsidies disbursed.

Third, the growth of third-party brokers and automated enrollment platforms has increased the number of intermediaries involved in sign-ups. While many operate legitimately, the report argues that commission-based compensation tied to enrollment volume can weaken incentives for careful eligibility verification.

Finally, automatic re-enrollment mechanisms can allow previously enrolled individuals to remain in coverage even if their eligibility status has changed and was never fully rechecked.

This gets into a debate about how estimates of improper ACA enrollment vary widely depending on how “error” is defined and how aggressively small discrepancies are extrapolated across the full exchange population. Federal auditors like the Centers for Medicare & Medicaid Services and the Government Accountability Office generally focus on confirmed, verifiable errors, which tend to produce lower, single-digit to low-teens estimates.

Higher-end estimates, on the other hand, attempt to capture what those same processes are likely to miss when eligibility is based on self-reporting, delayed verification, and automatic renewal. Put simply, the lower estimates only measure what the system catches and acts as a low-bound estimate. The higher estimate is more plausible because it attempts to measure the full scale of eligibility drift.

Enrollment is frequently cited as evidence of the Obamacare’s success, but it is an incomplete metric. It captures participation in the system, not the accuracy or stability of that participation. In a framework built on self-reported eligibility, delayed verification, and automatic renewal, enrollment can rise even as underlying errors persist. The Paragon Institute’s findings highlight how large those gaps may be at scale.

The latest evidence on enrollment and subsidy error does not stand alone. It reinforces a longer pattern of structural problems that have followed the ACA since its inception, much like I pointed out in my 2017 piece listing 15 reasons we should all dislike Obamacare. Whether it is fraud rates, higher premiums, or fewer options, this latest Paragon Health report is a sobering reminder of why Obamacare should never have existed in the first place and how the American people are still paying for this boondoggle.

Premium in Name Only: The Pricey Truth Behind “Free” Obamacare Under COVID-Era Subsidies

Instead of passing a budget, the United States Congress allowed the government to shut down on October 1, 2025 and has been shut down since. When government shutdowns take place, the federal government limits services and ceases non-essential operations. This is not the first time such a shutdown has occurred. The longest shutdown took place during Trump's first administration in 2018-19 over funding for expanding barriers on the U.S.-Mexico border. The 1995-1996 shutdown under the Clinton administration was over spending cuts, whereas the 2013 shutdown during the Obama administration was about the implementation of the Affordable Care Act (ACA). While commonly referred to as the ACA, I prefer calling it Obamacare over the ACA because the ACA did nothing to make healthcare more affordable (see here and here), but we can call it ACA for shorthand purposes. 

Interestingly enough, the lack of affordability under ACA brings us to today because the current shutdown is primarily about ACA. During the COVID pandemic, Congress passed the American Rescue Plan, which included a temporary expansion of the ACA's premium tax credits (PTCs) to help soften the blow of the COVID pandemic. These tax credits, which account for 7 percent of the Americans who use the Obamacare-run insurance marketplace, had these tax credits extended under the Inflation Reduction Act in 2022. There is nothing permanent like a temporary government measure, right? Because now, the Democrats want to extend the Biden-era tax credits yet again, even though the COVID pandemic ended a few years ago. Democrat's commitment to extending the Biden-era tax credits was strong enough that they refused to pass a budget without them. Let us get into why this insistence to maintain the PTCs is short-sighted and make matters worse. 

It is a common talking point from proponents to say that the premiums will more than double if the PTCs expire. While technically true, the claim is also misleading. The PTCs act as a demand-side subsidy, which both artificially increase price and quantity consumed. Consumers are paying less for out-of-pocket premiums, but it does not mean the total cost of healthcare has decreased.  The subsidies, in fact, shift the cost from the individual enrollee to the taxpayer, a distinction that often involves the same individuals. People think it is cheaper because someone else is footing the bill. It is not about making healthcare cheaper, but it is a matter of budgetary sleight-of-hand. 

This subsidy is a classic economic distortion that functions similarly to the employment sponsored insurance tax credit. Since the subsidies scale with premiums, enrollees are insulated from rising costs, while taxpayers bear the increased burden indirectly. As a result, it encourages overinsurance, thereby reducing market discipline and increasing overall healthcare costs because insurers have less pressure to compete on price, thereby creating an upward price spiral (e.g., Cannon, 2022; Powell, 2012). 

The PTC subsidy fuels premium growth, which in turn raises subsidy payments further. The ACA did not contain premium costs. If anything, individual premiums increased much faster than medical care or overall prices since the ACA was written back in 2009. Individual premiums increased by 143 percent compared to 52 percent of medical care costs and 49 percent for overall consumer prices. Here is data from the Center for Health and Economy showing how ACA premiums have increased over time. As a result, healthcare costs rose in a similar way that federal subsidies to college tuition have caused tuition costs to skyrocket. Even before the pandemic and this PTC expansion, ACA premiums had already doubled, despite Obama's promises of family savings. 

What the PTC subsidies do to make the matter worse is that it lowers price sensitivity. Consumers have less incentive to shop around or demand lower-cost care, which undermines competition and encourages inefficiency. This distorts consumer choice signals, creates a moral hazard, and makes healthcare inflation all the worse. Much like I asked last May with regards to Medicaid, what good does it do to fund an insolvent and unsustainable program?  

In addition to the economic theory and reality of demand-side tax credit, expanding the tax credits will not fix the system. It will merely hide their failures behind market distortion and more debt. Speaking of debt, the Congressional Budget Office (CBO) estimated last month that extending the PTCs will cost $350 billion over the next decade. Combined with the corresponding interest costs of $60 billion, that brings the total cost to $488 billion over the next decade. This is close to the Paragon Health Institute's estimate of $450 billion. 

To put this into context, the PTCs cover 3.8 million enrollees, which would put the per enrollee cost for the premiums at around $13,000. This is crazy because the average spend for all healthcare per person (not only the premiums) is at around $14,000, according to the Centers for Medicare and Medicaid. If those on Obamacare under the PTCs are spending almost the same amount on premiums alone than the average American spends on overall healthcare, this is hardly an efficient or sustainable use of taxpayer dollars. 

To make matters worse, the legislation for the PTCs removed the 400% of poverty line cap, which means that a large share of subsidy dollars are going to higher-income households. The Cato Institute found that a third of those receiving insurance with these PTCs are above the 400% threshold. Similar to student loan forgiveness, these tax credits go to households that are, on average, better equipped to handle their finances, thereby questioning fairness of the PTCs. If you are arguing now that those at this threshold need subsidies, it is another reason showing us how the ACA has failed at making healthcare more affordable. 

This systemic instability is the sort of phenomenon that makes Obamacare even more unsustainable than it was pre-pandemic. As the Tax Foundation argues, the PTCs are a symptom of showing how federal subsidies and tax preferences in healthcare have increased the cost of healthcare, as well as how the healthcare industry is the most subsidized in the United States. The PTCs are another example of how the top-down model of the ACA has failed the everyday American spectacularly. 

The fight is ultimately not about coverage per se, but how far the government is willing to fund a broken system, a question that could also be asked about Social Security. These COVID-era credits were sold as temporary relief during an emergency. The emergency is long over, but the spending remains. This is hardly a new phenomenon. The Cato Institute calculated that at least $12.5 trillion has been spent on emergency spending since 1991. This also shows why the government needs to stop declaring emergencies to continuously expand government largesse into insolvency. As Milton Friedman once quipped, "nothing is so permanent as a temporary government program," and the PTCs are proving the rule.

The enhanced PTCs do not lower costs, but instead masks the cost increases. Instead of helping the vulnerable, they increasingly benefit higher-income households. Instead of fostering competition, they entrench price-insensitive behavior while rewarding the healthcare insurance industry with corporate welfare. And these premiums come at a cost that exceed the average cost of all healthcare spending. These PTCs are fiscal malpractice disguised as compassion. Do not get me started on how the ACA as a whole increases healthcare costs while receiving less care and fewer options. As I wrote last year, Obamacare has unsurprisingly fulfilled its promises, especially the one about more affordable healthcare. 

In the short run, the PTC expansion under the Inflation Reduction Act should expire because pretending that the PTCs make healthcare more affordable is a dangerous illusion. If we are going to have any serious conversation about how to make the quality of healthcare bette while lowering costs, Congress needs to stop doubling down on the very policies that make the problem of skyrocketing healthcare costs a problem in the first place. I am not going to waste my time to highlight real reform if lawmakers cannot take that first step of recognizing that endlessly expanding subsidies masks the systemic failures that they think they are fixing. First, Congress needs to end the PTC expansion and recognize the role that these subsidies play in artificially increasing healthcare costs. Then we can talk real reform.

Congress Needs to Cut Medicaid, Even More Drastically Than in the "Big, Beautiful Bill"

Congress has made its way into the news cycle as the House passed the "Big Beautiful Bill" (HR 1). There has been criticism of how this Bill would exacerbate the deficit, between there being tax cuts and spending increasing. I can understand that argument. When you lower revenue while increasing spending, that increases the deficit run. When a government continuously spends more than it has, it creates debt. That is basic accounting. At the same time, what I brought up last year is that the permanent income tax cuts are not the root issue, but rather exorbitant government spending. This much was made clear when the credit rating agency Moody's downgraded the U.S.' credit rating earlier this month. 

One of the more notable spending cuts in the "Big Beautiful Bill" is with regards to Medicaid. Founded in 1965, Medicaid is the U.S. government's program that helps cover healthcare costs for low-income individuals, typically under 65. Medicare, on the other hand, covers healthcare for individuals over 65. Medicaid currently covers 71 million Americans, which is about a fifth of the overall U.S. population and 40 percent of the U.S. children population. 

The Bill is proposing a number of changes to Medicaid, including: imposing work requirements for able-bodied adults without dependents (I analyzed the requirements before for SNAP); increasing eligibility checks to twice a year; lowering the federal match for states that provide Medicaid to undocumented immigrants; cost-sharing for expansion enrollees; and banning new or increased provider taxes used to draw federal funds. The reason why these reforms are causing such consternation is because the Congressional Budget Office (CBO) estimates that the bill a) will cut Medicaid by $698 billion over the next decade, and b) at least 8.6 million people will lose Medicaid coverage by 2034. 

Medicaid proponents treat Medicaid as a sacred cow and look at critics or opponents as cold-hearted bastards who do not care about the poor. The Left-leaning outlet Vox saw the Republican's move as the "cruelest cut in the Republican budget bill." I saw the numbers and thought that the Republicans are not going nearly far enough, especially given that the Republican's bill is not actual spending cuts but modestly curbing cost growth. Here are some realities around Medicaid that we have to contend with:

1. Medicaid spending is not fiscally sustainable. Medicaid spending was $118 billion in 2000, was $557 billion in 2024, and is projected to be $898 billion in 2034. Outside of interest payments, the major government program with the fastest spending growth is Medicaid. Balancing the federal budget without touching healthcare would require a 40 percent cut in other government spending. 

2. High improper payment rates. According to the Centers for Medicare and Medicaid Services (CMS), there was a 5.09 percent improper payment rate in 2024. That may sound small to some, until you realize that means $31.1 billion of improper payments in 2024. Because CMS ignores eligibility checks (which are the biggest source of error), there effectively has been over a trillion dollars (yes, that is trillion with a "t") spent in improper Medicaid payments over the past decade. If you do not think it is that bad, you can read this 2024 testimony from HHS' Office of Inspector General or this 2024 report from the Government Accountability Office (GAO) showing the extent of the problem. 

3. Medicaid does not help save lives. I wrote on this topic in 2017 because a major component of Obamacare was the Medicaid expansion. 2017 was a time when the Republicans were trying to repeal Obamacare and the Democrats were falsely clamoring about how repealing Obamacare would have killed thousands.

I know that a National Bureau of Economic Research (NBER) was released earlier this month finding that Medicaid expansion saved lives. However, it is methodologically flawed in that it used a "difference in difference" framework. What this means is that the NBER study assumed that difference in outcomes by state was entirely due to Medicaid expansion, which is specious to say the least. RCTs have better causal inference because it eliminates selection bias, has stronger internal validity, and has flexibility in measuring multiple outcomes.That is why I prefer to go to randomized control trials (RCT), which are the gold standard with this sort of research. 

As far as RCTs in this topic go, there is the Oregon Medicaid expansion RCT, which showed that Medicaid expansion did not have statistically significant impact on health outcomes (Baicker et al., 2013). Then there is the RAND Health Insurance Experiment. While it was conducted from 1971 to 1986, this RCT remains to this day to have been the largest U.S. public health study conducted. The RAND study found that cost sharing led to reduced healthcare utilization without affecting outcomes. A working paper from the Mercatus Center similarly shows that Medicaid expansion failed at improving the health outcomes of lower-income adults (Sigaud and Bjoerkheim, 2024). I also wrote last December about how those states that took on ACA Medicaid expansion actually fared worse in terms of life expectancy than those who did not. 

Postscript. As much as I would like government out of healthcare, I do not expect Medicaid to disappear. After all, 71 percent of Trump voters oppose Medicaid cuts. Even so, eliminating the fraud and waste would be a welcomed step in the right direction if there is any chance for Medicaid to have a future. Here are a few ideas that Congress ought to consider:

• Eliminate or lower Medicaid expansion federal match rate. States that implemented Obamacare expansion receive a 90 percent federal match (FMAP) for adults covered under the expansion. The Kaiser Family Foundation (KFF) calculated that removing this FMAP entirely would save Medicaid $1.9 trillion over the next decade, as well as reduce enrollment by 20 million. 
• Penn State's school of health economics argues that a 50 percent federal match floor would be a more measured approach that would still save $530 billion over the next decade without being too burdensome. 
• Eliminate provider taxes. As the Cato Institute points out, provider taxes create the perverse incentive of shifting the costs to the federal government. The "Big, Beautiful Bill" only stops new provider taxes from being created. The CBO found that eliminating the provider taxes would save $612 billion over the next decade. 
• Convert Medicaid into block grant program. This option would provide a capped amount of funding versus open-ended funding based on actual spending. The bipartisan Committee for a Responsible Federal Budget (CRFB) estimates that limiting growth of payments to the level of inflation would save $950 billion over the next decade.
• Reduce supplemental payments. Supplemental payments drive up Medicaid costs by enabling states to inflate total Medicaid expenditures without corresponding increases in care quality or availability, often through financing schemes. You can read the CRFB's primer on supplemental payments here, but essentially, reforming finance law to reduce these supplemental payments would save $500 billion over the next decade (CRFB). 

This piece is not meant to be a treatise on Medicaid reform or to provide a pro/con list of each potential reform, but rather to illustrate how inefficient Medicaid is, how badly it needs spending cuts, and how there is no shortage of policy alternatives. If you are interested in more reforms that would not particularly cut benefits, CRFB created a list, which is below (also see description here). There are clearly fundamental flaws in the Medicaid program that make billions of dollars of waste a prominent feature, not simply a bug. 

If the relatively modest reforms the Republicans are looking to make are unpalatable, the Democrats and Medicaid proponents should wait to see what fiscal chaos waits if the status quo is left to its own devices. It is better that Congress deals with making serious reforms if it wants to avoid even harder choices down the road. However, because politicians tend to operate on myopic thinking motivated by election cycles instead of thinking about long-term sustainability, I suspect that kicking this can down the road is the most likely outcome, one that the American people will pay for dearly. 

Obamacare Still Hasn't Delivered On Its Promises: Quelle Surprise!

While President-Elect Trump's stance on tariffs and immigration remain unambiguous, Trump's viewpoint on the Affordable Care Act (ACA), colloquially known as Obamacare, is more tenuous. In November 2023, Trump wrote on his social platform Truth Social that "we should not give up" on repealing Obamacare. In the 2023 presidential debate last September, he said that he has concepts of an idea to replace Obamacare, but "until then, I'd run it as good as it can be run." This is in contrast to his first term where he tried to repeal it but failed. Repealing Obamacare did not even make its way into the official 2024 Republican platform. 

Given that healthcare accounted for 17.3 percent of the U.S. GDP, I think Obamacare is absolutely something worth considering. As this October 2024 report from the Paragon Health Institute illustrates, at least a dozen significant Obamacare-related promises were broken. Here are a few broken promises to make the point more salient:

The ACA would create savings of $2,500 per family. This ended up being such a large faux pas of Obama's that FactCheck.org called this promise one of "Obama's Whoppers." It turns out that average premiums increased from $232 in 2013 to $476 in 2017, according to HHS' Office of the Assistance Secretary for Planning and Evaluation (ASPE). This ASPE finding is similar to that of a March 2021 Heritage Foundation report that found that the average premium increased by 129 percent from 2013 to 2019. 

It should not be a surprise that a demand-side subsidy would drive up healthcare costs: it's Econ 101. Obamacare made healthcare costly when it first started. Even now, about half of Americans have difficulty paying for healthcare (KFF). Not exactly what I would call affordable. 

The ACA would save lives. Obama promised that it would reduce injuries in addition to saving lives. Democrats touting ACA were citing a Harvard study (Wilper et al., 2009) saying that 45,000 excess deaths were caused by lack of insurance. Given that there were 2.6 million annual deaths at the time, a reduction of 45,000 excess deaths would have resulted in an increased average lifespan of 0.4 years. 

The life expectancy decreased by 0.3 years from 2014 to 2017, which is a net difference of 0.7 years of what it would have been had the Harvard study been accurate. Average life expectancy increased slightly in 2019, only to drop again due to the pandemic. Average life expectancy went from 78.3 years to 77.4 years in 2023 (World Bank). This promise became so obviously and patently false I wrote a separate piece on this myth in July 2017. And if that were not enough, life expectancy worsened for the states that adopted the ACA Medicaid expansion versus those that did not (Blase and Balat, 2020). 

 

The ACA would increase economic growth. Obama's chairman of the Council of Economic Advisors, Jason Furman, promised that the ACA would create "healthier, more productive workers," "reduced 'job lock'", and "better macroeconomic performance." A research paper from the Journal of Human Resources found that the ACA "increased low-hours, involuntary part-time employment by 500,000-700,000 workers in retail, accommodations, and food services (Dillinder et al., 2020). The authors contributed this trend to the ACA's penalty to large employers who did not want to provide insurance being incentivized to reduce employment and shift full-time workers to part-time workers. The Congressional Budget Office recognized this disincentive in its 2014 report.

The employer mandate would collect a ton of revenue for the government. The Congressional Budget Office and Internal Revenue Service was predicting all this revenue. The White House's Council of Economic Advisors concluded that 11 years after the ACA passed, only 1 percent of what was projected was actually collected. 

If you like your plan, you can keep it. This was a promise made by Obama in 2009 since he believed that the ACA would not take away anyone's plan. This one ended up being such a bold-faced lie that Politifact called it the Lie of the Year in 2013 since at least 7 million consumers saw their plans disappear.

The ACA would decrease emergency room use. Obama's logic on this promise was that taxpayers were subsidizing the uninsured because a lack of insurance was incentivizing them to seek healthcare only when the situation became dire enough to use an emergency room. 

I will look at this from the angle of Medicaid expansion since the ACA expanded Medicaid enrollment by 16 million more than the Congressional Budget Office initially calculated (Butler, 2016). The Brookings Institution concluded that the ACA's Medicaid expansion increased emergency room visits by 20 percent, primarily due to emergency room visits that could have been treated outside the emergency department (Garthwaite et al., 2020). Scholars from the University of Iowa similarly found that Medicaid expansion in California as a result of ACA increased emergency room use and cost (Ellis and Esson, 2018).

Postscript. Not much good has changed about the ACA since I wrote my scathing piece in 2017 on 15 reasons why we should dislike Obamacare. If anything, repealing the main cost-containing provisions, the Cadillac tax and the health insurance tax, since the creation of the ACA made matters worse. The false promises of Obamacare resulted in higher healthcare costs, increased deficit spending, and significant disruptions to insurance coverage and healthcare access. 

The ACA did little, if anything, to improve healthcare in this country, as is illustrated by this September 2024 report from the Paragon Health Institute on how the ACA reduced healthcare quality. Meanwhile, the ACA guaranteed that health insurance companies are guaranteed profits. We do need something to reform healthcare in the United States. Building an extra room on an already rickety house does not help anyone. It simply means reforming healthcare becomes that much more difficult when policy decision-makers reach that painful fork in the road, much like they eventually will with Social Security. Whether the Trump 47 administration is up for the task remains to be seen. But if the first Trump term is indicative of anything, we are likely to see more of a preservation of the status quo than we are reforms of any significance. 

10-16-17 Policy Digest: Iran, Clean Power Plan, and Obamacare

There was so much that happened last week in the world of public policy that I am taking a slightly different format. Rather than go in-depth on one issue, I will briefly cover three issues: the Iran Deal, the Clean Power Plan, and Obamacare. Aside from the time crunch on my end, the reason for covering it in an abridged digest format is because I have already covered these topics in further detail. With that, let's begin.

The Iran Deal
Last Friday, President Trump announced that he is going to decertify the Joint Comprehensive Plan of Action, more colloquially known as the Iran Deal. This decertification will give Congress 60 days to determine if they want to re-impose sanctions on Iran. This position is a compromise on Trump's end since he despises the Iran deal while his aides like it. The basis of the Iran Deal is to make sure that Iran does not become a North Korea-like nuclear power threatening the world. Trump's assertion is that it is not working. I took a look at the Iran Deal both when it first came out and one year after in 2016. My conclusion? The Iran Deal is doing what it is supposed to be doing. If Congress reimposes sanctions, there is legitimate concern that the United States' trust in the international sphere will be eroded as a result. Not only that, but Iran could shift blame towards the United States since Iran has been complying with the Iran Deal. Since the Iran Deal is succeeding at keeping Iran's nuclear capabilities contained, there is no logical reason for Trump to rattle the cage.  

Clean Power Plan
On Tuesday, October 10, the Environmental Protection Agency (EPA) announced that they would repeal the Clean Power Plan. EPA Administrator Scott Pruitt claimed that CPP repeal will save $30 billion over the next ten years. Personally, I'm glad that the EPA repealed the CPP. I analyzed the CPP three years ago, and I surmised that the CPP would only reduce global temperatures by 0.2º, which is a far cry from what we would need to avert the cataclysmic effects predicted by climate scientists. For more recent analyses on why the CPP is inadequate, you can read from the Cato Institute, Heritage Foundation (also see here), Manhattan Institute, and the U.S. Chamber of Commerce.

Obamacare
If that were not enough, President Trump signed an executive order on the Affordable Care Act, better known as Obamacare. There are those criticizing it as Trump's attempt to unilaterally dismantle Obamacare, which critics argue would roll back health care offerings in the U.S. (see here, here). See analyses from the Cato Institute, Forbes, and Heritage Foundation as to why Trump's executive order is not so bad. In either case, something needs to be done to stop Obamacare. For more on the issues with Obamacare, see my list of 15 reasons as to why Obamacare is poor policy.

15 Reasons to Dislike Obamacare

A few days ago, I came across a rarity that we see in today's polarized world. I saw Democrats praising a Republican. Why? Because Senator John McCain (R-AZ) was the vote that stopped the "skinny" Obamacare repeal bill from passing. I saw some friends on social media rejoice over this vote being turned down because they were under the impression that Obamacare saves lives (I covered this a month ago: repealing Obamacare wouldn't particularly save lives). I can agree with my friends on the Left that the Republican attempts to replace Obamacare are bad, but we disagree on the reason.

In public policy, the optimal goal is to pass legislation that is an improvement over the status quo. The Republican "repeal and replace" attempts are not an improvement over the status quo because they tweak some of the financing aspects while ignoring and maintaining the insurance regulations that make Obamacare insolvent in the first place. The Republican plans have essentially been "Obamacare-lite," which believe it or not, are actually worse than Obamacare. What we cannot forget in the midst of this political upheaval is that while the Republican plans are worse, Obamacare is still bad policy. It is not something we should admire or advocate. It is far from perfect, and it has caused considerable damage to the healthcare market in the United States. This blog entry needs to serve as a reminder as to why that is the case, which is why I will provide a condensed list of reasons.

But before beginning, I would like to add one caveat at the beginning. I am looking to pull the most recent information, but I will deemphasize information released in 2017 for two reasons. One, the election of Trump and Republican attempts to repeal (both in terms of the failure of passing a bill and the lack of clarity on direction) have caused uncertainty in the healthcare market, which in turn has caused adverse reactions that are not due to Obamacare. This makes it more difficult to isolate the effects of Obamacare. The second reason is that Obamacare is the single most important defining aspect of President Obama's legacy. The fact that data coming from his administration is anything but flattering further illustrates how much Obamacare has failed. With that caveat out of the way, let's begin, shall we?

1. Increased premiums. Obama said that he would pass a healthcare bill that would cut the typical family premium by $2,500. Politifact deemed that claim as a broken promise. In October 2016, which was right before Trump was elected, healthcare consulting firm HealthPocket projected considerable increases in premiums for 2017. The years 2015 and 2016 saw similar spikes in premiums. eHealth found that the average premium on the individual market increased 99 percent from 2013 to 2016 (and 140 percent for families), and the Kaiser Family Foundation found that the average premium for families increased 32 percent from 2010 to 2016. The centrist Brookings Institution had an interesting finding (Kowalski, 2014, p. 301). From right before the law was enacted to mid-2014, premiums increased 24 percent more than they would have if Obamacare had not become law.

Proponents of Obamacare want to put the blame on a weak individual mandate penalty. That could be part of the equation, but as I explain later in Point #11, that causes another problem. There are two other factors causing increased premiums, one of which is the "essential health benefits" provision. Under Obamacare, coverage is quite extensive, ranging from free preventative care and contraceptives to mandatory mental health and substance abuse coverage. When you cover more goods and services, prices go up. Making it legal to purchase less comprehensive insurance does not do any favors for premiums. Another factor driving up premiums is mandated coverage of pre-existing conditions. I covered this topic three years ago, but Obamacare allows for anyone to enroll during the enrollment periods, which means that people don't have incentive to pay into the system until they get sick. Not only does it create a lack of incentive for younger people to join, but it unsurprisingly drives up prices. The way that Obamacare was created undoubtedly raises premiums, much like Obamacare critics predicted it would.

2. Skyrocketing deductibles. A deductible is the specified amount of out-of-pocket money that the insured individual has to pay before the insurance company will pay any claim and cover any costs. On top of the thousands that families pay for premiums, they have to pay even more money in deductibles before being able to take advantage of the insurance for procedures beyond an annual check-up. You know it has to be bad when the New York Times and CNN, supporters of Obamacare, come to the realization that high deductibles make Obamacare all but useless. Since the Obamacare deductibles are not pegged to income, their regressivity disproportionately affects the poor. Another issue with the high deductibles we see with Obamacare is that they make it more likely for one to avoid or delay care, according to the Left-leaning Commonwealth Fund. The Commonwealth Fund study found that 51 percent of those under 200 percent of the federal poverty line, the demographic that Obamacare is trying to help, said it was difficult or impossible to afford their deductible, as well as their co-payments. Those who have less affordable deductibles made it nearly twice as likely that they would afford going to the doctor (see below). Even when the deductibles were less than 5 percent of income, over 10 percent of insured people decided to delay or not purchase medical services.

Why are skyrocketing premiums and deductibles important? The official name of Obamacare is the Affordable Care Act (ACA). It's the reason I don't like calling it the ACA: the legislation has made healthcare less affordable for millions. Since healthcare is less affordable for many under the ACA, they are less likely to use their newly-found insurance, which makes me further question the effectiveness of Obamacare (see Points #7, 13). It should make even proponents ask an important question: "What good is health insurance under Obamacare when so many cannot afford healthcare under Obamacare?"

3. Low Obamacare exchange enrollment. For the year 2015, the IRS had 12.7 million taxpayers file an exemption to purchase Obamacare coverage, while 6.5 million paid the penalty instead of signing up for coverage. In 2016, the Congressional Budget Office (CBO) had the enrollment figures at 12 million in the Obamacare exchanges and 13 million enrolled in Medicaid vis-à-vis Obamacare. For a plan that was a) supposed to be a comprehensive, affordable plan, and b) there is an individual mandate penalty, the enrollment numbers are disappointingly low, certainly lower than initially projected.

4. Relatively high number of uninsured people. Obama made a solemn pledge that he would sign a universal healthcare bill into law. The problem is that Obamacare is not a universal health care bill. The CBO projected in March 2016 that by 2026, there will still be 28 million uninsured under Obamacare (CBO, 2016, Table 4). Leaving about eight percent uninsured is not the same as universal healthcare. The figures of "insured vs. uninsured" should make us question how much we are paying (see Points #1-2, 5) versus how many we are covering with all the money spent.

5. Less choice in insurance. Obama promised more choice and more competition, and we have the exact opposite of that, according to the Obama administration's Health and Human Services (HHS). The HHS found that marketplace issuers are to drop from 232 insurers to 167 (HHS, p. 27). The number of marketplace insurers in 2017 is now lower than it was in 2014, which is when Obamacare's major provisions kicked in (187 insurers down to 167). The percent of customers with three or more insurance providers dropped from 88 to 56 percent in just one year (HHS, p. 38). The Right-leaning Heritage Foundation details this phenomenon, finding that the individual health insurance market is 45 percent less competitive than it was pre-Obamacare. Even better, 77 percent of counties will either have two providers or less in 2017. The health insurance market had a 3.3 percent profit margin in 2016, and is expecting close to break-even profit margins for 2017. A profit margin below 5 percent is not particularly high when compared to other industries. Shouldn't it say something about the quality of the exchanges if major insurance companies are leaving it? Insurance companies leaving the exchanges makes for more instability, a phenomenon that was taking place before Trump took office.

6. Less choice of doctors within network. Not only are there less insurance providers, but there are also less doctors in each network, according to the Employee Benefit Research Institute. McKinsey also found that 48 percent of networks have been narrowed, meaning that less doctors are in the network in attempts to contain costs, which is droll considering that it's already expensive to begin with.

7. Medicaid expansion under Obamacare. It'll be a difficult attempt to cover Medicaid in the span of a couple of paragraphs, but here it goes. Obamacare was meant to help give access to private-sector insurance, but instead, it turned into a major Medicaid expansion. Three reasons this is problematic. One is that Medicaid is expensive. According to the CBO, Medicaid is supposed to cost $5.19T in the next decade (CBO, 2017). Medicaid is the fourth most expensive government program, after Social Security, Medicare, and military spending.

Two, a doctor is less likely to see a patient if they are on Medicaid. In 2014, only 45 percent of doctors were accepting Medicaid, a figure that was 55 percent just five years earlier. The problem predated Obamacare, and shows no sign of abating. Three, there is evidence that Medicaid is almost like having no insurance at all. Now, you can show me a study like this (Sommers et al., 2012) trying to prove the contrary, except that a) it is an observational study, and b) it has mixed results when looking at the state-by-state breakdowns. An observational study is less reliable because you cannot control for the variables, which is why I would prefer a randomized experiment. As a matter of fact, such a study exists: the Oregon Medicaid experiment (Baicker et al., 2013). Randomized experiments are a rare treat in the public policy world, so it's nice to see them when they come along. Its conclusion? There were no significant differences between those on Medicaid versus those who had nothing. As of May 2017, we had 68.8 million on Medicaid (around a fifth of the nation), about 13 million of which are due to Obamacare. Obamacare has been, in large part, a Medicaid expansion, so let me ask this: How does it help anybody, especially those who need insurance, to be put on expensive, subpar health coverage? 

8. Loss in coverage. In 2009, Obama made that infamous plan of "if you like your plan, you can keep it." This promise was infamous enough where it became Politifact's 2013 Lie of the Year. This shouldn't bewilder us. After all, part of Obamacare was to mandate more comprehensive coverage. Certain plans would not be comprehensive enough under Obamacare, and out they went. In its March 2016 projections, the CBO estimated that a total of 13 million will lose their insurance by 2026 because of Obamacare: 9 million from employer-sponsored insurance and 4 million from non-group coverage (CBO, Table 4).

9. Increased federal budget costs and debt. Obama promised that Obamacare would not add one dime to the deficit. The projections from the CBO show otherwise. According to their March 2016 projections, Obamacare is going to add $1.403T of debt over the next decade (see below). The idea that Obamacare could lower costs by providing more and subsiding more people was unrealistic from the onset. Even in 2010 and working under generous assumptions,  the Centers for Medicare and Medicaid Services (CMS) found that Obamacare would increase national healthcare spending by $310 billion more than if the law would not be enacted (CMS, p. 4).

10. More taxes. Obama promised that his healthcare plan would not raise taxes for anyone making less than $250,000. Obamacare came with a slew of about 20 taxes, fees, and penalties, and they affect more than just the "one percenters." A look at a few of the taxes: The individual mandate penalty falls on lower-income and lower-middle-income families, costing a total of about $4 billion a year. The flexible spending account (FSA) tax will hit 30 million people, most of whom are middle-class. The Cadillac tax is estimated by the Kaiser Family Foundation to affect 1 in 4 Americans. There is the chronic care tax. Before Obamacare, there was an income tax deduction for medical expenses that exceeded 7.5 percent of adjusted gross income. Now, 10 million people who are looking to pay for chronic care will have more problems.

11. Disproportionately affecting younger people. One of the major ways that Obamacare affects young adults is through the age-rating provision. The provision limits age variation of premiums for adults with a ratio of 3 to 1, which means that an insurer can only charge a 64-year old three times the rate it charges a 21-year old. The natural age variation (and what it was before Obamacare) was a ratio of 5 to 1.

The shift with the age-rating provision made insurance cheaper for older individuals while making insurance more expensive for younger individuals. Both the Left-leaning Urban Institute and the Right-leaning American Action Forum show that removing the 3:1 ratio would lower premiums for younger people. This is not bad for young people simply because the wealth gap between the young and old is widening.

The young people targeted by Obamacare's regulations are not on employer-sponsored insurance. This is important since employer-sponsored insurance exacerbates income inequality, meaning that young people on employer-sponsored insurance tend to fare better than those not on it. The young people targeted by Obamacare have two options: pay for insurance or pay the fine. If I were making well under $20/hour and were mandated to pay thousands for insurance or pay a relatively modest fine, which would I do? It should be no wonder that young people are not entering the Obamacare exchanges at the rate initially predicted: the young would otherwise be subsidizing the old. It is a problem that even the Urban Institute admits (Urban, pp. iv).

And would increasing the mandate penalty increase enrollment? Perhaps, depending on the increase. But it would come at the cost of screwing over a demographic who is already having troubles either entering the job marketplace or making sure they don't go broke. 

12. Less economic growth. The tax increases, subsidies, Medicaid expansion, and employer mandate cause less employment. Obamacare resulted in a 1.7 percent decline in full time equivalent (FTE) hours worked (CBO, p. 18). This is important because the number of people working and their productivity has a direct impact on economic growth. As I have pointed out before, burdensome taxes and high government spending, much like we see with Obamacare, hamper economic growth. Read more from Manhattan Institute to see how Obamacare affects macroeconomic growth, including an Obmacare-induced GDP loss of $175 billion in 2015.

13. Obamacare Is Not Particularly Saving Lives. I wrote a blog entry on this a few weeks ago, so I don't need to go into much detail. However, I wanted to add one other bit of research from Richard Kronick. Kronick is not some right-winged hack. Not only was he ranked one of the most influential people in healthcare in 2014, but he also served under Clinton as an advisor and under Obama as the Director of the Agency for Healthcare Research and Quality (AHRQ). What did he find about health insurance? When accounting for demographics, health status, and health behaviors, there is little effect (Kronick, 2009), which makes sense since insurance is first and foremost a financial product offering financial protection. Kronick's conclusion was that "there is little evidence to suggest that extending insurance coverage to all adults would have a large effect on the number of deaths in the United States."

14. Obamacare co-ops. When the Democrats were trying to pass Obamacare back in 2010, they were trying to go for the "public option," a federal-run government program. The Democrats were unable to get enough votes to pass Obamacare with the "public option," so they created a compromise: the Consumer Oriented and Operated Plan, or "co-op" for short. These 24 state-based co-ops are essentially the government alternative to private-sector insurers. We were told by the CMS not to worry because the co-op applicants were screened and demonstrated "a high probability of financial viability." After spending $2.4 billion on the cop-ops, how did that turn out? By mid-2016, 16 out of 23 of the co-ops failed due to solvency issues. If the United States government could not handle providing competitive healthcare that meets consumers' needs or centrally plan health insurance, why should I trust the government with something like a "public option" or single-payer healthcare?

15. Healthcare.gov website. If the government wasting money on its failed experiment at providing its own version of insurance isn't enough to make your blood boil about government waste, how about the Healthcare.gov website? There has not been a straight answer to that question, which should say something about transparency. The Government Accountability Office estimated in June 2013 that it cost $394 million, which did not include CMS salaries or other administrative costs. It would be reasonable to believe that it ended up costing the taxpayers more than $500 million since then (the costs could be upward of $1 billion or even $2 billion as of 2014). By the website's release, less than ten people enrolled initially. Based on latest enrollment figures, the website is doing better than it started, but it should not have had this many glitches and it should not have cost that much.

The website should have arguably cost less than $10 million, and that is when we compare it to other websites. Facebook didn't even spend $500 million on its website until it was in operation for six years. Twitter cost $55 million to develop, LinkedIn cost $200 million, and Spotify cost $288 million. An even better comparison is the Apple iPhone. Apple's iPhone only cost $150 million to develop, which is a mini-computer that is more complicated than a portal that connects people to insurance companies. The problem with looking at this example is that it could come off as nitpicking when looking at an American economy of about $19 trillion. The real problem is looking at the wasted government spending in isolation. When we add up the costs not just of all the money wasted or misspent due to Obamacare, but indeed all of government spending, such as the $144 billion in improper payments made for Social Security, Medicare, Medicaid, and other programs last year. It should make our blood boil not simply because of the amount of waste, but also realize that the wasted money could have been spent on helping the people the government claims it is helping.  

A Brief Word on Tradeoffs
The first rule of public policy is that there are always tradeoffs. As the passage below from this Mises Institute article illustrates, every policy has winners and losers, and Obamacare is no exception. I'm sure we can all come across a story of someone who benefitted from Obamacare. Nevertheless, that is not what this national debate is about.....

Conclusion
Today's blog entry is not about what could be done to reform healthcare, although you can see here, here, and here for some reforms. [Aside from healthcare being such a huge topic, I have commented on healthcare reform options more than once (e.g., here, here, here), and I intend to do so again in the future.] I'm not here today to reflect on what Obamacare could have been in theory or what Obamacare was intended to accomplish. Today's analysis is about what Obamacare has actually done, and what it has done is screw over American healthcare in more ways than one. As two health policy professors who are prominent supporters of the ACA put it, what was meant to be major healthcare reform "turned out to be ineffective, poorly targeted, or not ambitious enough to address deeply rooted problems." If you need a list of why I am in favor of "repeal and replace," now you have a detailed one. Even if you are still in favor of Obamacare or the idea of it, I hope this helps you realize that Obamacare is far from perfect and in dire need of reform. Wherever you stand on the state of American healthcare issues facing us, we should all be able to agree that the status quo is unacceptable. 

Fear-Mongering About Thousands Dying From Obamacare Repeal Is Unfounded

It doesn't matter who is in the White House. What I do know is that there is no shortage of political grandstanding, much like we see with the current health care debate. A couple of weeks ago, Senator Elizabeth Warren (MA-D) was on the warpath about the repeal of the Affordable Care Act (ACA), saying that a repeal of Obamacare means that "people will die." This idea is based on findings from Congressional Budget Office (CBO) reports on the various renditions of Obamacare repeal. The most recent version, the Senate's version, illustrates that 22 million less people will have coverage (CBO, 2017, p. 4). Left-leaning think-tank Center for American Progress finds that nearly 28,000 people could die in 2026 from such a repeal. The Washington Post puts the estimate at an even-higher 42,000 people. Warren, along with CAP and the Washington Post, believes that this loss in coverage will translate into loss of life. How much basis does such a claim have?

• First, I have to wonder if Warren bothered to ask herself why the loss in coverage would occur. Under the ACA, the individual mandate required people to either to purchase health insurance or pay a fine. What does the individual mandate have to do with coverage loss? The CBO report that says 22 million less people will have coverage also points out that most of the loss in coverage would be due to the removal of the individual mandate, and people voluntarily choosing to drop their coverage (CBO, 2017, p. 4).  Since these people would willingly make the choice to leave the exchanges, it makes little sense to think of repeal as "killing."
• I also have to wonder if the CBO's assumption about the power of the individual mandate, and not just because of the CBO's history of overestimating ACA enrollment numbers (see below). The individual mandate penalty was small enough where Jonathan Gruber, the "Obamacare architect," did not find it was impactful at getting people to sign up for health insurance (Gruber et al., 2016).

• As Charles Blahous brings up in his wonderful analysis on the topic, the ACA is a drag on economic growth (CBO, 2016, p. 20). If there is less economic growth, the nation is collectively poorer. The CBO found that the ACA caused a 1.9 percent decrease in full-time equivalent hours worked (CBO, 2016, p. 18). Since lower income correlates with lower life expectancy (Chetty et al., 2016) and unemployment correlates with health issues, this would mean that the ACA is more likely causing lives to be shorter than longer. Speaking of which.....
• If repealing the ACA is so awful, then the inverse of the ACA being wonderful for mortality should also be true. This would mean that if a lack of health insurance were killing people, a reduction in the mortality rate would be the optimal metric to show the ACA's success. 
• Looking at the results from the CDC's WONDER database (see below), we see that the age-adjusted mortality rate has been on a steady decline. What do we see in 2015, which the first year after the major effects of the ACA take effect? The mortality rate increases for the first time this century, not to mention a drop in life expectancy. I understand that looking at one year of data does not constitute a trend, and I also know that other factors drove up the mortality rate (e.g., diabetes, opioid epidemic). But if the ACA were really this wonderful, much-needed overhaul to the health care system, I would have expected a greater decline in the mortality rate or at least a more modest decrease. But we don't even get that. We get more death. We can see what 2016 looked like when the CDC releases the 2016 data, but in the meantime, we work with what we have.

Source: CDC

• The aforementioned figures from CAP and the Washington Post come from a well-respected study based on the health reform experiment in Massachusetts. However, that same study was clear in explicitly stating "Massachusetts results may not generalize to other states," which the authors acknowledge is most probably due to factors specific to Massachusetts (p. 591). Another study minimized the Massachusetts studying showing that the health care reforms really didn't do all that much to minimize the mortality rate (Kaestner, 2015).
• The Massachusetts study measures the impact of private insurance. This is significant because, as this Manhattan Institute briefing points out, much of the increase in enrollment since the enactment of the ACA was due to Medicaid. There have been multiple studies on Medicaid effectiveness, but the gold-standard, randomized Oregon Medicaid experiment shows that Medicaid has not had any real effects on physical health (Baicker et al., 2013; also see Courtemanche et al., 2017 for effects of Medicaid). With the effects of Medicaid and how the ACA has disproportionately increased Medicaid enrollment, it is difficult to believe that the ACA is improving physical health quality. Plus, here is this little beaut showing that health care access is not a major detriment for the life expectancy for low-income individuals (Chetty et al., 2016).

So no, Obamacare repeal is not going to kill thousands upon thousands of people. This is more political rhetoric to keep people scared. Plus, equating those who want Obamacare repeal with murderers is as divisive as it is disingenuous.  I haven't been a fan of Obamacare replacement bills (see here and here), but I am even less of a fan of manipulating fears to score political points. No one has a monopoly on compassion, certainly not Senator Warren. I hope we can have a debate on the merits of health care reform instead of ensuing in mudslinging just because you can't withstand having your ideas or policies criticized.

The New GOP Obamacare Replacement Plan: Same as the Old?

The Republican Party has been struggling with passing a plan to replace Obamacare. The Republicans attempted it back in March, but did not receive enough votes (even from its own party!) to pass the American Health Care Act (AHCA). Earlier this month, they released a modified version of the AHCA, and on May 4, the AHCA passed the House. The Senate indicated that they are writing their own version of a repeal-and-replace bill. Yesterday, the Congressional Budget Office (CBO) released their report on the effects the new AHCA that the House passed earlier this month. The main questions on everyone's mind are a) "Is this AHCA an improvement over the previous AHCA?", and b) "Is the new AHCA an improvement over Obamacare?"

I conducted my analysis of the initial AHCA a couple of months ago, which you can read here. Since I performed a previous analysis already, I will keep this shorter by explaining the differences between the new AHCA and the initial one, followed by a comparison of the numbers and a brief conclusion.

The new AHCA maintains a lot of the previous AHCA's provisions. However, there are some changes. The one with the biggest budgetary effect was delaying the repeal of the payroll tax increase (CBO, p. 11). States can also waive the requirement of establishing "essential health benefits," as well as the community rating. Community rating is prohibiting insurers from setting premiums on the basis of such demographics as age or gender (CBO, p. 12). There are some other more minor provisions, but that covers the major ones. What ended up being the difference?

• Impact on Coverage. In the initial AHCA, there would have been an additional 24 million uninsured. In the new version? 23 million (CBO, p. 3). This might sound like a lot, but as the American Action Forum pointed out how the "additional 24 million uninsured" claim was misleading: about half of those "losing" insurance are those who were forced by Obamacare to purchase insurance, but no longer want insurance. 
• Impact on the Federal Budget. Over the next decade, the new AHCA is supposed to reduce the budget deficit by $119 billion (CBO, p. 1; see below). How much was the budget deficit reduction beforehand? $337 billion over ten years. That means the new version of AHCA is $218 billion more expensive than the initial version.

• Impact on Premiums. In the initial AHCA, premiums were supposed to be higher in 2018 and 2019 than in the ACA (aka Obamacare). However, over the next decade on average, the AHCA was supposed to cause a smaller increase in premiums than the ACA. For the new AHCA, the CBO had a more difficult time making predictions about premium increases (CBO, p. 6-7). The reason for this ambivalence is because it is unclear which states will accept the waivers that are part of the new AHCA. The CBO predicts that the new version of the AHCA will cause premiums to rise more than Obamacare in 2018 and 2019 (the same as it did for the estimate on the initial AHCA), but the CBO did state that premiums would decline on average over the next decade, regardless of whether the given state accepts the waivers. However, the CBO did add the caveat that some individuals could experience an increase in services depending on how each state defines essential health benefit (EHB), as well as which EHBs patients consume. The CBO selects that maternity care and mental health services could increase depending on how the individual state reacts. Even with this caveat, premiums will decrease on the whole, which is an improvement from when Obama lied about how Obamacare was going to lower premiums. This is important because the CBO admitted that Obamacare caused premiums to skyrocket (CBO, p. 4), not to mention the Department of Health and Human Services released a report on Tuesday finding that premiums have doubled since 2013 in 24 states. 
• Healthcare Market Stability. Under the current law (i.e., Obamacare, ACA), the subsidies have kept non-group market participants largely insulated from price increases. This does not negate the fact that subsidies for demand [in healthcare] cause artificially high prices or that someone ultimately has to pay the bill. The CBO also admits that Obamacare has caused limited options of health care providers (CBO, p. 4), which is unsurprising because a) Obamacare literally made catastrophic coverage and other forms of less generous coverage to be illegal, and b) a majority of the health care exchanges have proven to become unprofitable because Obamacare disincentivizes younger and/or healthier individuals to participate in the Obamacare exchanges. What about under the new AHCA? Generally, the CBO predicts market stability. There is, however, a sixth of the market that the CBO surmises will become unstable due to the waivers. Community-based premiums would rise for those with pre-existing conditions. Those in non-group markets will experience higher-than-average costs (CBO, p. 5). Like with other policies, the AHCA has its tradeoffs, but most states will have stable markets.

In the previous paragraphs, we see issues with the status quo of Obamacare: premiums are too high, healthy individuals are being deterred from buying health insurance, and options are limited for patients. Something needs to be done to undo the harm caused by Obamacare's insurance regulations. On the whole, not much has changed since the modification of the AHCA. Since the modified AHCA does not undo the essence of Obamacare, it can only be considered at best a moderate improvement over Obamacare, and that depends on which metrics you're using to compare. Regardless of whether the AHCA passes or not, the lack of free-market reforms signals that state of health care in the United States does not look good.

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.