Taking the “Affordable” Out of ACA

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The Republican leaders of Congress have presented a plan to “repeal and replace” the Affordable Care Act, popularly known as Obamacare. Perhaps the title of the new act–the American Health Care Act (AHCA)–is telling. It replaces the word “affordable” with the more ambiguous word “American”. Maybe that will appeal to people who don’t mind if the new plan makes health care less affordable, as long as it doesn’t make it (horrors!) more Canadian, say, or Scandinavian.

President Trump has repeatedly promised that his replacement for Obamacare would be an improvement. It would offer “insurance for everybody” that would be “less expensive and much better.” We may reasonably ask if the coverage will be at least as good, and if the cost will be at least as affordable. Specifically, we may ask how the replacement would impact the people that the original act was most intended to help. They were primarily people with low incomes who were neither poor enough for Medicaid nor old enough for Medicare, but had trouble buying health insurance on their own.

Keeping the benefits

Although the most conservative Republicans would be happy with a simple repeal of the ACA, many of its provisions have become too popular to eliminate without serious political repercussions. Insurers must cover pre-existing conditions and offer policies to healthy and sick people at the same price. Policies must cover ten essential benefits, such as maternity care, rehabilitation services, and preventive health services without copayments. Policies cannot put an annual or lifetime cap on benefits. Dependents can remain on their parents’ policies until age 26. All of these benefits would remain in the AHCA.

Limiting the funding

Providing these benefits to a larger proportion of the population is costly. The Affordable Care Act increased the federal government’s contribution to health insurance financing by imposing new taxes, providing new subsidies to purchase private health insurance, and expanding Medicaid. It also increased the flow of premium payments to private insurers by requiring large employers to offer group plans to their employees, and requiring individuals without group coverage to buy their own plans or pay a tax penalty. The new taxes and mandates have been less popular aspects of Obamacare, but they are an integral part of its funding solution. The insurance companies had to offer more, but they got more customers to bear the cost.

In general, the Republican alternative tries to keep a lot of the benefits while eliminating a lot of the mechanisms for paying for them. It threatens the flow of premiums to private insurers by abolishing both the employer and individual mandates to buy insurance. That makes it easier for healthy people to go without insurance, knowing that they can always sign up later, even if they’ve developed a pre-existing condition in the meantime. (The bill does include an incentive to remain covered once a person is insured; if you let your coverage lapse, your insurer can raise your rates by 30%.) As I discussed in an earlier post, insurers cannot keep premiums under control if they only insure sick people. Already premiums have been rising because healthy people have been slow to purchase insurance, despite the tax penalty. With the penalty abolished altogether, this problem can only get worse. Although the Congressional Budget Office has not yet evaluated the bill, it has already estimated that eliminating the insurance mandate would raise premiums 20 to 25 percent.

Funding for the Affordable Care Act relied heavily on a tax surcharge on individuals making over $200,000 a year. The American Health Care Act eliminates it. Other taxes to be ended include the penalty taxes on businesses and individuals who fail to obtain insurance, the surtax on insurance executives with incomes over $500,000, and taxes on drug companies and makers of medical devices. The so-called “Cadillac tax” on especially costly insurance plans provided by employers is suspended at least through 2024.  The AHCA also reduces tax revenues by offering the new tax credits and deductions described below, many of which go to people with higher incomes than those the ACA was designed to help.

Cutting the subsidies

With the federal government having less tax revenue to work with, it isn’t surprising that it cannot do as much to subsidize health insurance for low-income Americans. The Obamacare subsidies were based on need, taking into account age, income and the cost of care in the recipient’s locale. (Premiums are typically higher in rural areas with fewer hospitals and insurers.) Low-income people could get help with deductibles and copayments as well as with insurance premiums. The AHCA replaces these subsidies with age-based tax credits in the range of $2,000-4,000 per person, with a family cap of $14,000. These are “refundable” credits, meaning that you get the credit you qualify for even if your federal tax bill is less than the credit. (Otherwise it wouldn’t be much help in buying insurance.) The credits phase out for people with higher incomes (over $75,000 for individuals and $150,000 for couples), but otherwise they are not adjusted for income.

Analysts have found that you are most likely to be hurt by these changes if you are a older person with a low income living in a rural area. For low-income people, the credits are generally too small to compensate for the loss of Obamacare subsidies. For older people, although the tax credits are adjusted for age, they aren’t adjusted enough to offset the high cost of policies for older people. In fact, the replacement law would make the cost disparity worse by allowing insurers to charge older people up to five times as much as younger people. (The previous disparity allowed was three times as much.) Many people will be squeezed between higher premiums and lower benefits, leaving them with thousands of dollars more in costs.

Those who gain from the changes are primarily people who earn too much to qualify for ACA subsidies, but would get an AHCA tax credit whether they need it or not to afford insurance. The highest earners don’t get the tax credits, but they do get the elimination of the ACA’s surtax on high incomes.

High-income people get an additional gift in the expansion of Health Savings Accounts (HSAs). These are tax-sheltered savings plans for people who can afford to take more responsibility for their health-care expenses. To qualify, you have to buy a health insurance policy with a high deductible. Then you save for your future out-of-pocket expenses through contributions to your HSA. The contributions are tax-deductible, and the withdrawals are also tax-free as long as they go to health care. This works best for high-income folks, since they are the ones who can afford to contribute the most, and they also get the biggest deduction by being in a higher tax bracket. A family in the 35% bracket who can save $5,000 gets a $1,750 tax break, while a family in the 15% bracket who can only save $1,000 gets a $150 tax break. The Republican plan helpfully raises the contribution limits from $3,400 to $6,550 for individuals and from $6,750 to $13,100 for couples, creating an even bigger tax break for those who can pay to play.

Cutting back Medicaid

About half of the 22 million people who have obtained health insurance as a result of the ACA have done so through the expansion of Medicaid. Even more would have done so, but only 30 states chose to participate in the expansion after the Supreme Court ruled that participation could not be mandatory. The expansion opened Medicaid to Americans earning up to 138% of the federal poverty level, which meant up to $16,643 for individuals and $33,948 for a family of four.

The proposed AHCA would halt that expansion in 2020. Those already enrolled could be grandfathered in, if states allowed that, but only if they remained continuously eligible. Anyone whose income rose above the threshold, even for one year, could no longer qualify, unless their income later fell all the way down below the original poverty level. The aim would be to reverse the expansion over the next few years.

In addition, the new law would change the way Medicaid works. Instead of simply covering whatever medical services a recipient receives, it would pay a fixed allotment per recipient to the state. The state would decide how to spend it on health services for the poor. But the state would be on the hook if health care costs rose faster than the allotment, or if a natural disaster or other local health problem put unexpected strains on the system. States would have more “flexibility,” but at the likely cost of reduced funding. Some Republican senators are worried that this change may ultimately shift billions of dollars in costs from the federal government to their states.

The bill would also eliminate Medicaid reimbursements to Planned Parenthood, so poor women would have to look elsewhere for services.

An American bill?

I suppose I would be naïve to suggest that a so-called “American” bill should reflect what a majority of Americans want. A Monmouth poll released this week found only 39% of Americans favoring either repealing and replacing the ACD, or repealing and not replacing it. 58% favored either keeping it as it is, or keeping it and working to improve it.

In general, the “repeal and replace” plan offered by the Republican leadership offers fewer benefits for low-income people, while providing more tax breaks for higher-income people. It may be another step in the perennial Republican effort to lower taxes, but it appears to be a step backward in making health care more affordable. Estimates of how many people would lose their insurance coverage under the plan vary widely, from a few million to as many as 15 million, about two-thirds of the number who gained coverage under Obamacare.

A close examination of policy proposals like this may help dispel the illusion that the Republican Party under Donald Trump has been miraculously transformed into a champion of the working class. And since he has endorsed the plan, it also casts doubt on the idea that his populism places him at odds with his party, at least as far as domestic policy is concerned. Right now, Trump and the Republicans seem to want many of the same things, whether they’re what the people want or not.

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