Health Insurance Losses Remain High in Senate Bill

June 27, 2017

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Today I will interrupt my discussion of Viking Economics in order to report on the Congressional Budget Office’s analysis of the “Better Care Reconciliation Act” proposed by Senate Republicans. Although the bill differs from the House Republican bill in many of its details, its effect on health care spending and insurance coverage is projected to be similar.

According to the CBO, the Senate proposal would reduce the number of people with health insurance by 22 million over ten years, compared to 23 million for the House bill. It would reduce Medicaid spending by $772 billion, compared to $834 billion for the House bill. It would reduce tax credits and subsidies for purchasing health insurance on the individual market by $408 billion, vs. $276 billion for the House bill. It would eliminate most of the Affordable Care Act’s taxes, which were aimed primarily at medical corporations and the wealthiest taxpayers.

At first, fewer people would have health insurance primarily because penalties for not having it would be eliminated. Some individuals would choose not to carry insurance, and some large employers would choose not to offer group plans. Although young and healthy individuals would be less inclined to obtain coverage, CBO expects that enough of them would do so to keep most insurance markets stable and generate the revenue insurers need to cover the sick. In a few sparsely populated areas, insurers would not have enough customers to keep them in the market.

As other provisions of the Senate bill took effect, more of the uninsured would be people who found insurance less available or affordable than it was under Obamacare.  That could be for a number of reasons.

Reversing the Medicaid expansion and spending less on Medicaid in general would result in an expected drop of 15 million in enrollment over ten years. (That would be an especially big blow to nursing home residents, the majority of whom rely on Medicaid because they have exhausted their savings.)

Many people who are not on Medicaid would be priced out of the market because of higher premiums. Insurers might have to raise rates in order to compensate for the loss of premiums from healthy people who elect to go without insurance. Older buyers would also face higher premiums because insurers would be allowed to charge them up to five times as much as younger buyers; that limit was three times as much under Obamacare.

For many people, the problem would not be higher premiums but less government help in paying for them. Tax credits would offset a smaller percentage of the premiums than under Obamacare, and they would phase out at a somewhat lower income level, 350% of the poverty level instead of 400%.

The CBO analysis talks about premium declines as well as premium increases. In the short run, insurers might have to raise premiums on the sick because fewer healthy people were signing up. But in the long run, the premium on a “benchmark policy” could drop 20-30%. The “benchmark policy” is a standard policy that is the basis for calculating your tax credit. You are expected to pay a certain percentage of the premium, and the government reimburses the rest. The main reason why the benchmark policy would be cheaper is that the bill allows it to cover less of expected health care costs. It only has to cover 58% of the cost instead of Obamacare’s 70%. So the premium is lower, but that is offset in two ways: your share of the premium is a little higher, and your deductible will be higher when you need care. The drop in premiums is a somewhat illusory benefit, since your out-of-pocket cost is higher. Obamacare has some additional subsidies to help with out-of-pocket costs, but the Senate bill eliminates them.

Inexpensive policies would also be available because states can obtain waivers from Obamacare’s strict rules on benefits (requiring “essential benefits” and prohibiting annual or lifetime caps on payouts). That might work for someone who wants a policy without maternity benefits. For people who need a comprehensive policy with no caps, the cheaper policy is very risky.

Low-income people not covered by Medicaid would often face a choice between having to pay too high a premium for a good plan, or having to pay too much out-of-pocket because their cheaper plan doesn’t cover very much. As a result, the CBO predicts that “few low-income people would purchase any plan.” For the 43% of the population with incomes below 200% of the poverty threshold, CBO predicts that the percentage who lack insurance would rise from 17.6% to 34.8% in the 19-29 age group, from 19.8% to 36.7% in the 30-49 age group, and from 11.2% to 25.6% in the 50-64 age group. For the entire population under 65 (all income levels), the percentage uninsured would rise from 10% to 18%. The CBO is too non-partisan to say so, but that sounds like regress, not progress.

Although President Trump initially endorsed the House Republican bill, he later acknowledged that it was too “mean”.  Now he is endorsing the Senate bill, which is about equally mean. One wonders whether the President even understands what he is supporting, since it is so far from what he originally promised. Most Republicans do not seem to care very much what’s in the bill either, as long as it pleases the Republican base by repealing Obamacare and cutting taxes for the wealthy.


Health Insurance Less Affordable under Senate Bill

June 23, 2017

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Senate Republicans have finally unveiled legislation to repeal and replace the Affordable Care Act. Now they are in a great rush to pass it without the benefit of hearings or any reasonable time for debate and amendments. That’s a clue about how much public interest and reaction they welcome. Hopefully, we will have an analysis by the Congressional Budget Office at least a day or two before the vote, but we can’t afford to wait for that before informing as many people as possible about what’s in the bill.

What the legislation does, essentially, is deprive the government of the revenue needed to accomplish the law’s original aim. It eliminates most of the new taxes imposed by the Affordable Care Act to cover the cost of subsidizing health insurance. Those taxes primarily affected the wealthy since they targeted investment income and wages above $200,000. Repealing those taxes (except for the “Cadillac tax” on unusually expensive employer health plans) shifts much of the cost of health care from the government back to the buyers of insurance, whether they can afford it or not. Some of the law’s provisions designed to protect the quality of coverage remain–although they are weakened–but the central aim of the Affordable Care Act is seriously undermined.

Benefits continue, but with a catch

Obamacare required all health insurance policies to include ten essential health benefits: Ambulatory (outpatient) care, emergency services, hospitalization, maternity care, mental health and substance abuse services, prescription drugs, rehabilitative and habilitative services, laboratory services, preventive and chronic disease management services, and pediatric services. These requirements would continue, except that states would now be able to apply for waivers of the rules. The same is true for the rule prohibiting annual or lifetime limits on what insurers must pay. Comprehensive coverage will probably be available to most people, but it’s no longer a sure thing.

Dependents could still remain on their parents’ insurance until age 26. Insurers would still have to accept patients with pre-existing conditions and charge them no more than other customers. But as the New York Times noted, “Patients with serious illnesses may find that their coverage is less valuable if they live in a state that eliminates benefit requirements or allows limits on coverage.”

Mandates are repealed

Large employers would no longer be required to offer insurance plans to their employees. I’ll have to leave it to the CBO to estimate how many workers would lose their insurance as a result of that change. Those who did would probably face higher costs in the individual market.

The Senate bill would also eliminate penalties for individuals who choose not to carry health insurance at all. The winners here would be healthy and wealthy people who can afford to pay their health costs out-of-pocket. The bill increases the amounts that people can put into Health Savings Accounts to save for future expenses. That’s a good deal for those who can afford it, since any returns on the investment are tax-free.

Medicaid is slashed

The biggest losers in the Senate bill are the 69 million Medicaid recipients, especially the 14 million who signed up under Obamacare’s new rules. Thirty states chose to participate in the Medicaid expansion, which raised the threshold for eligibility to 138% of the federal poverty level. Funding for that expansion would be reduced starting in 2021, with drastic reductions in 2024. That’s where the bill creates the biggest potential for lost insurance.

In addition, the bill would put a per-capita cap on future payments for all Medicaid recipients. Here is how Drew Altman of the Kaiser Family Foundation describes it:

The Senate plan imposes a harsher formula for its cap than the House plan, which already cuts Medicaid spending by $834 billion over 10 years. Because states have to balance their budgets every year, unlike the federal government, many will struggle to compensate for reductions in federal aid caused by a spending cap. Many states will be forced to choose between Medicaid and other priorities, like education, law enforcement and prisons. The inevitable result will be a reduction in health care spending on low-income people. And you cannot cut over $800 billion from Medicaid without adversely affecting health services for the poor.

Because the Senate bill not only rolls back the Medicaid expansion, but takes a good whack at Medicaid as a whole, the poor could wind up worse off than they were before health care reform was passed in the first place.

I suppose it’s a good thing that much of the damage will be postponed for a few years, giving the political winds time to blow in a different direction. On the other hand, maybe the motivation for dragging it out is to postpone the political fallout, so that the perpetrators of the crime can remain in office as long as possible.

Premiums and credits

The effect of all the changes on insurance premiums could be complicated, and I’ll be interested to see how the CBO sorts it out. Some of what I wrote about the House bill would presumably still apply:

Premiums would be expected to rise for older people and fall for younger people, since the law allows insurers to use a 5-to-1 rather than a 3-to-1 ratio between the two. Average premiums would probably rise for the first few years, since the elimination of the individual mandate would allow younger, healthier people to drop out of the market, forcing insurers to raise premiums on the older, less healthy people who remained. In later years, insurers might lower premiums, as older people who cannot afford the high cost are the ones to drop out.

For states that obtain waivers to weaken the quality of coverage–by declining to cover certain benefits, for example–premiums could fall, but only because policies aren’t worth as much.

What is more certain is that the tax credits that offset the cost of insurance would be less generous under the Senate plan. Ezra Klein has provided a good analysis. Under the Affordable Care Act, the credit is based on the cost of a “benchmark plan,” a plan available in your geographic area that covers 70% of expected health costs. Then, depending on your income, you are only expected to spend a certain percentage of that income on the premium, while the government picks up the rest. The credits phase out entirely for incomes over 400% of the poverty threshold.

The Senate plan cuts the credits in three ways: requiring the benchmark plan to cover only 58% of expected costs instead of 70%, raising the percentage of income that you have to spend on premiums, and phasing out the credit at 350% of the poverty threshold. Credit recipients would have to pay a larger share of premiums, plus pay higher deductibles when they need to file a claim.

Obamacare also includes additional subsidies to defray out-of-pocket costs–deductibles and copayments–for low-income people. The Senate bill eliminates these entirely after 2019, although people might need them more than ever.

Klein summarizes:

The new world created by the Senate health care bill will be based around higher-deductible plans that cover fewer health benefits and cost people more. The plan degrades Obamacare’s insurance regulations, and cuts insurance subsidies so that Americans won’t be able to afford plans as generous as the ones they purchase now. If the Medicaid expansion really does die out in 2024, then the poorest of the poor will be pushed from comprehensive, low-cost health insurance to extremely high-deductible plans.

To put it most simply: Obamacare was a transfer of wealth mainly from high-income taxpayers to lower-income health insurees. The Republican bill transfers it back again, inevitably making comprehensive coverage less affordable. And as Klein notes, “In a particularly Orwellian flourish, the name of this bill dedicated to diminishing the quality of the insurance coverage Americans can afford is “The Better Care Act.” (You know it’s Trumpcare if the name of the act itself is a shameless falsehood.) It would more accurately be called “The Less Affordable Care Act.”

Underlying this tragedy is the assumption that we as a nation cannot afford to provide the universal health coverage that other developed countries have achieved. Instead we have a wealthy class who resist being taxed, a government too weak to control health care costs–the bill specifically prohibits the government from negotiating drug prices with pharmaceutical companies–and private companies that must have their big profits.


CBO Evaluates Amended Health Care Bill

May 25, 2017

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In an earlier post, I summarized the Congressional Budget Office’s “scoring” of the American Health Care Act proposed by House Republicans. After that analysis revealed how many people would lose their insurance under the House plan, House Republicans amended the bill and quickly passed it, without waiting for the CBO to evaluate the new version. Yesterday, the CBO released its revised report, which for the most part reinforces the objections that made the bill so unpopular in the first place.

The amended bill differs from the original mainly in allowing the states to obtain waivers releasing them from certain provisions of the law. According to the CBO,

One type of waiver would allow states to modify the requirements governing essential health benefits (EHBs), which set minimum standards for the benefits that insurance in the nongroup and small-group markets must cover. A second type of waiver would allow insurers to set premiums on the basis of an individual’s health status if the person had no demonstrated continuous coverage.

In other words, people would still be entitled to health insurance, but it might not provide the benefits previously regarded as essential. In particular, “out-of-pocket spending on maternity care and mental health and substance abuse services could increase by thousands of dollars in a given year….” In addition, even insurers who did provide such benefits would now be allowed to put a lifetime cap on how much they would pay out for them. The second type of waiver would allow insurers to charge much higher premiums for people with preexisting conditions, unless they were already covered for them and never experienced a break in coverage.

Effects on insurance coverage

The previous CBO estimate was that the number of uninsured Americans would rise by 24 million over ten years if the House bill became law. For the amended version, the estimate is now 23 million. Some of the uninsured would be healthy people who voluntarily gave up health insurance because the law eliminated the penalties for not carrying it. Others would be forced out of the market because they found insurance less affordable. That could be because policies became too expensive for people with a certain health condition or need, or because they lost more in Obamacare subsidies than they gained from the new law’s tax credits.

The biggest reason the law would insure fewer people is because it dramatically cuts spending on Medicaid. That accounts for 14 billion of the 23 billion who would no longer be covered. Cutting Medicaid or Medicare is something that candidate Trump promised not to do, but he has enthusiastically embraced the House bill anyway.

Effects on premiums

The effects of the legislation on insurance premiums is now harder to project, since it depends on whether states seek and are granted the waivers described above. For states that do not, the effects would remain essentially as the CBO described them before. Premiums would be expected to rise for older people and fall for younger people, since the law allows insurers to use a 5-to-1 rather than a 3-to-1 ratio between the two. Average premiums would probably rise for the first few years, since the elimination of the individual mandate would allow younger, healthier people to drop out of the market, forcing insurers to raise premiums on the older, less healthy people who remained. In later years, insurers might lower premiums, as older people who cannot afford the high cost are the ones to drop out. Average premiums could also fall because policies are no longer required to cover 60% or more of health care costs. Advocates of the bill like to talk about how premiums could fall, but not how out-of-pocket expenses could rise.

In states that take the waivers, opting out of the mandatory coverage for preexisting conditions and/or the essential health benefits, the effects would be more dramatic. Average premiums could fall more, since the policies cover less. But premiums and benefits would vary widely, since people with particular health needs could face much higher premiums and/or out-of-pocket costs. If large numbers of people with health problems were priced out of the market, insurers could lower premiums for the healthy who remained. But low premiums would be achieved at the cost of excluding from health insurance the people who need it most.

Giving states the “flexibility” to go their own way really means letting them return to something like the situation before Obamacare, when good health insurance was much less affordable for the poor and the sick.

Effects on the federal budget

The CBO’s previous estimate was that the American Health Care Act would cut health care spending by $1.2 trillion dollars, but that would be offset by $883 billion in lost revenue, due to elimination of Obamacare taxes and penalties. The result was a $337 billion reduction in federal deficits over the next ten years. The Republicans wanted that reduction not just because they would like to move toward a balanced budget, but because they would like to justify additional tax cuts later.

The CBO’s new estimate is that the legislation would cut spending by $1.1 trillion dollars, and revenue by $992 billion, resulting in only a $119 billion saving.

In either case, the Republican repeal and replacement of Obamacare represents a big gain for the rich and a big loss for the poor. The Obamacare taxes fell heavily on the wealthy, but the Republican cuts in health care spending will fall heavily on the poor, since they are the ones who depend on Obamacare to make insurance affordable. So the bill as amended remains consistent with the Republican agenda of reducing taxes on the wealthy while reducing benefits for the needy.


Repeal and Replace, R.I.P.

March 26, 2017

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Oh, if only the House Speaker hadn’t tried to push through health insurance legislation so quickly, without enough consultation and deliberation. If only the Freedom Caucus had shown a little more flexibility. If only President Trump had sold the bill more effectively, actually understanding and explaining it instead of just declaring it wonderful. Then maybe the outcome would have been different.

Or maybe not. This week’s health care debacle was not just a tactical failure; it was a colossal policy failure. After seven years of riding a wave of popular discontent with Obamacare, Republican leaders presented their alternative, and it promptly bombed. Once the Congressional Budget Office projected how many Americans would be worse off under the plan, popular support for it fell to 17%. What they have probably succeeded in doing is making Obamacare more popular, now that people see how hard it is to improve on it.

The fundamental problem was that “repeal and replace” wasn’t really a very good idea. Although Obamacare did force some people to buy policies for more than they wanted to pay, it helped a larger number buy the insurance they needed. As the number of beneficiaries grew, so did resistance to a simple repeal. Republicans had to claim that they had something better with which to replace the law, and Donald Trump made that claim a centerpiece of his campaign. Trouble is, they never did come up with adequate replacements for the provisions of Obamacare they wanted to get rid of. They were never going to replace the hundreds of millions of dollars of revenue they would lose by eliminating the Obamacare taxes; nor were they going to replace over a trillion dollars of insurance subsidies and Medicaid benefits they wanted to cut. The tax credits they offered were better than nothing, but not as good as the  benefits available to most beneficiaries of the existing law. Lower-income, older and rural folks were going to be hurt the worst, making the bill worse for Trump supporters than Clinton supporters.

As a result, the legislation had little appeal. It wasn’t the total repeal that the far right wanted, but it took away too much to please Republican moderates, such as governors whose states benefited from the Medicaid expansion. Democratic support for the bill was practically nonexistent.

For Trump, the defeat on health care represented a massive failure to live up to expectations. After repeatedly promising to make health insurance more affordable for more people, he threw his support behind a bill that did no such thing. He did not demonstrate that he knew or cared exactly what was in the bill, as long as he could undo the Obama administration’s principal domestic achievement. He was even willing to trade away the essential benefits insurance policies must now cover, such as maternity care, in order to pick up a few more votes. In the end, his legendary deal-making skills were no match for a divided Republican Party. Now he tries to make the best of it by rooting for Obamacare to fail, so that the country can blame the Democrats and adopt a Republican alternative, no matter how flawed. Trump even claims that this was his preferred strategy all along. But he got elected by running on “repeal and replace,” not “sit back and let fail.” That’s not the leadership people hoped for. Even worse, the administration may try to sabotage Obamacare by finding ways to discourage people from signing up or insurance companies from participating. That wouldn’t be leadership either, and it would violate the President’s oath to faithfully execute the laws.

The more responsible strategy would now be “retain and repair.” Bring together some reasonable leaders of both parties to identify the weaknesses in the Affordable Care Act and address them specifically. Find some ways to control premiums and deductibles, but don’t fix things that aren’t broken, like the Medicaid expansion.

Somewhat belatedly, Trump has discovered that health care is hard. Maybe we are making it too hard by trying to add in too much profit for insurance companies, on top of the high cost of medical treatment itself. Eventually the US may have to follow other developed countries by insuring everyone through a single-payer, government-run, non-profit system. Premiums could be lower; benefits could be standardized; and people could buy supplemental insurance if they chose, as many do with Medicare. If that’s the direction we ultimately go, then “repeal and replace” may come back to life, but not in a form that conservatives will recognize.

 

 


Let’s Be Honest about Health Insurance

March 16, 2017

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The Republican plan to repeal and replace Obamacare is turning out to be a tough sell. The Congressional Budget Office has estimated that by 2026, 24 million fewer Americans would be covered under the replacement law than under the existing law. Like advertisers making dubious claims about a weak product, advocates for the legislation are doing their best to mislead the public about what it actually does.

One tactic they use is to cherry-pick the CBO numbers, touting the ones they like and ignoring the ones they don’t like. They have no problem accepting the figures on tax reductions and lower deficits, but they hate to accept any evidence of reduced coverage.

This week, Steven Ratner described and refuted ten untruths we have heard from the plan’s defenders. At the top of his list was HHS Secretary Tom Price’s assertion on Meet the Press that “nobody will be worse off financially in the process we are going through.” That would be amazing if it were true, but it is far from the truth.

One reason for Republicans to be less than candid is that they are trying to pretend that the bill fulfills two conflicting promises: the longstanding conservative promise to reduce the federal role in health care, and Donald Trump’s campaign promise to replace Obamacare with something better in terms of coverage and affordability. Fulfilling both would be quite an accomplishment. As it is, the proposed bill addresses the first promise–although not enough to satisfy extreme conservatives–but falls far short on the second. Reduced federal taxing and spending, yes; improved coverage and affordability, no way.

The logic of repeal and replace

We can debate the CBO’s specific numbers, up to a point, but the basic logic of their analysis is inescapable. Repealing Obamacare eliminates the taxes that were raised in order to fund it, and that dramatically reduces federal revenue. In order to avoid increasing the federal deficit, the government must cut health care expenses by at least as much as it loses in revenue. In fact, the bill saves the government money by cutting $337 billion more in expenses (over ten years) than it loses in revenue. That appeals to conservatives because it reduces deficits, and it can also justify further tax cuts later. Conservatives also like the fact that the tax cuts go mainly to people with higher incomes, while the spending cuts affect people with lower incomes. But does anyone really believe that the government can cut health care spending by $1.2 trillion and not hurt anyone?

The two main ways of cutting Obamacare’s spending are to reduce the number of people on Medicaid and to reduce assistance to people buying private insurance. The proposed replacement bill does both. It phases out the expansion of Medicaid to people with incomes a little too high to qualify for traditional Medicaid (incomes between 100% and 138% of the poverty threshold). It also replaces the existing subsidies for private health insurance premiums with tax credits that are worth only half as much, on the average. Because the new plan distributes the benefits differently, some people come out better. But more people come out worse, especially older, low-income people living in rural areas.

Republicans argue that they don’t entirely exclude anyone from coverage, since people can find some kind of plan even if they no longer qualify for Medicaid or no longer can afford their existing insurance. The bill allows insurers to offer plans that cover less of actual costs than Obamacare plans do. The new plans could have lower premiums but also higher deductibles. That is ironic, since the high deductibles of some of the existing plans offered on the insurance exchanges are already a common criticism of Obamacare. The new bill would probably make that problem worse.

The advocates of “repeal and replace” claim that everybody will have “access” to the health insurance market, without addressing the question of whether they can afford to buy what they need in that market. That’s like saying that everybody has access to a grocery store without asking whether they can afford to fill their cart with good food. They can also claim that people will have more “choice”, if that includes the choice to go without insurance, or the choice to buy an inferior plan that lets patients down when they need it.

Seduced and abandoned

Although they refuse to admit it, President Trump and Congressional Republicans seem willing to hurt many of their own supporters, especially with the cuts to Medicaid. The 32 states (including D.C.) that have implemented the expansion of Medicaid include 12 that Trump won: Alaska, Arizona, Arkansas, Indiana, Iowa, Kentucky, Louisiana, Michigan, Montana, North Dakota, Ohio and Pennsylvania. A decline in federal support will impact many people directly, as well as put additional strains on state budgets and health care systems. Many providers in those states have been breathing a sigh of relief because fewer uninsured people have been showing up with acute medical problems. They are not anxious to go back to those bad old days.

Although voting in the 2016 election was very racially polarized, health insurance is not a black or white issue. The people who stand to lose the most from the proposed legislation are people with relatively low incomes but not actually in poverty, since the poorest will continue to qualify for Medicaid. Those affected include a large segment of the working class, whether white, black or Latino. Older and more rural voters, who tended to be Trump supporters, also have more to lose. The thought may cross their mind that they’ve been had.