In his impassioned push to get conservative Republicans in line to vote for the House’s bill to repeal and replace Obamacare, Speaker Paul Ryan declared last week that “this is the closest we will ever get to repealing and replacing Obamacare.” If so, it is a sad reflection on the state of American governance these days for the proposal looks to be more of a political statement than a complete policy document and solution.
The final draft of the American Health Care Act (AHCA) replacement bill became public last week to the sound and fury of the left, right and middle on Capitol Hill. The left, comprised primarily of Democrats, attacked the measure as fundamentally a step backward and one that will throw millions of Americans back into the ranks of the uninsured. Backing them up are both governmental and private organizations. The Brookings Institution says the number of newly uninsured will be at least 15 million. The Congressional Budget Office (CBO) says 14 million will lose coverage in 2018, with up to 24 million by 2026. About 25 million Americans thus far have gained coverage since ACA’s passage.
On the right, GOP opponents in both the House and Senate believe that the replacement bill is “Obamacare lite” and accused the House GOP of embracing huge government entitlements. In many of their minds, anything short of clean repeal is not good enough.
In the middle are mostly moderate GOP senators and a handful of lawmakers in the House who believe that repeal and replace is moving too fast and will have huge repercussions on the healthcare system. They worry about the impact of remaking Medicaid and gutting much of the Medicaid expansion. They worry that the proposed tax credits in the House bill will be too little for many to afford continuous coverage.
As we have stated in the past, we think the right is missing the big picture. Compared to other industrialized countries, America spends a lot on healthcare as a percentage of gross domestic product (GDP) because it does not ensure universal and affordable access. Consequently, those without coverage, often the sickest, access the highest cost health services and drain the system due to a lack of prevention and care management. Eliminating or minimizing subsidies will not solve America’s healthcare crisis.
Equally, we have argued that the left has it all wrong, too. Obamacare is an expensive entitlement that is unaffordable for the nation over the long term. The rich benefit scheme and subsidies have brought the system to the brink of collapse. While it has meant consistent coverage to many sick individuals, it is not sustainable.
As you might suspect, then, we stand with the middle on this one. In two previous blogs on the emerging Obamacare replacement (February 22 and February 28) we worried about the fast-pace the bill was on and argued for the need for caution and refinement.
As we read through the final AHCA draft bill, we were struck by two things. First, the framework is not altogether a bad one. As we noted in a recent blog, while America is different demographically and appears to be destined to have a patchwork system of access, the Swiss model is very apparent in the House bill and the Swiss have a well-functioning, efficient and quality system. Second, in its effort to appease the more hardened of conservatives in the House, leadership has created so many holes in the proposed new system that it simply won’t work. In effect, no one wins.
Here is our overview of what is right and wrong in the proposal:
- Refundable tax credits: On a positive note, the House proposal to have $2,000 to $4,000 per person age-based refundable tax credits might in fact help some middle income families who are essentially shut out of the Affordable Care Act (ACA) subsidies today. The current system is far too generous at the lowest levels and not generous enough for middle-income earners. The new proposal also liberalizes the Health Savings Account (HSA) program and how much can be saved. But the House subsidies fall short in two places:
- The subsidy amount for older Americans without access to Medicare will be insufficient to ensure coverage. Adding to the worries is a proposal to allow older Americans to be charged five times more than younger Americans vs. the current three times cap. This “tax” on seniors may make health insurance entirely unaffordable for them at a time when they need it most.
- Lower-income families will not have sufficient tax credits to afford premiums because the subsidies are not income-based. (The bill repeals both the premium and cost-sharing subsidies under the ACA as of 2020. Based on this draft bill, it appears the House and Trump administration will abandon the lawsuit on the illegality of the cost-sharing subsidies and live with them until the ACA goes away.)
Surprisingly, the CBO analysis states that it believes the ACA market is stable (we just don’t buy it – have they missed plan after plan exiting!) and the future individual one under the House framework would be as well. But the latter is due, in part, to the fact that lower premiums could result for some as a result of the rating changes for the elderly and lower actuarial values of plans. That could entice more younger and healthier people to buy coverage, even with the lower subsidy levels. In the end, though, this does little to help the most adverse. A Kaiser Family Foundation (KFF) analysis shows rather convincing evidence that older Americans and those of lower income lose out when the ACA subsidies go away in favor of the House tax credits. So a more stable individual market could result, but it could still disenfranchise millions who need coverage and who dominate healthcare spend.
- Medicaid expansion: On a positive note, the earlier, rather draconian repeal of Medicaid expansion in 2020 is tempered a bit. Under the new draft, states will be allowed to maintain higher funding for expansion populations that remain enrolled. The change came about due to lobbying by expansion state Governors (Democrats and Republicans alike). On the negative side, as of 2020, new entrants (including those previously on but with breaks in coverage) would only be reimbursed at the state’s current match rate as opposed to 90 percent. Due to the major turnover or "churn" in Medicaid generally, the current proposal still leaves states very vulnerable in the future. The CBO says that almost all of the current enrollees would turnover at some point by 2024. Thus, the change from earlier versions of the bill appears to be little more than a temporary sop to Governors and a political stall tactic. To offer higher income limits by 2024, states would either have to foot the bill paid by the feds now or discontinue expansion. CBO estimates that many states will be forced to pull back. In a tacit admission of the looming lost coverage, the GOP bill permanently keeps the Disproportionate Share Hospital (DSH) program in non-expansion states and keeps it alive in expansion states until 2020. So we are comfortable being a country that de-emphasizes access and prevention in favor of paying these same bills for Americans when they are in crisis and go to a hospital?
- Medicaid overhaul: At the macro level, we have backed the proposed reform of the Medicaid program to one based on a per capita cap. This is a middle ground between an unaffordable entitlement and a strict block grant that almost certainly would never keep up with funding needs. That said, states need to continue to be cautious about the actual framework of the growth factors in the formula, which should include all of the following: inflation, population growth, the aging demographic, and provisions for economic downturns. These are not really spelled out in the bill. We, too, think lifting the mandated benefits and inflexible construct is a good thing that could lead to innovation and cost efficiencies. Not doing so would make the per capita allotment unworkable. Any migration to a per capita cap system must include lifting these costly mandates and it is unclear exactly what the GOP bill does here. This is surprising as this is political red meat for most conservatives.
- High-risk pool-funding: Fifteen billion dollars per year in the short term and $10 billion per year in the long term simply is not enough to keep high-risk pools afloat or provide sufficient dollars to ensure access for the sickest populations. This is especially true when coupled with the inadequate refundable tax credit amounts. Incidentally, the monies are also dependent on state contributions of 7 percent to as much as 50 percent over time.
- Other benefits: Coverage to age 26, guaranteed issue, bans on annual and lifetime limits, community rating, and pre-existing limitation protections remain intact. The essential benefits in most categories remain in the ACA through 2020, but the actuarial value tiers will go away (Bronze, Silver, Gold and Platinum). We fail to see why more relief would not be made here to stabilize the program further in the short term (again, political red meat!). The individual and employer mandates are axed in favor of a continuous health coverage provision. Those who had gaps in coverage can be charged a 30 percent surcharge for a year. We question the efficacy of the current mandates, but wonder if this will simply be even less incentive for younger and healthier individuals to enroll.
- Employer coverage taxes: A great policy in the last bill has been eliminated. The earlier version of AHCA would have capped the employer health insurance deductibility of the 10 percent of most expensive plans. The latest bill removes this and even delays the ACA's 40 percent "Cadillac" excise tax on a subset of very extravagant plans. Actuarially rich plans help drive the overall costs of health insurance in America and should be reined in. It seems Republicans are caving to employer and, perhaps, even union demands here.
To summarize, the current version of the Obamacare repeal and replace bill is bad policy. As it stands, half to all of the Americans that gained coverage under the ACA could lose coverage (although there are winners and losers). The AHCA structure is not bad but has not been thought out well. We believe points to consider strongly are:
- Fix the tax credit proposal to ensure lower income individuals can afford to purchase coverage and those older, but not yet Medicare qualified, can afford coverage as well. Additionally, any program would need to recognize the disproportionate share of healthcare costs consumed by the most adverse. Funding here needs to be sufficient and targeted.
- Continue to revisit the Medicaid expansion and overhaul. Medicaid is a fairly cost effective way of providing access and coverage to those in need and should be embraced not limited. Any overhaul of the program should be outlined clearly and be equitable to states. The current over-reaching mandates should be removed and state innovation in delivery, cost and quality should be encouraged.
- Find ways to ensure that healthier individuals enroll in coverage, even catastrophic-type plans. If a mandate is too politically explosive, other options beyond a small surcharge for one (1) year need to be explored.
It is time for both sides to take to heart and heed Ralph Waldo Emerson’s admonition that “a foolish consistency is the hobgoblin of little minds…” Neither most Democrats’ repeated advocacy of paternalism, statism and the Nanny State nor many Republicans’ absolute ideological devotion to all things self-reliance and individual freedom should win here. As important as individual freedom is, we place the collective good over it every day in the U.S. This practice permeates our laws in all walks of life. Ensuring a functioning healthcare system where everyone participates because they will someday use it is essential to our healthcare and economic future. It is hard to argue that Americans who would not be able to afford to participate under this new scheme are somehow exercising their “individual freedom.”
So, let’s slow down and do it right – and not make healthcare a political football.