After seven years of promises that they would deliver a viable Obamacare replacement, House Republicans finally released their alternative to the Affordable Care Act on Monday evening.
In a pair of bills, the House GOP offers a hodgepodge of bad policy ideas that would slash health care for the least fortunate, strip millions of people of their health coverage, significantly raise costs for older Americans, and potentially cause many state health care markets to collapse.
Health insurance works by pooling many people’s money together, and then letting people who are sick or injured draw from the money in the pool to pay for their health expenses. This only works, however, if there is more money being paid into the pool than taken out of it.
Historically, insurers defended against this risk by excluding people with preexisting health conditions — thus locking out many of the most expensive insurance customers. Obamacare forbade this practice, and the House Republican health bill does not make such discrimination legal again.
A ban on such discrimination, standing alone, creates a serious problem. If people can wait until they are sick and then buy insurance, they are likely to wait until they are sick to buy insurance. The result will be an influx of people into an insurance pool who have not previously paid into it.
In the best case scenario, premiums will have to rise to accommodate these new, expensive consumers. In the worst case scenario, higher premiums will drive healthy people from the pool, which will lead to even higher premiums, which will drive even more healthy people from the pool until the entire insurance market collapses.
The Affordable Care Act wards off this problem by charging most people who do not have health insurance higher income tax rates, thus giving them an incentive to buy insurance while they are still healthy. The House Republican bill repeals this provision.
Instead, the House GOP bill will allow insurers to charge customers who allow their insurance to lapse a 30 percent surcharge for the first year that they sign on to a new insurance plan. It is very unlikely, however, that this proposal will ward off a potential death spiral.
Imagine that you are a healthy 25 year-old trying to decide whether to purchase a fairly basic health insurance policy. In 2016, the average annual premium for such an individual was $3,400, according to the Kaiser Family Foundation.
Now ask yourself this. What makes more financial sense for you — to pay for health insurance every year, year after year, with a high likelihood that you will remain healthy for years to come, or to wait until you get sick and then pay a single, one-time surcharge of about $1,020? If you forego insurance, and remain healthy for several months, the decision not to obtain insurance is likely to pay for itself.
So the math is pretty easy. And it leads to a death spiral.
Phasing out the Medicaid expansion
A major political problem facing House Republicans is that millions of people currently have insurance because of Obamacare, and lawmakers who vote to take away their insurance are likely to face a backlash from their constituents.
One way that the House GOP tries to square this circle is by allowing the Affordable Care Act’s Medicaid expansion to survive temporarily, and then phasing it out over the coming years. Under the House Republican bill, the Medicaid expansion survives until the first day of 2020. At that point, people who are already enrolled under expanded Medicaid get to keep their coverage, but new enrollees will not be permitted.
Should this provision take effect, however, it is likely that many people will lose coverage very rapidly once the phase-out begins.
Under the Affordable Care Act, residents of states that opted into the Medicaid expansion are eligible for Medicaid if their income is below 138 percent of the poverty rate. That means that there is a high degree of churn among Medicaid beneficiaries whose income bounces up and down across this line.
Medicaid churn, moreover, is exacerbated by the fact that eligibility is calculated based on monthly income. So a person who does seasonal labor, or who owns a business that receives irregular payments, or who simply works a few hours of overtime in a given month, could briefly become Medicaid ineligible.
That’s not quite as big a deal under Obamacare, because this person will become eligible again if their income dips below the threshold. But it would be devastating if the House GOP bill becomes law because a single month of ineligibility could kick a person off Medicaid permanently.
Big cuts to Medicaid
One of the most opaque components of the House GOP proposal is the subtitle dealing with “per capita allotment for medical assistance.” It is a web of defined terms like “excess aggregate medical assistance expenditures,” “excess aggregate medical assistance payments,” and “federal average medical assistance matching percentage” that appears to be drafted for the very purpose of preventing anyone from figuring out what it actually does.
Broadly speaking, a per capita allotment “would cap federal funding on a per-beneficiary basis for virtually the entire Medicaid program,” according to the Center for Budget and Policy Priorities (CBPP). As Vox’s Sarah Kliff notes, it is “unclear” under the House GOP’s current draft of their bill, “how much this new version of the policy would reduce Medicaid spending.” CBPP looked at a recent earlier version the bill, however, and determined that the impact would be quite significant.
Because Medicaid costs per beneficiary are now expected to rise by about 0.9 percentage points faster than states’ capped amounts each year, this means that states will get less federal funding than under current law, with the cuts growing larger each year. Based on our preliminary estimate, that would cut federal spending for the Medicaid program by an additional $280 billion over the next decade.
Additionally, because a per capita cap presumes that a state’s health care future will resemble its past, “costs could be even higher due to unanticipated health care cost growth or to demographic changes like population aging that a per capita cap wouldn’t account for.” If an epidemic arises, for example, or if the average age of a state’s population grows, a per capita cap would not account for the increased costs that would result.
Tiny tax credits
The Affordable Care Act provides tax credits that help make health insurance affordable for millions of Americans, and these tax credits are much higher for people with lower incomes. The House GOP bill would replace these credits with a much blunter object that does little to account for income disparities.
Under the House GOP bill, any individual who earns less than $75,000 (or a couple earning $150,000) will receive a lump sum tax credit based solely on their age. This credit starts at $2,000 for people under 30, and grows to $4,000 for people over 60.
That’s pretty good news for relatively affluent consumers, who would receive no subsidy under Obamacare but now will receive a considerable amount of financial assistance from the federal government. Think of the 25 year-old healthy man discussed above. Even if this man is a Harvard-graduate earning just under $75,000 a year, he would still receive a tax credit that would pay for all but $1,400 of his average annual premium.
Now imagine a 60 year-old woman who is barely able to provide for herself and her husband on $30,000 a year. According to the Kaiser Family Foundation’s Health Insurance Marketplace Calculator, obtaining a fairly basic level of coverage for both this woman and her husband would cost $18,382 a year.
Under Obamacare, however, all but $1,755 of this annual cost would be covered by tax credits. Under the House GOP plan, by contrast, she would be on the hook for $14,382 — nearly half of her annual income.
A tax on old age
If that sounds bad, the reality under the House GOP bill would be even worse for people nearing retirement, thanks to a separate provision permitting insurers to charge more to older individuals.
Older patients are, due to their advanced age, more likely to have serious health problems, and thus more expensive to insure. The Affordable Care Act accounts for this fact by allowing insurers to charge older customers three times as much as their youngest consumers.
The House GOP bill would increase this age band, allowing insurers to charge older customers five times as much. Thus, the $18,382 a year premium facing the 60 year-old woman described above is likely to be much higher if health insurers are given more freedom to hike premiums on older patients.
A lack of transparency
You may have noticed that the above critiques of the House GOP bill do not include certain crucial details, like the cost of the bill or the number of Americans who will lose coverage if it becomes law. There’s a reason for this.
Typically, a bill overhauling much of the nation’s health care system would be reviewed by the Congressional Budget Office (CBO), which would examine both its impact on the deficit and its impact on the uninsurance rate. Until recently, however, House Republican leaders literally kept their bill in a room in the basement of an office building near the Capitol, where it could not be read by the public (or, apparently, by Democratic lawmakers).
Though the bill has since escaped its basement prison, it has not been reviewed by the CBO. Nevertheless, two House committees plan to consider the bill on Wednesday — despite not having crucial data on what it does.