Last week, Republican members of the House put forward the outline of a replacement plan for the Affordable Care Act, President Barack Obama’s signature health care bill. The ACA was decried by Republicans as an unmitigated financial disaster and touted by Democrats as a resounding success at providing coverage to the uninsured. But like any health policy, it required tradeoffs, and the Republican plans to replace the ACA are no different.
The Affordable Care Act sacrificed affordability in order to get more people insured. Prohibiting companies from denying people insurance because of pre-existing conditions, for example, opened up access to everyone, but it also made insurance more expensive for people who were healthy. Similarly, requiring insurers to offer a comprehensive set of benefits meant that low-cost plans offering only catastrophic coverage were no longer allowed for most people, which meant higher premiums for everyone. President Trump has promised to insure more people at a lower price, but it’s not clear how he could make that happen.
Now, Republicans who have promised for years to repeal and replace the ACA are tasked with balancing winners and losers, coverage and cost. GOP House members outlined their replacement plan last week. Here’s a look at how the main policy proposals would shake out against the current system.
Insuring the sickest Americans
Underlying the tradeoffs of any health policy is the world’s most expensive medical system. Until we do something about the high cost of care overall, someone has to pay, whether it’s the federal government with tax dollars, companies or individuals. But just a sliver of the population is responsible for the majority of health care spending in the U.S., and figuring out how to pay for the most costly patients is one of the biggest challenges in health care policy.
Before the ACA, many states had high-risk pools: state-run programs for people with serious medical needs who couldn’t get health insurance elsewhere. Most enrollees had been turned down for coverage by insurance companies because of pre-existing health conditions and didn’t have an employer-sponsored plan. In 2007, 34 states had pools that spent more than $1.8 billion on the 201,000 people enrolled in these programs, which did little to reduce the overall uninsured rate but were life changing for many of the people they did cover.
By requiring that insurers cover everyone, including those with pre-existing conditions, the ACA did away with those programs. Republicans have pushed to bring this system back, because removing the people who cost the most to treat would result in lower premiums for everyone else in the general insurance pool. That shift would isolate the people with the greatest medical needs, however, and leave them open to funding shortfalls. The programs rely on sick people paying more for care, anywhere from about 120 percent to 250 percent of what a healthier counterpart would pay, which can be an added strain on families. In Minnesota, which had the oldest and largest high-risk pool in the country, a 60-year-old man in the program paid $685 per month for a plan with a $2,000 deductible in 2014, according to information gathered by Lynn Blewett, a professor at the University of Minnesota who has studied high-risk pools. “For people who could afford it, it was a good product,” Blewett said. “But there were a lot of people who couldn’t afford it.”
Changing how Medicaid is paid for
Medicaid, the insurance for low-income people, pregnant women, children and people with disabilities, expanded to cover more than 70 million people1 under the ACA. The House plan would roll back that expansion, and more. The program is expensive, responsible for a quarter of all state budgets combined and more than half of all federal money that’s routed back to states. That means a lot of potential savings for the federal government, as well as enormous stakes for states, if that money goes away.
Republicans have long tried to rein in those costs. Last week’s proposal would do so by shifting Medicaid from an entitlement program, a guarantee that the federal government will foot a percentage of the bill for all who qualify, to either a per capita allotment, which would pay out a set amount of money for each person enrolled, or a block grant, a lump sum paid toward the program each year. Republicans say this would give states more flexibility in terms of how they spend funds and discourage misuse of the program. Democrats argue that it would reduce the quality of care and the number of people the program helps.
Medicaid is a lifeline for the poor, but it plays other vital roles in the health system too, said Joan Alker, the executive director of the Center for Children and Families at Georgetown University. It is a first responder during natural disasters and outbreaks, for example. After the Sept. 11 attacks, Medicaid helped get care to those who were injured, as it did after Hurricane Katrina ravaged the Gulf Coast. And it was used last year to combat an HIV outbreak in southern Indiana. The outbreak was caused by injection drug users sharing needles; Medicaid was also used to provide addiction treatment to those infected. “The uncertain is always certain. These things will happen. We may not know what will happen where, but we know they will occur,” Alker said.
States would struggle to react quickly to epidemics or natural disasters if the program were changed to a per capita cap or a block grant, Alker said. That’s because states currently know that the federal government will pick up a percentage of the bill. If there’s a limit on the funding, states have to cover all of the cost or wait for Congress to pass a bill to make additional funding available. When Zika began arriving in the U.S. last year, Alker pointed out, it took Congress eight months to approve half of the funds agencies said they needed to fight and research the virus.
Paying for insurance
Of the more than 12 million people who bought health insurance on marketplaces set up by the ACA in 2016, about 85 percent received federal subsidies worth more than $32 billion a year to help pay monthly premiums. Republicans have proposed subsidies as well, but unlike the ACA, which provides income-based support, Republican plans call for determining subsidies by age. The change would reduce the need for the complicated paperwork that verifies income and eligibility for subsidies. It would also avoid a potential pitfall of the ACA that reduces productivity, because working fewer hours and earning less could equal more government support for health care, conservatives argue. Under the current system, middle-class earners end up with little federal assistance; someone making more than $47,000 per year isn’t generally eligible for subsidies.
Using age instead of income would be a dramatic shift. Today, low-income people get more help than wealthier people, but also people who live in places where medical costs are higher, such as rural areas, get more help than people who live where medical costs are relatively low, said Larry Levitt, a senior vice president with the Kaiser Family Foundation, a health policy research organization. That would change if only age were used to calculate subsidies. Democrats argue against the age-based approach because it’s regressive, as a 55-year-old member of Trump’s club Mar-a-Lago would receive the same tax credit as a 55-year-old out-of-work coal miner in West Virginia.
Paying for what insurance doesn’t cover
Although the current tax system favors generous, employer-sponsored insurance by making employer contributions tax deductible, Republicans have historically supported high-deductible plans that they say promote personal responsibility. To encourage the use of these plans, lawmakers have sometimes allowed people to put additional money into a health savings account, a tax-free or reduced-tax honeypot that can be used to pay for health costs that aren’t covered by an insurer.
When we talk about HSAs, however, we’re also talking about encouraging plans with high deductibles. Deductibles were on the rise before the ACA, both for insurance provided by employers and insurance purchased individually, and have continued to grow under the ACA. High deductibles usually mean lower monthly insurance premiums, which can be a good choice for people who are healthy. But they can create perverse incentives against getting preventive care.
Perhaps most importantly, HSAs do little to help low-income people who don’t earn enough money to save in a rainy day fund. And since they are a tax deduction, they don’t benefit people who don’t make enough to pay taxes in the first place. HSAs also benefit higher earners more, since they would otherwise pay higher taxes on the money put away.
Health and taxes
Paying for a replacement bill will be one of the biggest challenges for Republicans, who have said they want to repeal many of the taxes that pay for the ACA. One of the ideas floated so far is a favorite of economists across the political spectrum but is loathed by many workers and companies, as it would limit the country’s largest tax break.
While people who get their insurance independently of their employers pay taxes on most of what they spend, employees receive health benefits tax free. It’s the biggest tax break we have, worth $260 billion in lost revenue, according to the Tax Policy Center. About half of all people in the U.S. get their insurance through their employer; tens of millions could end up paying more in taxes or have their benefits reduced if the exclusion is changed. “The likely effect would be that … health benefits would get cut, so people would end up with worse coverage, but not have to pay the tax,” Levitt said.
And the break favors the wealthy. Of the bottom 20 percent of earners in the U.S., only 8.8 percent have employer-sponsored insurance that makes them eligible for the exclusion, according to an analysis from the Tax Policy Center. In the second-lowest quintile of earners, people who are still making less than $47,700 per year, only 38 percent are eligible for the tax exclusion. A majority of the top 60 percent of earners, however, are eligible.
The tax break is also viewed as driving up health care costs: Since people aren’t affected by rising prices, they may be more likely to seek unnecessary care, and employers may be quicker to increase benefits instead of salaries. And some economists argue that the change would drive up wages overall, which could be good for all workers. It’s one of the few Republican proposals that wouldn’t redirect funds away from the poorest Americans, but it’s also likely to be one of the least popular.