Breaking Down the GOP Health Insurance Proposal: Who will Benefit and Who will be Hurt

© Josh Sager – March 2017

This week, the Republican leadership in the House revealed its long-awaited replacement plan (link to text) for the Affordable Care Act (ObamaCare). There were few surprises in this reveal, and the bill is based around the same policy structure as previous outlines floated by GOP politicians.

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In totality, the Republican replacement for the ACA is an extreme step backwards and will harm millions of Americans. It is based around the flawed assumptions that the market is the perfect vehicle for providing insurance for the American people and that some people are just making poor choices that cause them to lose coverage—this sentiment was perfectly expressed by Jason Chaffetz when he went on CNN to start selling the bill:

“Americans have choices, and they’ve got to make a choice. So rather than getting that new iPhone that they just love and want to go spend hundreds of dollars on that, maybe they should invest in their own health care. They’ve got to make those decisions themselves.”

Jason Chaffetz, 3/7/17, CNN

 

Note: Chaffetz has publicly-funded comprehensive health care as a Congressman

The GOP’s bill is coherent in a world where every American family has enough money to pay for care and only needs to be incentivized to make the right choices with their own money. In this world, the insurers provide numerous high quality and affordable plans that allow for many consumer choices, and the government just needs to stop interfering with the market for everything to be fixed. Unfortunately, this world is a fiction that doesn’t resemble reality in any functional way, thus the GOP plan is doomed for failure and will severely disrupt the lives of millions of Americans.

There are several key aspects of the Republican Healthcare plan that will fundamentally harm the ability of many Americans to access and pay for care:

The “Individual Mandate” Will be Transformed, Not Eliminated

The least popular provision of the ACA has consistently been the individual mandate that all Americans enroll in health insurance or face a tax penalty. This provision was used by the GOP as a regular attack line against the overall law and they had asserted that any replacement wouldn’t have a mandate.

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Unfortunately, market-based healthcare programs that prevent insurers from denying people with preexisting conditions simply cannot function without a mandate, as healthy people have an incentive to only pay for insurance once they get sick. This incentive throws the insurance pools into a death-spiral, where premiums are raised and less-sick people leave the pool, further raising prices.

While the GOP plan eliminates the tax penalties of the ACA, it also implements a hidden mandate of its own. If any individual is without coverage for 63 days, then applies for insurance, they will be subject to a 30% increase in their premiums. Unlike with the ACA, this money will go to the insurance companies rather than the treasury; additionally, given the cost of coverage, the actual size of the penalty will be significantly larger than it is today.

For example: the average annual premium cost for a single adult is $2823 ($235/month), thus a 30% premium increase on top of this would amount to $847 annually. Conversely, under the ACA, the tax penalty for an adult who remains uninsured is $695.

In effect, this new mandate is a giveaway to insurance companies that also incentivizes people who let their care lapse to remain uninsured—they don’t pay an annual penalty for being uninsured and will face a significant increase in premiums once they apply for coverage.

Plans Won’t be Required to Provide Essential Health Benefits

The ACA includes language which sets minimum coverage standards for all insurance plans that are allowed to be sold on the market—these minimum requirements are referred to as “essential health benefits.” These essential benefits include ambulatory patient service, emergency services, hospitalizations, pregnancy, mental health, prescription drugs, rehabilitative services, laboratory services, preventative care, and pediatric care.

The GOP bill has a provision which eliminates the essential health benefits requirement starting January 1, 2020, letting insurers create plans that do not cover these key areas of health care. Functionally, this will allow insurers to drop expensive services from their insurance plans, increasing their profitability while leaving consumers to pay for necessary care.

For Example: Pregnancy and maternal care is extremely expensive and insurers typically suffer losses on even a perfectly routine pregnancy (this is why many support free birth control). Under the GOP health insurance plan, insurers can simply create plans that don’t cover pregnancies, then offer an expensive rider to the basic plan that women who plan to have children can opt into.

The Medicaid Expansion Will be Repealed

The ACA expanded Medicaid to cover all Americans making up to 133% of the federal poverty line. This provision of the law currently covers approximately 14.4 million low-income Americans and would cover millions more if a majority of Republican-controlled states were willing to accept the Medicaid expansion.

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The Republican healthcare plan will eliminate the Medicaid expansion for all states by 2020, but will allow people enrolled at the time to stay on their insurance plan. After 2020, Medicaid will no longer accept enrollees based upon the expanded criteria of the ACA (up to 133% of the FPL) and anybody who is removed from the rolls will have to reapply under the new criteria—this is extremely damaging and may actually increase the risk for poor people seeking to advance their situation.

For example: a person who makes 125% of the federal poverty line in 2019 and is enrolled in expanded Medicaid be allowed to keep their Medicaid coverage after the freeze. If this person takes on an additional part time job for a year that puts them above 133% of the FPL, they will lose their Medicaid and have to buy private insurance. Once the part-time job is over and their income returns to 125% of the FPL, they will have to apply under the new criteria and will be ineligible for the coverage they previously held.

Insurance Subsidies Will be Based upon Age, Not Income

The ACA includes subsidies to help working/middle class buyers afford private health insurance on the private market (through the state exchanges). These subsidies cover everybody making between 133% of the poverty line ($31,900/family of four) and 400% of the poverty line ($88,000/family of four), thus include a majority of the American population in the private markets. These subsides cap the total cost of premiums as a percentage of family income on a progressive scale—3% for those at the lowest income bracket all the way up to 9.5% for individuals at the top.

The Republican healthcare plan will eliminate these subsidies and replace them with subsidies based upon age. Under their plan, a 30-year old will receive $2,000 annually to help them buy health insurance, while a 60-year old will be capped out at $4,000 annually. These subsidies will begin to phase out for individuals making up to $75,000 a year, or families making up to $150,000. Once the individual or family exceeds the income cap, their subsidy will decrease by $100 for every $1000 they exceed the cap.

The new subsidies proposed by the GOP are fundamentally flawed and significantly cut the aid given to the poorest Americans, when compared with the current subsidies.

For example: A 27-year old with large college debts and a chronic health condition, who is working two part time jobs that net him $13,000 would get $2,000 a year to help them pay for insurance. Conversely, a 40-year old consultant who is in perfect health and making $74,000 a year would get $3,000 in subsidies. In this situation, the 27-year old wouldn’t receive enough aid to afford even a basic health insurance plan, while the 40-year old would get significantly more than they get today.

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Note: this graph was made using an earlier draft of the GOP bill so specific numbers may change slightly.

The ACA’s High-Income Tax Increases Will be Eliminated

Several new high-income taxes were implemented as part of the ACA, the largest being a 0.9% additional Medicare tax on individuals making more than $200,000, and a 3.8% NIIT (Net Investment Income Tax) aimed at higher-income investors. According to the Congressional Budget Office, these two high-income taxes raise $346 billion across a 10-year scoring period. In addition to these high-income tax cuts, the House GOP bill eliminates the health insurer tax, Cadillac plan tax, and several smaller tax provisions within the ACA—in totality, these tax cuts will reduce tax revenue by $594 billion over a 10-year scoring period, and disproportionately benefit the wealthy.

The GOP healthcare bill’s tax cuts don’t just give billions of dollars to the rich, but also decrease the stability of Medicare. According to estimates by the non-partisan Brookings Institute, these tax cuts will cause the Medicare Trust Fund to drain 4 years faster, putting significantly more urgency on fixing the program.

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The increased urgency to fix the funding for Medicare will give Republicans more leverage to implement benefit cuts, or maybe even privatize the large parts of the program under the aegis of “saving” it.

Abortion Providers Will be Defunded

The Republican healthcare bill included several hidden assaults on abortion rights. These will have significant implications and

The bill bars all federal funding for organizations that provide abortion services—primarily Planned Parenthood—even though it is already federal law (the Hyde Amendment) that these organizations are not legally allowed to use federal dollars to fund abortion—they must use private funds, raised separately. Ironically, because this provision will defund Planned Parenthood, it will force them to cut back on reproductive health services and birth control, thus will likely increase the overall demand for abortions.

In addition to attacking abortion providers, the GOP bill interferes in the funding of abortion services in some really extreme ways. It bars Medicaid from paying for abortion services and excludes any health plan that receives federal tax credits from covering abortions. In effect, this cuts off both public and private funding for abortion, forcing women to pay out of pocket if they want to get an abortion. This will not be a hardship for wealthy and middle class women who can easily travel to a clinic and pay for care with cash, but it is a significant impediment to abortion access for poor women.

When you combine the effects of the GOP healthcare bill with the various state-level attacks on abortion access, the result is that abortion services will simply be out of reach for large portions of American women. While abortion will still remain a right, accessing this right will be become significantly harder and there is a strong likelihood that illegal abortions will increase (as we see in other nations that have closed off legitimate access to abortion).

Older People Will Pay More

The ACA capped premium increases based upon age at 300%—in short, older American couldn’t be forced to pay more than three times what a younger American pays for the same plan. This was designed to help protect older Americans who require affordable healthcare and lack employer-sponsored care, but are not old or disabled enough to qualify for Medicare (e.g. a 55 year old cab driver who works full time as an independent contractor).

The Republican healthcare bill will increase the premium cap from 300% to 500%, opening the door for insurance companies to dramatically increase prices. Idiosyncratically, this is a politically beneficial move for the GOP, as the blame for these increases will fall on the insurers, while they will get credit for increasing the subsidies available to the elderly (see section earlier in the article). These increases in premiums on the elderly will absolutely overshadow the $4000 tax credits they are offered and will result in a large economic hardship for many middle class Americans.

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