Volume 8: Health Insurance, Part IV
Repeal and Replace?
“If the idea behind Obamacare was to get everyone covered, that’s one of the many failures. Many Americans who actually did get insurance when they did not have it before have really bad insurance that they have to pay for, and the deductibles are so high that it’s really not worth much to them.” – Mitch McConnell, R-KY
“If we’re just going to replace Obamacare with Obamacare-lite, then it begs the question, ‘Were we just against Obamacare because it was proposed by Democrats?’” – Raul Labrador, R-ID
Republicans do not like Obamacare.
They are quick to point out faults in the law, real or imagined. It doesn’t cover enough people. It forces people to have coverage. It requires people to pay too much out of pocket. It covers unnecessary benefits. It is a vast increase in government spending. Doctors hate it. Insurance companies are fleeing. It’s a giveaway to the insurance companies, or the drug companies, or the trial lawyers, or the bureaucrats.
While the ACA has problems – serious ones – it is a fact that in the seven years since it has passed, the Republican Party has not come up with a plausible alternative. After the 2016 election, they can no longer pass symbolic repeal measures – they will come up with a plan or be forced to admit they have nothing. But don’t worry – when the Democrats tried to fix it, the sailing was smooth.
What are the different ways to repeal the ACA?
What are the GOP proposals to replace the ACA?
What has the Trump Administration done so far?
A note from the writer:
Just as Volume 8 was in final draft stages, this document leaked to Politico. It is, without question, “a healthcare plan.” The provenance of the document is not yet clear. It could be an early draft, it could have been superseded already, or it could be The Real GOP Healthcare Plan.
It is not my goal here to write current events, so I did not substantively change this Volume after its release. Many of its features are described below. If this plan is The Plan, then I’ll certainly write more in the future. Others are on the case already; Vox and Axios are, as usual, some leaders of the charge.
But, I’ve said many times – including above – that “the Republicans have no plan.” This statement needs to be qualified, at least until we know more.
What are the different ways to repeal the ACA?
Virtually all Republicans agree on the goal of repealing the ACA. But they don’t agree on how to do so.
Some Republicans admit that portions of the ACA are working. Especially in the Senate, some hear their constituents’ concerns with repealing Medicaid expansion. Some understand limitations resulting from the rules of Congress. If the ACA is repealed, the manner of repeal is critical.
1. Repeal Obamacare Completely
Many Republicans are on the record saying the ACA should be repealed “root and branch”; nothing should be kept(1). We know what a full repeal means – Volume 6 showed the effects of the ACA. We can just reverse them.
At least 20 million people would lose insurance, split about evenly between those newly eligible for Medicaid (up to 138% of the federal poverty level) and those buying their own policies on- or off-exchange. The long-term Federal debt would increase. Medical bankruptcies would increase, as would provider losses due to bad debt. The Medicare Trust Fund would deplete sooner. Healthy people wouldn’t face the mandate penalty; but if they got sick, they would be out of luck.
Oh – and the top 0.1% of earners would get an average annual tax cut of $197,000. The top 400 earners in America would get $7,000,000 each(2).
2. Repeal Obamacare, keep the popular parts
Republicans have been challenged when asked about parts of the ACA that the public clearly likes. Specifically, protections against pre-existing condition and keeping dependents on their parents’ plans up to age 26. The GOP could repeal just the individual and employer mandates, essential health benefits, getting rid of the federal exchange and subsidies to purchase insurance. This would allot the same tax cuts as a full repeal(3).
In Volume 2, we talked about states which, pre-ACA, had Guaranteed Issue provisions without the two other legs of the healthcare stool. I call this the “Intentional Death Spiral.” The Urban Institute conducted an analysis of a “partial repeal,”(4) and determined that nearly 30 million additional people would be uninsured by 2019. In other words – everybody who got insurance through the ACA would lose it, and then 10 million more.
I think 30 million is a conservative estimate. What if people create small businesses, expressly to have a access to the small-group market. This will be a bad risk pool – less healthy people are more likely to do it. This is a recipe to cause a death spiral in the small group market, putting 17 million more people at risk to lose insurance(5). Let’s get crazy - the large group market, 100 million people covered. Those with pre-existing conditions would become more likely to work at large companies, as it would be their only way to get insurance. Adverse selection could even destabilize the large employer market(6).
Partial repeal has one advantage over full repeal: it could probably happen without the support of any Democrats(7). It already passed Congress last year without GOP support, but was vetoed by President Obama. At this point, I expect that no Democrats are going to vote to repeal Obamacare, so this is an important point(8).
3. Repeal Obamacare – but leave the Medicaid expansion
At least 11 million people have gained health coverage due to the ACA’s Medicaid expansion provision. Each state has the option of taking part in Medicaid expansion. Despite the Federal Government picking up 100% of the cost initially, decreasing to 90% in 2020 and beyond, nineteen states chose not to expand.
That leaves 31 states and the District of Columbia which expanded their Medicaid program. Those states have 20 Republican Senators(9). Given 48 Democratic Senate votes, only 3 of these senators could block the repeal of Medicaid expansion. At this point, it seems very likely that at least 3 would.
Keeping Medicaid expansion would reduce the number of newly uninsured by the 11 million in the expansion. In addition, if a repeal bill passed which left Medicaid expansion intact, some of the additional 19 GOP-led might choose to expand.
I think the effects of keeping Medicaid expansion are mostly unrelated to the rest of the repeal; it is a largely separate market. So, other than this 11 million, it would be similar to option #1 or 2 above, depending on whether the repeal was full or partial. However, keeping expansion would require funding(10). So, there would be some tax cuts, but the amount would be somewhat less than if the expansion weren’t kept.
What are the proposals to replace the ACA?
Contrary to popular belief, the Republicans have proposed ideas to “replace” the ACA. Many, many ideas. That’s the problem – there are so many ideas that they can’t all be part of a single plan.
Health insurance is complex. If two changes are made to the market, they will interact, making the effect different from what the changes would cause separately. Keeping this in mind, we’re going to go through some of the provisions proposed by Republican leaders, considering the effect each would have on the broader market.
1. Guaranteed Issue for Continuous Coverage
Just because the Individual Mandate is an anathema doesn’t mean that all Republicans ignore the concept of adverse selection. One idea, included in HHS Secretary Tom Price’s Empowering Patients First Act (“EPFA”)(11), is that insurance companies could not deny coverage if an applicant had not gone without insurance for the previous 18 months (“Continuous Coverage”). In theory, currently healthy people would join the risk pool because it is the only way they could get coverage when they later get sick.
As far as I know, a Continuous Coverage provision has never been tried, so we don’t know if it would work as well as an Individual Mandate(12). My opinion is that Continuous Coverage would be less effective. It relies on individual consumers understanding a complex game theory. Buying health insurance is hard enough already.
For a Continuous Coverage system to have a chance of being successful, it would need two other components. First, a definition of the minimum benefits package which “counts” as coverage. If skeletal packages counted, healthy people could game the system, buying cheap coverage until they were sick(13). Second, because huge portions of the population cannot afford the full cost of health insurance, Subsidies would be required for lower- and middle-class households. If people are literally unable to afford insurance, Continuous Coverage won’t bring them into the system(14).
2. Reduce/Eliminate Minimum Benefits
Another common feature in “replace” plans is to allow less comprehensive plans to be sold in the market. The idea is that people shouldn’t pay for benefits they didn’t want, lowering their costs.
The reason why a health system needs defined minimum benefit packages is to enforce an Individual Mandate (or Continuous Coverage). If you could sell a loaf of bread and call it health insurance, then people would buy the bread, switching to real insurance when they get sick. The Mandate therefore falls apart. We can debate endlessly which benefits should be deemed “essential”, but the ACA’s seem reasonable(15).
Many GOP proposals would again permit health plans low annual and lifetime benefit caps. While significantly cheaper, these are not really health insurance; they don’t protect against catastrophic medical needs(16). Also, without the ACA’s minimum benefits, people would face higher out-of-pocket costs. Given high out-of-pocket costs under the ACA is a major GOP complaint, promoting plans with higher out-of-pocket costs is more than a bit cynical.
3. Decrease premium subsidies
Most “replace” plans involve less premium Subsidies than are currently in the ACA. Under the ACA, subsidies are based on household income. In the EPFA, for example, subsidies would be by age: $1,200 per year for people 18 to 35 years old, increasing to $3,000 for people over 51. As a reference, the average silver plan premium today is $3,700 per year (age 30) up to $8,900 per year (age 60)(17). These premiums are before significant additional out-of-pocket costs. Under the EPFA, health insurance will be completely unaffordable to many households. We can see the increase / decrease in premium support for varying ages and levels of income(18):
In this GOP plan, poor people will pay more while the wealthy get a tax cut. I’m shocked.
4. Selling insurance across state lines
All insurance is regulated by the states; policies are sold on a by-state basis. The idea here is that allowing multi-state plans would increase competition, lowering premiums. There is some logic to this, especially for smaller states.
This is the thing, though – this is already in Obamacare. Under the ACA, states are encouraged to allow inter-state sales. Some have tried, but none have succeeded. Presumably, the idea is to go further, mandating that states let all policies be sold within their borders. This is odd coming from a party claiming to be opposed to federal mandates.
And, I have worse news. Georgia already passed a bill to unilaterally permit policies approved by any state. In five years, not a single insurance company has participated(19).
I don’t think that creating inter-state markets would harm the insurance market. But, I also don’t think it would help much – the death spiral can happen just as easily on a larger market. I’m fine to try it, but there is no reason to repeal the ACA to do so.