Volume 10: Health Insurance, Part V


The belly of the beast

American Health Care Act: A Requiem Mass

“Sometimes you’re playing Fantasy Football and sometimes you’re in the real game…This time, if we got it to the President’s desk, it would be signed.” – Joe Barton, R-TX

“Nobody knew health care could be so complicated.” – Donald Trump

 

Presidents, especially those who control both Houses of Congress, usually get what they want.

We are in uncharted waters here. Twice, a President’s bill was brought confidently to the House of Representatives floor, only to be pulled just before a vote could be taken. For a President to not even get a vote on the first item on his legislative agenda is astounding. For a Party to spend seven years railing for a specific policy result, only to find themselves with no plan to achieve it begs understanding.

I’m not the first, and I won’t be the last to look back and try to make sense of this historic week in Congress. What does it mean going forward? We can break our study down into three parts: the policy, the process, and the future.

  • What was in the American Health Care Act? How would it have affected the system?

  • Why did it fail to pass the House?

  • What will happen to Obamacare now? What about the rest of the Administration’s agenda?

 

What was in the American Health Care Act? How would it have affected the system?

The AHCA had three significant legislative versions. The Original bill was presented by Speaker Ryan, and passed three House Committees between March 9 and March 16. The Amended version, which came out on March 20, made small but significant tweaks once it became clear that the most conservative Republicans were unwilling to accept it. The Final version included more amendments added hastily on March 23, after a meeting where the Republican conference where they received an ultimatum. We can consider each of the versions in detail, because the legislative history is important to understanding the bill’s failure. Please note these are short summaries; I apologize if I skip your favorite AHCA provision.

AHCA, Original Version:

By the time the first version of the AHCA was released, it was already contentious. Draft versions were allegedly kept under lock and key, available only to Republican Members of the relevant Committees and their staffs.[1] Legislation sausage-making is not pretty, but how good could legislation be if it was literally surrounded by security guards so that the public couldn’t see it.

When the bill was released, many analysts had the same reaction: “This is it?”[2] After seven years of daily reminders of the Obamacare[3] disaster, the AHCA did little to change its general structure. In a famous anecdote, nearly 10% of the bill’s length is taken up by creating a procedure to kick lottery winners off of Medicaid. Did the GOP believe that lottery winners on Medicaid were causing 10% of the problems in the US health insurance system?[4] The more meaningful provisions of the Original Version were:

  • Replacing Obamacare’s individual and employer mandates with a continuous coverage provision.[5] In order to encourage healthy people to stay in the insured pool, anyone leaving would be subject to a 30% penalty when they came back.

  • Allowed premium differences based on age of 5:1 (Obamacare allows 3:1). This meant more expensive insurance for older people, less expensive for younger.

  • Obamacare’s expansion of Medicaid was wound down over the next decade.

  • Federal Medicaid expenditures were capped (rather than current sharing of actual cost).

  • Insurance subsidies were no longer to be based on income or local premium cost. Instead they were to be based only on age.

  • Obamacare’s tax increases were cancelled, resulting in $882 billion in lost revenue in the first ten years. These cuts were heavily slanted towards top earners, but included insurance companies, drug makes and medical device makers.

We have a good idea how this bill would have affected the system. The bombshell CBO scoring was released on March 13.[6]

To summarize the CBO, under the AHCA, 14 million additional people would be uninsured in 2018, rising to 24 million in ten years. For the average individual, health spending would be higher.[7] As an exclamation point for those opposed to the AHCA, the CBO predicted that Social Security spending would decrease by around $3 billion annually after 10 years. This seems to be because the CBO predicted that more people would die sooner, so Social Security would not have to pay as many benefits.[8] The bill overall would improve budget deficits by around $350 billion over the first ten years.

The CBO said that both the current, Obamacare-based, and new AHCA systems would have stable insurance markets. In other words: continuous coverage would prevent a death spiral. In my opinion, this should not be taken as a given. Continuous coverage has never really been tried, it might not work. So, I think that the CBO coverage numbers may be a best-case scenario.[9]

AHCA, Amended Version:

The first set of amendments was fairly limited. It ended Obamacare’s taxes one year earlier. It also allowed states to add a work requirement as a condition to receive Medicaid. The CBO released revised scoring on the amendment. It would lessen the budgetary improvement by $150 billion due to the taxes ending sooner. It did not have improve the coverage prediction (loss of 24 million) from the first CBO report.

 

An Aside: The Fundamental Theorem of Health Insurance

Many disciplines have a Fundamental Theorem; a basic principle that links to the broad discipline. Can we create one for health insurance markets? It must describe the trade-off between choice and pool selection.

If it's not required for everybody, it will not be available for everybody. If everybody has the choice, then nobody will have a choice.

I think this covers the three main paradoxes. Without a Mandate, death spiral results. If a benefit is optional, selection will make it prohibitively expensive. A system with no Guaranteed Issue and no Mandate is