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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 “stable” – but the rate of uninsured will be very high. People who have conditions will not be able to find coverage.

When you hear a proposal for changing health insurance regulations, apply the Theorem. If it fails, the system is flawed.


AHCA, Final Version:

On Thursday, March 23, the AHCA was supposed to go to the House for final passage. But right-wing Republicans, under the banner of the House Freedom Caucus, controlled enough No votes to kill the bill. In a tense meeting between the President and the Republican House Conference, an ultimatum was made: the AHCA would be moved further to the right, and the vote would happen the next day. Anybody loyal to the President would be expected to vote Yes.

The major change in the Final bill was the elimination of the Essential Health Benefits (EHBs); each state would be able to manage their own. Whatever you think about the previous versions of the bill, eliminating the EHBs without significant other changes made little sense. It would have caused a total collapse of the non-group market. Remember the three-legged stool includes Guaranteed Issue, Mandate and Subsidies.[10] If you make the assumption that Continuous Coverage is an effective mandate, why do we care about EHBs?

We can demonstrate y. Let’s say that Maternity Care is no longer an EHB. Then, health insurance can be sold with or without Maternity Care. In Paul Ryan’s world, those who wanted it would pay for it and those who didn’t wouldn’t. But there is a problem: a rational person would only buy Maternity Care if they planned to use it. Insurance companies are prohibited from screening patients, because of Guaranteed Issue. So they would assume that everybody buying Maternity Care planned to use it and would raise the premium. At that point, it only makes sense for those with complicated pregnancies to buy it. The insurance companies respond by raising the prices to cost of complicated pregnancies. We’ve created a death spiral in Maternity Care – it will soon be impossible for anybody to buy it.

We don’t have an estimate of what the Final version would have done to coverage; the bill was pulled before the CBO could score it.[11] But, in any state that didn’t create strong EHBs, the non-group (and probably small group) markets would have soon consisted only of health insurance that didn’t cover health care.[12] Famously – aromatherapy but not chemotherapy. Recall that the GOP wanted to allow “buying insurance across state lines”. Let’s say that your state created appropriate EHBs, theoretically protecting your market. But the GOP would have forced your state to allow in policies from other states. States with weak EHBs would “poison” those with strong. The Final version of the AHCA would have created the worse health insurance system I can seriously imagine.

Why did it fail to pass the House?

I feel the need to say this again – what happened to the AHCA is unprecedented. The Majority Party has total control in the House of Representatives. They decide what bills go to committee, exit committee, what amendments are offered and passed, what comes to the floor, when and how. The GOP spent seven years yelling to repeal Obamacare and failed miserably – why?

In Volume 6 we tested the claim that the GOP had no unifying principle on health care other than repealing Obamacare. We can now rate this statement as “VERY TRUE.” As somebody who read the entire AHCA (Original version), I was amazed how little was in the bill. No matter what you think the problem with health care is, the AHCA did nothing to fix it. Too many uninsured? AHCA created more. Plans have too high deductibles? AHCA would have increased them. Premiums too high? Nothing here would have lowered them; removing Guaranteed Issue was too controversial. Exchanges confusing? CBO specifically said this would get worse. Obamacare is a disaster (even if you can’t say why)? The AHCA did not repeal Obamacare. It was built on Obamacare’s structure, making no fundamental change. Removing people from Medicaid isn’t a goal in itself – especially when you remember that Medicaid is 1) cheaper than private insurance, 2) has lower out of pocket costs than private insurance and 3) has better plan-holder favorability than private insurance![13]

I learned something this month. President Obama has a legacy: belief in a fundamental right to health insurance. During the campaign and transition, Donald Trump said repeatedly that it was his goal to increase coverage – even create universal coverage! Secretary Price, Speaker Ryan and others who tried to sell the concept of “access” were taken rightly as charlatans. The fact that the working poor have access to buy penthouses at Trump Tower doesn’t mean home affordability isn’t a problem in New York City. Then the CBO score came out – the AHCA was directly opposed to Americans’ newest fundamental right.

There is a lot of talk about the tactics used both by House Leadership and The White House. We can consider these tactics, but must remember the goal. Having no party-wide health policy goals, the GOP leadership seemed to not care what they passed. They just wanted to pass something to claim a victory on their core issue. The Final version clarified this: Trump and Ryan were fully behind a nonsense bill that would have destabilized the entire system without advancing any of their stated policy positions.

If that’s the goal, the question is: was the AHCA the right bill to accomplish it? Would a different proposal have been more likely to pass the House?[14] This is a hypothetical so we can’t know for sure. But for my money, at the start of the process I thought it looked likely to at least pass the House. It was always going to have opposition from both the Freedom Caucus and the Tuesday Group. But as they found during negotiations, moving the bill to gain one vote on the right lost two in the center, and vice versa. My view is that the AHCA was as likely as any bill to get 216