By Jeff Adams, February 21, 2017
The Republicans released an 18-page overview of their current plans for health care legislation. Their intent in releasing this document is to get a feel from the public regarding the proposed changes. This article discusses elements of the Republican’s health care plan.
Republican Recommended Changes Included in Legislation
It is unclear at this point how much of ObamaCare the Republicans will repeal. There are parts of ObamaCare that have been popular, such as no limitations on pre-existing conditions and coverage of children until age 26, that the GOP has now said that they will not repeal. Other components such as Medicaid expansion, coverage through the Exchanges, and charging of fees that are designed to redistribute costs between the employer market and Health Care Exchanges will be repealed.
Although part of the GOP push to repeal is purely party politics, there is the large government versus small government perspectives of the two parties at odds again. The Republicans see ObamaCare as an extension of the massive government Medicare and Medicaid programs that are already draining the government’s coffers, while the Democrats see ObamaCare as an opportunity to help millions of Americans obtain health care coverage and find ways to slow the unsustainable growth in health care costs while increasing the quality of health care.
There is no correct answer as to whether to repeal ObamaCare or not, but any proposal to repeal ObamaCare must contain components that will reduce the issues of the large number of uninsured individuals and rapidly rising health care costs.
Some of the specifics of the impacts of repealing ObamaCare are listed in the following sections as the GOP has specifically discussed them. Other items such as PCORI and the Independent Payment Advisory Board are assumed to be repealed, although the impact will be negligible since the actual impact of the work of these entities would have been realized a few years in the future. The elimination of the Exchanges will result in a decrease in administrative costs due to the elimination of a substantial amount of complexity that the Exchanges introduced. The actual impact of items in this paragraph will most likely be an increase in health care costs when combined with the lessening of regulations that will result in less pressure on insurers and providers to lower claims and administrative costs. Trends will most likely return to the higher pre-ObamaCare levels or even higher for several years.
Again, without knowing the details of the plan, it is difficult to comment, but, generally, income-based subsidies on the Health Insurance Exchanges would be replaced by tax credits, for qualifying people, of a set amount that varies by age but does not vary by income. It is unknown whether this subsidy would vary by single versus family, number of dependents on income tax submission, just be a flat amount, etc., and whether this will not vary based on health care policy coverage tier. The importance of this technicality is due to the fact that premium rates may vary by single/family, single/2-person/family, single/parent-child/husband-wife/other-family, etc., so inconsistency with the tax credit structure versus premium tier structure will result in abnormalities in cost to enrollees. Also, even though the tax credits will be age-graded, due to the math involved, older persons will most likely pay significantly higher net premium contributions than younger enrollees.
It is probable that, in the first year, the tax credit amount would be essentially consistent with the average subsidy amount given to enrollees through the Exchanges. This would mean that those with higher income would receive higher tax credit than the subsidy would be on the Exchange for them. Likewise, a lower-income individual would have a tax credit that is less than the subsidy that was available through the Exchange. People who do not have employer or government coverage would then have to seek health care policies on their own. Nothing in the proposal would actually decrease costs, so there is no reason to think that premiums would be lower, except possibly lower benefits, so the lower-income persons would have to pay more for coverage.
Any issue in the first year would be magnified in future years as the Republicans plan to increase the tax credit by CPI while there are minimal components in the plan that would actually decrease the rate of growth of health care costs. So, premiums may go up by 12% each year, and the already low tax credit would only increase by 3%, roughly. The impact is huge over time, making the purchase of health care coverage unaffordable.
Tax credits are a means of having the government pay for a portion of an enrollee’s health care coverage. Without controls on the cost of health care and with limits to government budgets, the impact of this assistance will lessen over time.
HSAs are only a means of paying health care costs with pre-tax dollars. This lessens the impact of the cost of health care but pushes this cost onto the government and does not help with the real problem of health care costs rising at an unsustainable rate. The net result of the HSAs is a decrease in cost to the enrollee with a corresponding increase in cost to the government for this tax advantage, putting additional stress on the government budget.
The GOP plan would repeal the Medicaid expansion that was put into law through the ACA. It is likely that persons will lose coverage due to this repeal, but unknown how many. It is also probable that many states will put in their own Medicaid Expansion programs, which would probably include a tax increase or a cut of some other program in an effort to come up with the money for the expansion.
The GOP also includes converting Medicaid into a lump sum payment from the federal government to the individual states. This would allow the federal government to better meet its budgets as Medicaid increases put a large strain on the federal budget. It would be up to the states to use the lump sums to provide coverage for those previously covered by Medicaid. The thought here is that states are better able to tailor their Medicaid program to the needs of the state, which does not seem like an unreasonable approach.
This appears to be nothing more than a payment to each state to subsidize its small group and individual markets. The plan says the state could increase benefits or use it for innovation. The usefulness of these grants depends on the purposes for which the states use them. It again falls into the category of giving the states the money and let them use it in a way best fit for their constituents.
Currently, a policy sold in a state has to follow the laws of that state. The GOP proposal would allow an insurer to sell policies in all fifty states based on the laws of the state in which the insurer is located. The GOP says this will decrease health care costs by providing more competition. In actuality, this may increase health care costs based on how our complex health care system works. Insurers will be able to avoid state mandates by being based in a state with the least mandated benefits, which is essentially lowering rates by giving a benefit reduction. The provider discount arrangements for these cross-state insurers will likely not be as good as discounts for carriers in the states in which the policy is sold, resulting in a cost increase for the enrollees. It will likely be the provider that benefits by getting increased payments at the expense of the enrollee.
There are many articles on the Internet that describe why this is not a good idea. Here is one of them: http://www.latimes.com/business/hiltzik/la-fi-hiltzik-insurance-state-lines-20161114-story.html
A notable omission from this plan is any adjustment to Medicare. This will need to be included in some form in future legislation as the program does need help. The most likely Republican proposal will be the premium subsidy or voucher program where the federal government gives a set amount to the individual seniors, and the seniors can apply the subsidy to the coverage that they want. The problem is that, similar to the tax credit, the government subsidy will increase around 3% each year while the insurance premiums will increase around 12%. The net premium cost to enrollees will increase to above $20,000 annually in ten years and continue to increase after that. Moderately lower health care trends will lessen the problem, but it will still be only a matter of time before health insurance is unaffordable for seniors.
Easily, the bottom line is that none of these proposals attack the real problem in health care, that of out-of-control health care cost increases. Lowering out-of-pocket expenses without lowering actual health care costs leads to rapidly increasing premiums or government subsidies. Increasing government payments to Medicaid, Medicare, and tax credits at CPI each year may control government spending, but the very excessive overage of health care trends versus CPI increases means the enrollee must pay a very substantial increase in net premium cost each year, compounding annually. Increasing payments to Medicare, Medicaid, and tax credits at rates greater than CPI would lead to long-term budget issues for the government.
The GOP also appears to be pushing off some of the responsibility to the states, such as Medicaid and small group, and the individual market. The more active states will use the money to develop their own markets while others may not put in much effort to help those who need health care coverage.