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The Most Important Thing You Should Know About a Possible Repeal of Obamacare

By Sean Williams – Nov 26, 2016 at 2:18PM

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Repealing and replacing the Affordable Care Act could prove more difficult than many realize.

Image source: Michael Vadon via Flickr.

America could be on the precipice of some big changes come January. Republican Donald Trump is the surprising president-elect, and Republicans remain in control of both houses of Congress. It's the first time since the 2009-2011 period that these two branches of government are under the control of a single party, and the first time since 2005-2007 that they are under Republican control.

Having the legislative and executive branches of government unified under a single party isn't a guarantee that legislation will be passed, but let's just say that the prospect of reform becomes a lot easier when the ideologies of the president, Senate, and House align.

For example, most Republican lawmakers believe that cutting taxes and putting more money into the hands of American workers and businesses is the best way to ignite economic growth. Trump, for his part, has touted a previously proposed tax reform from the Republican majority in the House of Representatives that would reduce the progressive individual income tax schedule from seven brackets, ranging from a low of 10% to a high of 39.6%, to just three brackets (12%, 25%, 33%). With most Republicans on board with the general idea of tax reform, it seems likely that we'll see changes to the U.S. tax code in the months or years that lie ahead.

But even a unified government could struggle to repeal and replace Obamacare, officially known as the Affordable Care Act (ACA).

Image source: Getty Images.

Why America hasn't embraced Obamacare

One thing is relatively certain: Americans have mixed feelings about Obamacare. The Kaiser Family Foundation's Health Tracking Poll from September showed that 47% of those surveyed had an unfavorable view of Obamacare compared to 44% who had a favorable view. Going back more than six years of poll data, you can count the number of months that the "favorable" views outnumbered the "unfavorable" on two hands.

One reason Obamacare isn't all that popular is its Shared Responsibility Payment, or SRP. The SRP is the penalty attached to the individual mandate for not purchasing health insurance. In short, people don't like being told they have to purchase something, and that if they don't they'll be fined. Of course, the purpose of the SRP, which is the greater of $695 or 2.5% of your modified adjusted gross income in 2016, is to encourage as many people to enroll as possible so as to expand the risk pool for insurance companies.

Cost is another likely reason why Obamacare has been disliked by a steady number of people since the get-go. While it's impossible to make any concrete comparisons between the costs of insurance under the ACA and projections of what costs would have been had Obamacare never implemented, what we do know is that benchmark plan (the second lowest-cost silver plan) premiums in the 38 states represented by are set to rise by 25% (that's not a typo!) in 2017. Though 84% of marketplace enrollees are partially shielded from this premium inflation by the Advanced Premium Tax Credit, middle-class Americans who aren't receiving a subsidy could feel the full brunt of these price hikes. For their part, insurers have suggested that the dynamics of Obamacare's current setup aren't sustainable over the long term.

Some of the blame for Obamacare's poor reception could also be put on President Obama himself. He had suggested that consumers would be able to keep their health plan and doctor prior to Obamacare's official rollout, but because of beefed-up minimal essential benefit requirements imposed by the ACA, a number of health plans weren't updated to comply, and simply expired. This left millions of Americans searching for a new plan, and potentially a new primary care physician.

Image source: Disney-ABC Television Group via Flickr.

Change could take a long time

During his campaign, Donald Trump was adamant that repealing and replacing Obamacare would be among his top priorities. This proposal is in line with the more than 50 times the Republican-controlled House has attempted to repeal Obamacare since it became the health law of the land. However, the most important thing you should know if you're among the more than 20 million people impacted by Obamacare, or an investor in this healthcare space, is that a repeal and replace of the ACA could take a long time and is by no means a given.

One of the bigger hurdles lawmakers on Capitol Hill will have to overcome is getting enough votes to repeal Obamacare. A simple majority won't work. Since Obamacare was passed with 60 Senate votes, 60 will be needed to repeal the law. This means at least nine non-Republican senators, based on the post-election makeup, would have to side with the idea of repealing the ACA. That's a tough task, and it could take months or years to get the required number of votes needed for a repeal.

A more likely scenario would be a process known as reconciliation, in which the Senate could pass a partial repeal of Obamacare based on the components of the law that affect the federal budget. A reconciliation bill, similar to the one the Republicans sent to President Obama's desk (which was vetoed) in January, would require only a majority of 51 votes in the Senate.

If Republicans can get a reconciliation bill approved, it would repeal the tax hikes associated with Obamacare (Net Investment Income Tax, Medicare surtax, and SRP); end Medicaid expansion, which has been taken advantage of by 31 states; and stop the disbursement of Advanced Premium Tax Credits and cost-sharing reductions, which make premiums and going to the doctor more affordable for lower-income individuals and families.

What reconciliation wouldn't do is repeal the insurance regulations that have been mostly responsible for the higher premium prices that consumers are stuck paying.

Image source: Getty Images.

There are still holes in Trumpcare that need fixing

Aside from simply garnering enough support to repeal Obamacare, there are still some kinks to work out with Trump's healthcare proposal.

Donald Trump's seven-point plan to reform healthcare, also known as Trumpcare, looks something like this:

  1. Repeal and replace Obamacare
  2. Allow health insurance to be purchased across state lines
  3. Allow for full premium tax deductions
  4. Promote the use of Health Savings Accounts
  5. Require price transparency from health insurers
  6. Block grant Medicaid to the states
  7. Allow citizens to purchase prescription drugs in foreign markets

While this plan has a number of intriguing aspects, such as block-granting Medicaid to the states, which could ultimately reduce waste and ensure that more low-income individuals and families benefit from the program, it also has some flaws that could put a repeal and replace of Obamacare on hold.

For example, getting rid of Obamacare's Medicaid expansion and Advanced Premium Tax Credits could push around 21 million people out of the healthcare system. Though Trumpcare's full-premium tax deductions are designed to encourage consumers to enroll, the greatest rewards are offered to more well-to-do insurance purchasers who can afford more comprehensive coverage. Lower-income individuals and families who may only be able to afford minimal coverage presumably wouldn't receive anywhere near the same benefits they're getting under Obamacare now. Unless Trumpcare can address how it would keep millions of lower-income people from potentially losing their health insurance, it could face difficulties in gaining momentum in Congress.

While change is likely coming to Obamacare with Trump as president, the likelihood of that change being immediate appears slim at best.

Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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