The first of two major hurdles has been cleared. A little more than a week ago, House Republicans, who have a clear majority, narrowly passed the American Health Care Act (AHCA), which is designed to repeal and replace the Affordable Care Act (ACA). The bill now moves on to the Senate, where further changes and discussion are expected.
Obamacare was polarizing from the beginning
The ACA, which is more commonly referred to as Obamacare, has been a polarizing health law from the get-go.
On one hand, it met one of its primary goals of lowering the uninsured rate in America. According to data from the Centers for Disease Control and Prevention, the uninsured rate fell from about 16% in the quarter preceding Obamacare's implementation to around 9%, which is where it's been hovering for a few quarters now. This was accomplished through the implementation of the individual mandate, which required individuals to purchase health insurance or face a penalty, known as the Shared Responsibility Payment.
On the other hand, Obamacare left a bad taste in some consumers' mouths, as well as with insurers. Consumers never quite adapted to the idea of being "forced" to buy health insurance, and millions were displeased when they were booted off their pre-ACA plan when their insurance companies decided not to update those plans to be ACA-compliant. Insurers, for their part, disliked the constraints placed on them by Obamacare, which included accepting all consumers, even those with pre-existing conditions. In many ways, Obamacare made it very difficult for insurers to be sustainably profitable.
Here's what Trumpcare brings to the table
Thus here we stand today on the verge of potentially repealing Obamacare in the next few weeks or months and replacing it with the AHCA, which is now being referred to as Trumpcare.
Trumpcare is a marked break from Obamacare's ideology. Here's a very brief rundown of what the current bill would do:
- Obamacare's individual and employer mandates would be eliminated, along with the Shared Responsibility Payment.
- Insurers would be allowed to tack a 30% surcharge on premiums for consumers who didn't have continuous coverage in the prior year.
- Income-based subsidies would be replaced with age-based tax credits.
- Medicaid expansion will be ended at the beginning of 2020, and Medicaid funds will be dispersed to states on a per-capita basis.
- Older adults could be charged up to 67% more than they are now relative to younger adults under Obamacare.
- A $108 billion risk-pool will be established to help states deal with sicker patients and those with pre-existing conditions.
- The minimum essential health benefits clause will stay, but states will have an opportunity to apply for a waiver of these 10 essential benefits.
- Children can remain on their parents' plans up until age 26, just like the ACA.
- Health savings account annual contributions will nearly double.
- The net investment income tax and Medicare surtax will be eliminated.
There are a number of clear concerns with Trumpcare. Primary among those is that persons with pre-existing conditions are getting the short end of the stick once again. If you recall, prior to the implementation of Obamacare, insurance companies could turn away consumers with pre-existing conditions. Under Trumpcare, insurers couldn't do that, but premiums for these folks could be a lot higher than they are now. The same goes with premiums for seniors aged 50 and up.
But in other ways Trumpcare could be a major improvement over Obamacare. Here are three ways Trumpcare will succeed where Obamacare failed.
1. Trumpcare could prove more successful in getting young adults to enroll
One of Obamacare's biggest failures was its inability to coerce younger adults to enroll. Younger adults are often healthier and don't visit the doctor as much, meaning their premium payments are vital for insurance companies to help cover the cost of treating the previously ostracized sicker patients who were suddenly allowed back in the system.
The ACA's failure here can be traced to both the Internal Revenue Services' (IRS) provisions to go after the Shared Responsibility Payment (SRP) and the structure of the SRP itself.
First, the IRS announced that it wouldn't be able to garnish wages or seize property if a consumer owed the SRP. The most it could do was withhold the SRP from a taxpayer's federal refund or send a notice requesting payment. All this did was encourage some taxpayers to avoid having a refund owed by year's end in order to avoid having to pay the SRP.
The other issue is the SRP itself didn't accurately reflect the annual cost of health insurance. In 2016, the Kaiser Family Foundation estimated that the average household SRP would be $969. Comparatively, the average unsubsidized bronze-tier plan, the cheapest a consumer could buy, was around $3,700 for the year in 2017. That gap meant it was far cheaper for young adults to pay the penalty than to buy insurance they may not even use.
Trumpcare should be more attractive to young adults for two key reasons. First, ditching income-based credit for tax-based credits shoud give the average 20- and 30-year-old a bigger annual subsidy. That could certainly be alluring for younger adults looking to get coverage, especially with no annual SRP.
The second factor, which we'll get to in more detail below, is that insurers may have more flexibility with how they package their plans. In other words, we could see more emphasis on pushing out-of-pocket deductibles to consumers, which may result in lower premiums. For consumers who don't head to the doctor much (i.e., young adults), that means lower monthly premium costs.
2. Trumpcare could be far more successful in lowering premiums over the long-term
Another source of debate surrounding Obamacare is how effective the current health law has been with regard to controlling premium price inflation.
According to a study published last year by Loren Adler and Paul Ginsburg of the Brookings Institution in Health Affairs, Obamacare put healthcare premium inflation on a lower trajectory than if the previous healthcare system before the ACA were still in place.
Then again, the average benchmark premium (the second-lowest cost silver plan in each state) in the 39 states covered by HealthCare.gov rose by a mind-numbing 25% in 2017 from the previous year. This was attributable to both major insurers dropping out and healthcare cooperatives shuttering their doors, as well as existing insurers needing significantly higher premiums to cover rising expenses.
Based on initial estimates from the Congressional Budget Office (CBO) for the first version of Trumpcare (which didn't contain the Upton Amendment, which added $8 billion to the high-risk patient pool, or the MacArthur Amendment, which allowed states the ability to file for essential health benefit waivers), it's expected to reduce premiums by 10% over the long run, which was defined as the next 10 years. The CBO has yet to score version two of Trumpcare.
Why is Trumpcare expected to succeed in keeping premium inflation under control when the open competition and price transparency from Obamacare's exchanges were unable to do so?
First, Trumpcare should be able to attract those highly sought after young adults better than the ACA. This provides a better offset for sicker patients, meaning less pressure to increase premiums.
The state waivers, which we'll get into more detail about below, may also reduce the minimum essential requirements for a health plan on a state-by-state basis. As you might imagine, fewer essential benefits being required on each AHCA plan would lower the overall base premium price for a plan. In essence, less responsibility for the insurer could mean lower initial costs via premiums for you.
3. Trumpcare could provide enough insurer flexibility to be sustainable over the long run
Lastly, Obamacare placed a number of restrictions on the insurance industry. Some of these were viewed positively, such as requiring insurers to accept all consumers regardless of whether or not they had pre-existing conditions.
However, other provisions made operating at a profit almost impossible. The risk corridor, which was a program designed to feed money-losing insurers that priced their premiums too low with the excess profits of ACA insurers, was chronically underfunded, and three out of five national insurers significantly reduced their ACA coverage in 2017 because they were generating staggering losses. With less in the way of competition at the state level, the door was open for insurers to increase their premium prices under Obamacare.
Trumpcare appears set to provide insurers with a lot more flexibility -- and while this flexibility is a major source of consternation among the public and opponents of the AHCA, it's also what makes Trumpcare more sustainable for the insurance industry over the long run.
For instance, if states do implement the MacArthur Amendment waiver allowing them to set up their own set of essential health benefits, insurers would potentially be free to set up plans that have fewer essential benefits and possibly narrower networks. These are all cost-lowering mechanisms for the insurers since they can avoid costlier providers or more cumbersome plans. They'll also presumably have more leeway to pass along costs via deductibles.
It's also possible we'll see the $108 billion being set aside between 2018 and 2026 for high-risk patients work more successfully in keeping premium costs down for those with pre-existing conditions than the risk corridor, which paid out a measly $362 million to insurers, or about an eighth of what was requested.
Trumpcare is far from a perfect, but it has the ability in some respects to be better than Obamacare.
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