The winds of change are blowing, and within the next couple of weeks or months, we could be ushering in a new healthcare plan: the American Health Care Act (AHCA), also known as Trumpcare.
It was expected that the Affordable Care Act's (ACA) days were numbered when Donald Trump won the presidency and Republicans retained their majority in both houses of Congress. What wasn't expected was how long it would take House Republicans to come up with a bill they could pass.
After introducing the AHCA to the American public in March, the original version of the bill was never put to a vote because Republicans weren't able to muster up enough votes for passage. However, that all changed last week when the House, by a very narrow margin, passed Trumpcare onto the Senate, where it'll likely spend the next couples of weeks or months being discussed and modified. It's looking a bit more likely every day that the curtain is closing on Obamacare, which is the more common name for the ACA.
Obamacare has been a mixed bag
In many ways, Obamacare delivered on its most important target: It lowered the uninsured rate by making it easier for disadvantaged groups to have access to medical care. Data from the Centers for Disease Control and Prevention found that the uninsured rate sunk from 16% in the quarter preceding Obamacare's implementation to around 9% over the past couple of quarters. Mandates requiring insurers to accept persons regardless of whether they have pre-existing conditions, generous income-based subsidies for those earning less than 400% of the federal poverty level, and the expansion of Medicaid for persons and families earning up to 138% of the federal poverty level in select states made health insurance a new reality for more than 20 million Americans.
Of course, Obamacare has not been perfect.
For instance, the average benchmark premium (the second-lowest-cost silver plan) across the 39 states covered by the federally run HealthCare.gov rose by a staggering 25% in 2017. This was a result of three national insurers significantly reducing their coverage this year, and three-quarters of the ACA's approved healthcare cooperatives going belly up from steep losses. In other words, Obamacare may not have been affordable for some middle-class consumers and families exposed to high premium inflation, and it certainly wasn't making ends meet for insurers.
Obamacare has also been subpar with respect to attracting healthier young adults, who are vital to offsetting the high costs of sicker patients. The blame can probably be placed on the Shared Responsibility Payment (SRP), which is the "penalty" you paid if you didn't buy health insurance. The estimated household cost of the SRP in 2016, according to the Kaiser Family Foundation, was $969. Comparatively, the average bronze-tier annual premiums added up to about $3,700 in 2017. That's not even in the same ballpark, and it's a big reason why Obamacare struggled to attract young adults.
Enter Trumpcare Version 2.0
The result of Obamacare's shortcomings is the American Health Care Act, version 2.0. Here's a brief rundown of the key provisions of Trumpcare:
- The individual and employer mandates would be repealed, as would the SRP.
- Income-based subsidies would be replaced with an age-based tax credit.
- Medicaid expansion would end by Jan. 1, 2020, and Medicaid disbursements to states would be done on a per-capita basis.
- Insurers would have the ability to add a 30% surcharge to consumers' premiums if they didn't have continuous health coverage in the previous year.
- Older adults could get charged up to 67% more relative to younger adults compared to the ACA.
- A $108 billion risk-pool fund is to be created to help mitigate the costs of sicker patients.
- The 10 essential health benefits clause stays on the book, but the MacArthur Amendment gives states the option of waiving this mandate.
- Health savings accounts will see their annual contribution limits almost double.
- Children can remain on their parents' health plans until age 26, the same as under Obamacare.
- The net investment income tax and Medicare surtax will disappear.
As you can see, the nuts and bolts of Trumpcare are quite a bit different from Obamacare. The initial scoring report from the Congressional Budget Office of the first version of the AHCA (the aforementioned bill that didn't have enough votes to pass a House vote in March) suggested that it would lower premiums 10% over the long run, and reduce the federal deficit by $337 billion over the next decade. These are impressive figures, though they're going to be altered a bit by the addition of the Upton Amendment, which added $8 billion to the apportioned $100 billion for a high-risk patient pool, and the MacArthur Amendment for state waivers.
There's also added optimism that lower premiums and more insurer flexibility will encourage more insurers to return to the individual market, as well as coerce younger adults to enroll.
However, there's another side to Trumpcare, and it's one that could prove devastating to the healthcare landscape. Despite its promise, here are three reasons Trumpcare could wind up falling flat on its face and end in disaster.
1. It'll push millions of government-sponsored low-income individuals and families out of the system
Arguably one of the biggest issues with Trumpcare is that it's not going to do much of anything for lower-income individuals and families who are currently covered by the Advanced Premium Tax Credit (APTC), which lowers premium costs, or cost-sharing reductions (CSR), which lower copays, coinsurance, and deductibles associated with a medical visit.
Obamacare's APTC (up to 400% of the federal poverty level) and CSR (up to 250% of the federal poverty level) subsidies ensure that lower-income folks have the means to buy health insurance and go to the doctor if they need to. This may not be the case under Trumpcare.
The age-based subsidies that range between $2,000 for 20-year-olds on up to $4,000 for 60-year-olds may represent a hefty reduction compared to the subsidies under Obamacare for most lower-income folks. Worse yet, even if they can afford to pay their monthly premium, the potential for higher deductibles and copays could mean that going to the doctor is unaffordable. And what's the use of paying health insurance premiums if you can't use that insurance when you need it?
Pushing what could be millions of lower-income folks back to the sidelines also means some intermediate-term pain for health insurance companies that focused on government-sponsored patients, like Anthem (NYSE:ANTM). Medicaid expansion and Obamacare's health subsidies created a pool of patients that were lower margin than those with private insurance for insurers. But these government-sponsored members came with a guaranteed government payment, which is still highly lucrative to insurers like Anthem. Take away that juicy guaranteed payment, and insurers like Anthem who focused on this guaranteed-payment strategy could feel a sting.
2. It offers few financial assurances to those with pre-existing conditions
One snippet of good news embedded in Trumpcare is that certain Title 1 regulations from the ACA will stick around. This includes the mandate that insurers can't turn away consumers because of pre-existing conditions. But beyond this clause sticking around, there are few financial assurances for those who are already sick or defined as having pre-existing conditions under the AHCA.
The bill currently in the Senate allows insurance companies to revert back to some of the plan-pricing tactics they used prior to Obamacare's implementation. Under Obamacare, there are just a small handful of factors that influence plan pricing. This includes age, whether you use tobacco, location, whether it's an individual or family plan, and what tier of plan you buy. Under Trumpcare, insurers could look at a patient's medical history and charge two people of the same age and location far different premium prices because one has a pre-existing condition and the other does not.
Perhaps an even bigger worry for persons with pre-existing conditions is what might happen if any states apply for the aforementioned waiver from the minimum essential health benefits mandate (the MacArthur Amendment). This waiver would allow states to shape the definition of an essential health benefit, which probably means lower insurance premiums. Unfortunately, it could mean fewer essential benefits that lead to more out-of-pocket spending from the sick. If they don't have the ability to cope with these higher costs, Trumpcare and insurers are going to be in big trouble.
3. Seniors could get walloped right before retirement
Another major concern with Trumpcare is what it might do to seniors aged 50 and up.
Under Obamacare, lower-income seniors received a substantial APTC that helped lower their premium costs. An example provided by the Congressional Budget Office of a 64-year-old earning $26,500 a year found that under the ACA this individual paid about $1,700 in premiums annually. Under the fixed age-based tax credits for Trumpcare, which total $4,000 for a 64-year-old, this individual would be responsible for $14,600 in annual premiums. Note that that's more than half of this hypothetical senior's annual income, and it doesn't even factor in the costs of heading to the doctor.
And it gets worse. Under Obamacare, seniors could only be charged a maximum of three times as much as young adults in terms of monthly premium. Trumpcare allows this figure to expand by 67% to a ratio of five-to-one. So not only are low- and middle-income seniors aged 50 and up liable to see their tax credits come in well below the subsidies they received from Obamacare, but insurers are going to have the freedom to charge them higher premiums.
Many of America's seniors are already in trouble due to their poor saving habits and what could be a cut in Social Security benefits of up to 21% within the next two decades. Tack on the potential of significantly higher out-of-pocket costs in the years leading up to retirement, and we have a potential exacerbation of America's retirement problem.
Despite the positives that Trumpcare brings to the table, it's a bill that could very well end in disaster.