It was practically a forgone conclusion once Donald Trump won the presidency and Republicans maintained both houses of Congress that the Affordable Care Act's (ACA) time was up.
The ACA, more commonly referred to as Obamacare since it's the legacy health law of former President Barack Obama, hit its primary goal of lowering the uninsured rate in America. According to the Centers for Disease Control and Prevention, the uninsured rate fell from 16% prior to the implementation of Obamacare to around 9%.
However, the ACA failed to control premium inflation as well as some consumers expected, and it wound up booting millions of Americans off their previous health plans, a result of insurance companies being unwilling to update their health plans to be ACA-compliant. Until recently, Obamacare regularly had a negative image among the public.
Image source: U.S. Department of Homeland Security, Flickr.
Trumpcare progresses in Congress
In early May, House Republicans passed, by the narrowest of margins, a new health bill that's designed to repeal and replace Obamacare. The bill is known as the American Health Care Act (AHCA) and has been nicknamed Trumpcare. The AHCA makes a number of major changes from Obamacare, including the repeal of Obamacare's individual and employer mandates and penalties, a switch from income-based subsidies to age-based tax credits, and an end to Medicaid expansion by the beginning of 2020.
But an initial version of Trumpcare, introduced in March, didn't fare as well. In fact, opposition from within the Republican Party kept the first version of the AHCA from even heading to vote, despite being scored by the Congressional Budget Office (CBO). A second version of the AHCA passed the House in May before the CBO weighed in on the revised edition. This version added another $8 billion to a proposed $100 billion fund to help cover medical expenses for high-risk patients (known as the Upton Amendment), and added the MacArthur Amendment, which allows states to exempt themselves from the minimum essential health benefits requirement.
The controversial plan has now moved forward to the Senate for further debate -- but not before receiving a second CBO score, necessitated by the addition of the Upton and MacArthur Amendments. The CBO's report included three shocking Trumpcare figures; two are terrifying, while one offers substantial hope.
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Why Trumpcare is a major worry for low-income Americans and seniors
Easily the scariest figure from the CBO's latest report is the estimate that 23 million people will lose insurance over the next decade under Trumpcare, including 14 million people who'll see their coverage disappear in 2018. The estimate of 23 million people losing insurance is 1 million fewer than the CBO's scoring of the first version of Trumpcare that failed to even go to vote in the House, but that's hardly any solace for low-income individuals and their families.
The big issue is the repeal of the Advanced Premium Tax Credit (APTC) and cost-sharing reductions (CSR). The APTC is what lowers premium costs for low- and middle-income individuals, while CSRs are what reduce copays, coinsurance, and deductibles when consumers with incomes between 100% and 250% of the federal poverty level head to the doctor. Simply put, the age-based tax credits proposed by Trumpcare aren't as bountiful as the income-based subsidies under Obamacare, meaning even if lower-income folks could afford their monthly premiums, they likely won't be able to afford the costs of heading to the doctor.
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A second terrifying figure is what Trumpcare could do to older Americans. Under Obamacare, low- and middle-income seniors between the ages of 50 and 64 (ages 65 and up qualify for Medicare) received a healthy subsidy. Under Trumpcare, low-income seniors could be spending more than half of their income solely on premium costs. An example provided by the CBO of a 64-year old with an annual income of $26,500 suggests that the net premium paid by this individual would be $16,000 in 2026, compared to just $1,700 under Obamacare.
Why such a variance? In addition to income-based subsidies disappearing and being replaced by age-based tax credits (which are lower than ACA subsidies for those aged 50 and up), seniors can also be charged significantly more under Trumpcare. The AHCA would allow insurers to charge seniors up to five times as much in monthly premiums as young adults, which is 67% higher than the current threshold under Obamacare. Considering the poor savings habits of most Americans, the last thing we need as a nation is for seniors to be shelling out their retirement savings to pay for health expenses right before they retire.
This is by far the biggest promise of Trumpcare
On the other hand, the CBO's scoring of Trumpcare 2.0 offered a third figure that was actually quite encouraging.
According to the CBO, Trumpcare is expected to reduce premiums over the next decade by 10% relative to Obamacare. It's worth noting that the initial reaction is estimated to be a 20% increase in premiums in 2018, relative to the trajectory of Obamacare, and a 5% hike over Obamacare premiums in 2019. However, over the long-term (10 years) premium inflation is expected to track lower with Trumpcare than under Obamacare.
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Why the big difference? Initially, the loss of 14 million previously subsidized individuals will act as a shock that'll coerce insurers to raise their premiums. But over the long run, insurers are going to have more freedom in how they price their health plans, which should help them be more profitable and ultimately lower premium inflation. Insurers should be able to push more costs to the consumer via deductibles, charge older adults more than under Obamacare, and have the ability to charge those with pre-existing conditions higher premiums (which would never happen under Obamacare).
While those points are likely striking a negative chord with a lot of consumers, they might make Trumpcare more sustainable for the insurance companies. If you recall, UnitedHealth Group (UNH -1.03%), the largest national health insurer, as well as Humana (HUM 0.82%) and Aetna (AET), significantly reduced their coverage in 2017 on account of ongoing losses sustained on the ACA's individual exchanges. UnitedHealth slashed its coverage from 34 states this year to just three, while Humana and Aetna reduced their county-based coverage by nearly 90% and almost 70%, respectively. Having more freedom to price their plans could coerce these giants back into the individual marketplace.
Even more importantly, lower premiums could coerce young adults to enroll, which is the primary reason why most insurers have found Obamacare unsustainable, and why premiums have risen faster than most consumers expected. Since young adults are usually healthier, their premiums are necessary to help offset the costs of treating older, sicker patients. Under Trumpcare, the age-based tax credits will, in many cases, help younger, healthier adults more than under Obamacare.
A debate that'll be raging for months
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What no one knows at this point is how Trumpcare will fare if it's approved in its current form. Chances are very good that the AHCA will undergo some pretty significant changes in the Senate, and that the debate over Trumpcare could drag on for weeks or months.
There are apparent and clear negatives with Trumpcare for select groups of Americans, while others could view the AHCA as a breath of fresh air. Only time will tell if this bill has enough votes to become a law, and if so, only then can we decipher what impact it'll have on the U.S. economy, the healthcare industry, and the average American family.
