I'll be the first to admit, healthcare reform isn't easy. It's something that even President Trump has come to terms with. Despite listing the repeal and replacement of Obamacare (officially the Affordable Care Act) as perhaps his top goal once in the Oval Office, Trump and the Republican-led Congress have had what you might call a "failure to launch" moment.
In March, Republicans on Capitol Hill introduced the American Health Care Act (AHCA), aptly dubbed Trumpcare, as their replacement plan for Obamacare. But the initial version of the bill turned out to be so unpopular in Washington that Republicans in the House never even put the bill to vote. A second version, which added a few amendments, wound up passing by the narrowest of margins and now moves on to the Senate for debate. BUu with 51 votes needed in the Senate to pass the AHCA via the reconciliation process, and numerous GOP Senators expressing concerns with Trumpcare, the bill appears dead on arrival until further discussion.
Trump is right. Obamacare is in trouble. But he's wrong about the reason why.
In part, President Trump is accurate in his prediction that Obamacare "is exploding." Benchmark premiums for the 39 states represented by HealthCare.Gov's marketplace exchange rose by an average of 25% in 2017. However, Trump's prediction of Obamacare's demise based on rising premiums prices appears to be diagnosing a symptom of Obamacare's issues and not its primary cause.
If we were to trace Obamacare's shortcomings back to a single source, a lack of sufficient young, healthy adult enrollment could likely be to blame for nearly all of its issues.
Remember, Obamacare changed the dynamic of the health-insurance landscape when it became the health law of the land. Insurers were required to accept all individuals, regardless of whether they had pre-existing conditions, which meant health-benefit providers were suddenly dealing with an influx of sicker patients who'd previously been shut out of the system. To compensate for these higher costs, insurers were counting on the enrollment of millions of healthier young adults who visit the doctor less often. Monthly premiums from young adults were designed to offset the higher costs of treating sicker patients.
All roads lead back to the Shared Responsibility Payment
But as we know, young-adult enrollment was nowhere near sufficient to meet the rising expenses that insurers had to pay. Why, you ask? Look no further than the Shared Responsibility Payment, or SRP.
In plainer terms, the SRP is the penalty associated with not purchasing health insurance for individuals. In 2014, it was the higher of $95 or 1% of modified adjusted gross income (MAGI), but by 2016 it had increased to the greater of $695 or 2.5% of MAGI. According to estimates from the Kaiser Family Foundation, the average household that didn't purchase health insurance was expected to owe $969 in SRPs for 2016.
Here's the problem: The average cost of the cheapest insurance plan (the bronze tier) across the country, per HealthPocket, was about $3,700 in 2017. Because the penalty is so much lower than the cost of purchasing even the cheapest health insurance, quite a few healthier young adults chose to remain uninsured. And even if they were charged the SRP, some young adults were able to skirt paying the penalty, since the IRS's only recourse to collect was to take it from a federal tax refund, assuming the individual didn't pay. If no refund was owed, the IRS had little to no means to collect, since garnishing wages and property wasn't allowed.
A lack of young-adult enrollment has made Obamacare unsustainable for a number of insurers, which is why UnitedHealth Group (NYSE:UNH) reduced its coverage in 31 states this year, Aetna (NYSE:AET) slashed its county-based coverage by nearly 70%, and Humana (NYSE:HUM) cut its county-based coverage by almost 90%. In fact, Humana announced recently that it plans to pull out of the ACA altogether in 2018, assuming Obamacare is still the health law of the land by next year.
Trumpcare could fix this major issue
Trumpcare is designed to tackle Obamacare's greatest shortcoming by making health insurance significantly more attractive to young, healthy adults. By abandoning income-based subsidies in favor of age-based tax credits, most young adults are poised to receive a larger credit under Trumpcare than they received under Obamacare. This alone could be enough to encourage young adults to enroll.
But there's more. Insurers may have more freedom when pricing their health plans under Trumpcare, meaning they could lean more on deductibles rather than premiums to drive revenue. In addition, narrower networks and plans with fewer essential benefits may be possible, which would work to lower monthly premiums. In other words, younger adults who don't head to the doctor often would be rewarded with considerably more affordable monthly premiums.
However, there's a pretty big issue with Trumpcare: It trades one problem for another.
Trumpcare: trading one big problem for another
The great healthcare dilemma is that we need to find a way to get healthy adults to enroll to counteract the higher costs of treating sick patients, while also providing a means for lower-income folks to get affordable health insurance. Trumpcare would presumably resolve Obamacare's biggest issue of young-adult under-enrollment, but it would be replaced by a 23 million-person spike in uninsured people, most of which are low-income.
Under Obamacare, low-income folks are buoyed by the Advanced Premium Tax Credit (APTC) and possibly cost-sharing reductions (CSR). The APTC is what helps lower monthly premium costs for those making between 100% and 400% of the federal poverty level, while CSRs lower copays, deductibles, and coinsurance tied to going to the doctor for those earning between 100% and 250% of the federal poverty level.
Trumpcare gets rid of these subsidies and replaces them with age-based tax credits. This means the potential for higher monthly premiums and little to no protections from doctor-related visit costs.
An example from the Congressional Budget Office showed that a lower-income senior could be paying nearly 10 times as much under Trumpcare by 2026 than under Obamacare. Though Trumpcare would make things more sustainable for insurers, it would also put the opportunity to get affordable health coverage out of reach for millions of Americans.
As has seemingly been the case for more than a decade, Congress appears to once again be shaping the healthcare landscape by shutting the door on one major problem and simultaneously opening the door for another.