Senate Republicans have presented yet another plan to repeal and replace the Affordable Care Act, widely known as Obamacare, and this time around, their proposal shifts the responsibility of providing health insurance to the states. A state-based health insurance plan would provide flexibility, but this proposal might not pass, because it includes waivers of essential health provisions that could cause premiums to spike for older Americans and people with pre-existing conditions. 

Health insurance market today 

More than 10 million Americans purchase health insurance through the Obamacare marketplaces, and another 17 million Americans have become insured by Medicaid because of Obamacare provisions that eased enrollment qualifications in over 30 states.

The letters "ACA" crossed out by a fountain pen.

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The increase in insurance enrollment has boosted demand for healthcare services, medicine, and medical devices and equipment. However, individual and employer mandates create a burden for individuals and companies, and many health insurers have struggled to appropriately align Obamacare monthly premiums with rising healthcare costs, and have abandoned markets as a result.

Seeking change

Proponents believe Obamacare is a perfect blend of free-market capitalism and social consciousness, while opponents believe it's a federal boondoggle.

The big divide between the two camps has so far made repealing and replacing Obamacare impossible. Despite winning control of Congress last November, Republicans have had a number of proposals that have failed to win support among right-wing moderates and conservatives -- the factions viewed the replacement plans as too Draconian or too mild, respectively.

In the latest Republican proposal, Senators Lindsey Graham and Bill Cassidy hope to overcome objections by dismantling Obamacare and providing block grants to states so that they can set up their own insurance programs. While the Graham-Cassidy plan would satisfy some Obamacare critics, it may struggle to win over moderates representing states that expanded Medicaid or that have a lot of their residents enrolled in insurance sold through Obamacare.

Two arrows pointing in opposite directions. One arrow is labeled "old way," the other one "new way."

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How it would work

Currently, Obamacare subsidizes the monthly cost of insurance premiums for people earning up to 400% of the federal poverty level, or $98,400 for a family of four in 2017. It also helps low-income families pay for out-of-pocket costs, such as co-pays, and eases Medicaid enrollment criteria in states that adopted Obamacare's Medicaid expansion.

If the proposed block-grant approach passes Congress, a complex formula would be used to apportion money to each individual state. This money could then be used by states to establish their own insurance programs. States can use block-grant funds to keep Medicaid expansion and Obamacare subsidies in place, but there's no federal requirement to do so.

Overall, the Graham-Cassidy block-grant solution:

  • Repeals Medicaid expansion, but provides block-grant funding, until 2027, which states can use as they wish.
  • Repeals Obamacare's out-of-pocket subsidies in 2020; however, states can use block grants (see above) to help lower costs for those who are receiving them.
  • Repeals tax credits that reduce monthly insurance premiums for people earning up to 400% of the federal poverty level; however, states can use block-grant money to create their own subsidy programs.
  • Eliminates the medical device tax, but other Obamacare taxes remain in place.
  • Allows states to obtain waivers to Obamacare rules requiring health insurance to cover "essential health benefits" (such as outpatient services and mental health care).
  • Allows insurers to cap lifetime spending per patient.
  • Gives states with waivers the ability to allow insurers to price plans based on a person's pre-existing conditions.
  • Allows states with waivers to let insurers charge the elderly premiums that are greater than three times the amount charged to younger Americans.
  • Eliminates the individual mandate to buy health insurance and the rule requiring businesses with a 50 or more full-time employees to provide health insurance.
  • Increases how much money people can contribute to health savings accounts (HSAs) and allows HSAs to be used to pay insurance premiums.
  • Allows children to remain on a parent's insurance plan until age 26.

What's next

Republicans would like to get a vote on changing the health law done before the end of September because at that point a legislative process allowing Senate to pass legislation with 51 votes (instead of 60) will expire. The accelerated timeline could mean a Senate vote occurs before the Congressional Budget Office weighs in with an evaluation of what impact this legislation could have on insurance enrollment and federal spending over time.

Despite Republicans' interest in speeding along a vote, the Graham-Cassidy plan may not be able to secure enough support to pass the Senate. Moderate Republicans have so far objected to funding Medicaid with block grants, and the AARP has remained a staunch opponent of reform that could cause seniors to pay more for their health insurance than they do now. Since the plan includes the option for waivers that could negatively impact patients with pre-existing conditions and allows age-based premiums, opposition to it could be stiff. 

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