Healthcare in American is set to change... again. After a lengthy battle over the Affordable Care Act (ACA) and its multi-year implementation, the Trump administration stands just weeks or months away from dismantling former President Barack Obama's legacy healthcare bill and instituting its own.
Obamacare had its ups and downs
In one key way, Obamacare, as the ACA is most commonly referred to, was a success. According to data from the Centers for Disease Control and Prevention, it wound up reducing the uninsured rate from 16% before its implementation to less than 9%, at one point.
In other respects, Obamacare left a lot to be desired. The law's strict regulations tied the hands of insurance companies, with many finding that it just wasn't profitable to list their plans on ACA marketplace exchanges. Three of the five largest national insurers -- UnitedHealth Group, Aetna, and Humana -- significantly reduced their 2017 plan offerings, with Humana announcing that it wouldn't even offer ACA plans in 2018.
It also failed to attract enough young adult enrollees. The Shared Responsibility Payment (the penalty associated with not buying health insurance) never came close to matching the total cost of purchasing a year's worth of health insurance, coercing quite a few younger, healthier adults to take the cheaper route and remain uninsured.
Trumpcare takes shape
Thus enters the American Health Care Act (AHCA), stage right. The AHCA, which has already been dubbed by pundits as "Trumpcare," looks to repeal and replace Obamacare as cleanly as possible. This could, of course, be challenging, given that Obamacare was passed with a supermajority of 60 votes in the Senate, and all that may be available to Republicans for the time being is a reconciliation bill, which would allow Republican lawmakers to remove only those components of Obamacare that directly affect the federal budget. Reconciliation can pass with a simple majority vote in the Senate.
Here are some of the most critical provisions of the American Health Care Act:
- It eliminates the subsidies and penalties associated with the ACA.
- It bases tax credits on a person's age as opposed to income level.
- It ends Medicaid expansion by 2020 and distributes future Medicaid payments to states on a per-capita basis.
- It allows insurers to add a 30% monthly surcharge to people who didn't have continuous health insurance coverage in the previous year.
- It lets insurers charge older adults up to 67% more in monthly premiums compared to younger adults than under the ACA.
- It boosts the annual contribution limit for health savings accounts.
- It maintains two crucial Obamacare provisions: allowing children to stay on their parents' health plan till age 26, and disallowing insurers the right to turn away people with pre-existing conditions.
- It eliminates the net investment income tax and Medicare surtax.
Based on the initial report from the Congressional Budget Office that 24 million people could lose coverage over the next decade, there's a clear worry over what Trumpcare might do to the healthcare industry as a whole.
However, there may be an even more pressing and urgent concern that could affect more than twice as many Americans.
Trumpcare expedites Medicare's insolvency
According to a new report from the nonpartisan Committee for a Responsible Federal Budget, or CRFB, the passage of the AHCA would further cripple the already struggling Medicare Hospital Insurance Trust, which covers the costs associated with Part A (in-patient hospitals stays and procedures, as well as long-term skilled nursing care) for the 57 million eligible Medicare enrollees.
Of specific note, the elimination of the Medicare surtax -- a 0.9% added payroll tax on earned income above $200,000 specifically paid in its entirety by the employee -- is expected to result in a cumulative deficit to Part A of $150 billion by 2026. As a result, the CRFB estimates that Medicare's Hospital Insurance Trust insolvency date (i.e., the point at which it'll have used up all of its spare cash) will be moved forward from 2025 to 2023. That's just six years from now.
It's critically important to note that the insolvency of Medicare Part A doesn't mean Medicare is going bankrupt. Instead, it would mean that Medicare Part A would become a budget-neutral program. In other words, the reimbursements paid to hospitals and physicians would be done based on the revenue the program brings in, and nothing more. The CRFB projects that this could result in a 14% reduction in reimbursements by 2024 to remain solvent.
So what exactly does this mean? Hospitals and physicians would still be getting paid by Medicare, and Medicare would continue its similar coverage (assuming no drastic changes to its structure), but there's a reasonable likelihood that some medical professionals may stop accepting Medicare or could considerably throttle back the number of Medicare-covered patients as a result.
The simple solution, according to the CRFB, which seeks sensible budget-balancing legislation, is to keep the Medicare surtax in place. Paying tax on earned income above $200,000 is expected to generate $117 billion over the next decade, which would bridge more than three-quarters of Medicare's expected deficit over the next 10 years.
It's a matter of perspective
For what it's worth, the CRFB's report differs a bit from the Medicare Board of Trustees' annual report from 2016. Of course, it's worth pointing out that the Medicare Board of Trustees hasn't factored in any impact of Trumpcare since it was released in mid-2016.
According to the trustees' report, Medicare's Hospital Insurance Trust is slated to exhaust its spare cash by 2028, which is three years later than the CRFB estimates before the presumed passage of Trumpcare. The trustees' report also lists a long-term actuarial deficit of 0.73%. In plainer terms, the trustees are suggesting a 0.73% hike to Medicare's portion of FICA taxes, from 2.9% to 3.63%.
Medicare taxes are usually split right down the middle between employers and employees (1.45% each), with the exception being income above $200,000, as noted, where the tax liability falls solely on the employee. The trustees are implying that a roughly 0.365% increase in Medicare payroll taxes per employer and employee would bridge the funding shortfall in the Hospital Insurance Trust over the next 75 years.
Though they may differ in their insolvency dates, both the CRFB's and Trustees' reports are clear in implying that Medicare is in trouble.
To be clear, there is no shortage of ways that Medicare's budget shortfall can be dealt with. But this latest report from the CRFB should hopefully help light a fire under lawmakers in Washington that their window of opportunity to fix Medicare without potentially adverse repercussions is going to start closing soon, so they'd better act fast.