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An American Health Care Act explainer: what it does, the few who will benefit, and the millions who will lose coverage

For some reason, House Republicans wrote a healthcare plan, where the guys above get cheaper coverage…

…while these people will pay much, much more.

We have to admit, we’ve been putting off writing about the American Health Care Act (AHCA) for as long as we could, because, well, we’ve been burned before. Every other Republican Obamacare replacement plan we’ve covered was quickly dropped as soon as we wrote about it, sometimes even before we could get the post up. Remember the Patient CARE Act or Scott Walker’s health plan? No? Consider yourself lucky.

For a while it looked like the AHCA was heading down the same path. House Republicans’ first attempt at passage failed miserably— conservatives in the Freedom Caucus refused to support the bill because it didn’t eliminate enough of Obamacare, while moderate Republicans were anxious about leaving 24 million more Americans without coverage. Afterward, the prospect of reconciling the two groups seemed so unlikely that pundits were calling it “Zombie Trumpcare.” To bring the Freedom Caucus on board, House leaders amended the bill to weaken Obamacare’s protections for people with pre-existing conditions (more on that in a bit), which spooked GOP moderates; moderates were then promised an extra $8 billion over 5 years to prop up high risk pool (more on that shortly too). Somehow this worked, and the AHCA passed the House by just one vote.

Still, by all accounts there was no way it could pass in the Senate– instead, Senate Republicans said they planned to start from scratch on their own bill. That seemed like a good idea since the original AHCA was opposed by pretty much everyone who’s not a Republican Congressperson. However, now we’re hearing rumors that the Senate bill might look a lot like the AHCA after all, and some “moderates” in the Senate have started expressing support for eliminating the ACA’s Medicaid expansion (and yes, more on that too in a sec), which had been a key point of contention.

So, since both House and Senate Republicans seem serious about this thing, we figured it’s about time to look at what’s in the AHCA and how it will affect the rest of us.  

Changes to premiums

Premium tax credits: One of the most important parts of the Affordable Care Act is a tax credit for people who purchase their own insurance. Under the ACA, this tax credit is on a sliding scale based on income. So if your income is under 400% of the poverty line ($48,240 for an individual, $98,400 for a family of four) then regardless of how much insurance actually costs, you can get a plan for less than 10% of your annual income.

The AHCA ditches this income-based credit and replaces it with a flat credit of $2,000 to $4,000 per person, based on their age; the total amount a family can receive is capped at $14,000. Individuals making over $75,000 a year, and families making over $150,000 would get less. This is good news if you’re a young person with a moderate to high income, but it’s terrible news for older adults. For example, let’s look at the average U.S. income for an individual, which is about $27,000, using the nonpartisan Kaiser Family Foundation’s subsidy calculator. If you’re 30 years old, your subsidy under the ACA would be about $1,851 per year on average, under the AHCA it’d be $2,500. But let’s say you’re 60 years old making the same income– your subsidy under the AHCA would be $4,000, while your subsidy under the ACA would be $7,199 per year.

Remember, those insurance costs we mention above are averages– under the ACA if you live in a place where insurance is more expensive (often rural areas), you get a bigger tax credit; under the AHCA it’s a flat credit no matter where you live, so if insurance is more expensive then that’s more that you have to pay.

Age-based changes: It gets worse for older people. The ACA says that insurers can’t charge older adults more than three times what they would charge younger adults for the same coverage. The AHCA would let insurers charge older adults five times more. So not only would that 60 year old be getting a smaller tax credit under the Republican plan, their premiums would be much, much higher.

Kaiser Family Foundation has an interactive map where you can see the difference in how much you would pay for insurance between the ACA and AHCA in your county, based on age and income. NPR used the map to give a broad overview of what the changes mean:

The map shows that [under the AHCA] a 27-year-old who makes $30,000 a year would see costs rise about $2,000 in Nebraska but fall by about the same amount in Washington state. A 60-year-old, however, would see costs rise almost everywhere, with increases of almost $20,000 a year in Nebraska.

Cost sharing reductions: The AHCA is also bad news if you have a low to moderate income and actually want to use your insurance. In addition to the tax credits to help make premiums affordable, the Affordable Care Act provides subsidies to help make out-of-pocket costs more affordable for people with incomes below 200% of the federal poverty line (so say your plan normally has a deductible of $2,500– the CSR subsidy could bring it down to $500 or less). The AHCA eliminates this subsidy altogether.

Eliminating the individual mandate

As we all know, the ACA says that you have to have insurance or pay a tax penalty. You might hate it but it serves an important function– without it, many people would only buy coverage when they get sick, making insurance incredibly expensive for the folks that need it. The AHCA eliminates this penalty, and replaces it with a continuous coverage requirement: insurers would be required to charge you 30% more for one year if you have a gap in coverage.

The problem with this continuous coverage requirement is that it’s easier to game the system if you’re young and healthy. In a typical year you’d use very little health coverage– waiting until you have serious problem and then paying 30% more for a year would cost much less than what you’d save by not buying coverage all those other years. This is part of the reason why the CBO says that the AHCA will cover fewer people: young, healthy people will opt out until they need it. With fewer healthy people in the risk pool, it’ll drive up the cost of insurance for sick people who really need coverage.

Letting states opt out of essential benefits and pre-existing condition protections

Republicans argue that their bill would bring the cost of coverage down because it eliminates Obamacare’s “unnecessary” regulations and mandates. Apparently one major way they plan to do this is by letting states apply for waivers to opt out of the ACA’s requirements that plans (1) cover what it calls “essential” benefits; and (2) opting out of the requirement that insurers can’t charge more for people with pre-existing conditions.

Essential benefits: The ACA says that insurance plans have to cover ten broad categories of essential benefits. Some are things that any health insurance plan would (hopefully) cover, like emergency services and hospitalizations; others are benefits that many plans on the individual market did not cover, like maternity care, mental health, habilitative services (for example, services that help kids with autism gain mental and physical skills) and addiction treatment. However, it left the specifics up to the states, who could choose a benchmark plan from among the popular employer-based plans in the state to base their coverage requirements off of. State insurance regulations could also require plans to cover services outside of the scope of the ACA’s essential benefits if they chose.

So states already have a lot of flexibility in determining coverage rules. What the AHCA does is allow states to eliminate those broad categories of coverage that most Americans believe should be covered. (For reasons I don’t understand, some conservatives are furious that all plans have to offer maternity coverage, but eliminating that benefit would only bring the costs down by 5%, or less than $20 of the average $393 per month unsubsidized premium. On the other hand, it would mean women who do want to have children would have to pay $1,000 per month for maternity riders on top of their regular plans.)

Pre-existing conditions: The AHCA’s waivers allowing states to let insurers charge more for people with pre-existing conditions might be even more terrible. It’s supposed to only affect people who don’t maintain continuous coverage, which is crappy enough– there are all sorts of reasons why people might not be able to maintain continuous coverage, especially if you’re low income and struggling with other bills. But as the CBO explained, these waivers could wipe out protections for everyone with pre-existing conditions in a state. Healthy people could simply let their coverage lapse, and then get cheaper coverage based on their health status (the flip side of letting insurers charge sick people more is that they’d also be able to charge healthy people less). The risk pool for plans that don’t charge more for pre-existing conditions would get sicker and sicker, and making those plans more and more expensive, that insurers would stop offering them altogether. People with pre-existing conditions in those states would be back where they were before the ACA: paying much more for coverage if… if they could get coverage at all.

Medicaid changes

The AHCA makes two enormous changes to Medicaid…

Rolling back the ACA’s Medicaid expansion: Before the Affordable Care Act,in order to receive Medicaid in most states you had to have a very low income and a qualifying condition (like a disability, pregnancy, etc.) The ACA expanded Medicaid to cover anyone making less than 138% of the poverty line (at least for those living in states that accepted the expansion). As NPR explains:

The Republican plan would gradually roll back that expansion starting in 2019 by cutting the federal reimbursement to states for anyone who leaves the Medicaid rolls. People often cycle in and out of the program as their income fluctuates, so the result would likely be an ever-dwindling number of people covered.

This is one of the biggest reasons why the AHCA will cover so many fewer people– about 10 million people enrolled in Medicaid under Obamacare’s expansion.

Converting Medicaid to a grant program: This change actually has nothing to do with the Affordable Care Act. For as long as it’s existed, Medicaid has been an entitlement program, meaning that the federal government pays a percentage of all the healthcare costs for anyone who qualifies. Under the AHCA, states would instead choose between receiving a set amount of money per enrollee or a lump sum of cash to cover all enrollees (aka a “block grant”).

In the past, when Republicans have proposed converting Medicaid to a grant program, it’s usually been accompanied by a massive cut to federal funding. The way they do this is by tying the growth rate of the Medicaid grant to something that grows more slowly than health costs (like inflation) so that every year states would get less and less money than they would if the program was kept as an entitlement.

The AHCA ties the growth of the grants to the increase of medical costs, which is better than inflation, but this could be hiding a big cut in funding. The Congressional Budget Office didn’t look at how much states stand to lose specifically as a result of converting Medicaid to a grant program. Instead it looked at the effect of all the bill’s Medicaid changes together– including the roll back of the ACA’s Medicaid expansion– and found that altogether the AHCA cuts federal Medicaid spending by a massive $834 billion over ten years. To make up for this shortfall states would have to either (1) raise taxes to make up the difference; (2) kick people off the program who are currently eligible; or (3) cut health services that are covered by the program. (A fourth option would be cutting payments to providers, but Medicaid reimbursement rates are already very low– further cuts could drive doctors and hospitals out of the program.)

High-risk pools and other “stability” measures

Republicans say that the AHCA makes up for all that other bad stuff by providing $138 billion in funding for a Patient and State Stability Fund. States could use this money in a bunch of ways. They could create high risk pools to provide coverage to people with pre-existing conditions; they could use the money to bring down deductibles; they could use it to help pay premiums for low income families; they could use it pay for mental health, drug addiction treatment, or maternity coverage. All of that sounds great right? And it might be… if there were enough money.

The AHCA cuts $1.1 trillion ($834 billion from Medicaid, $276 billion in reduced subsidies for private health insurance) that the Affordable Care Act was already spending on coverage for people with pre-existing conditions, lower deductibles, premium support for low income families, and mental health and drug addiction coverage. It then replaces it with this $138 billion Patient State and Stability Fund– it’s nowhere close to enough. That $8 billion that brought the so-called Republican moderates on board basically amounts to a rounding error.

Tax Changes

So what happens to the other $1 trillion in Obamacare spending that the AHCA eliminates?

About $276 billion pays for the elimination of the ACA’s individual mandate penalty its penalty on large employers (those with 50 or more employees) who don’t provide coverage. Another $119 billion goes to deficit reduction. (However, it should be noted that Obamacare also reduced the deficit– the way the AHCA reduces the deficit even more is by cutting benefits by more than it cuts taxes.)

But the vast majority of it ($664 billion) goes to offset tax cuts, mainly for the wealthy and corporations. The AHCA repeals all of the taxes that pay for the ACA, including taxes on incomes over $200,000 (or $250,000 for a married couple); a tax on health insurers and a limit on how much insurance companies can deduct for executive pay; and a tax on medical-device manufacturers.

Conclusion

Ok, we know that’s a lot, and we didn’t even get into the AHCA’s smaller changes, like new rules for HSA’s (which again disproportionately benefit people with higher incomes) and seven pages on how Medicaid should treat lottery winnings.

Our main takeaway is simply look at the money. It cuts $1.1 trillion in spending on benefits, mainly for people with lower incomes; it uses that to offset $1 trillion in tax cuts, mainly for those on the highest end of the income scale. All of the other complicated provisions are really just a shell game that obscures this basic fact.

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