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Senate Republicans finally released their secret health bill– here’s what’s in it

Senate Republicans just released their healthcare bill, and it actually looks a lot like the House version: big cuts to Medicaid, big deductibles, big premium increases for older Americans, and big tax cuts for the wealthy. However, there are some important differences in how it does those things, so let’s get right to it.  

Higher premiums for older Americans, higher deductibles for everyone

Premium tax credits: One of the most important parts of the Affordable Care Act is a tax credit that caps premiums for low and middle-income people. Under the ACA, this tax credit is on a sliding scale based on income. So if your income is under 400% of the federal poverty line (FPL) then regardless of how much insurance actually costs, you can get a plan for less than 10% of your income.

This graph shows the maximum percentage of your income that you’d pay for a plan, at different income levels (in dollars, 100% of the poverty line is $12,060 for an individual, $24,600 for a family of four; 400% is $48,240 for an individual, $98,400 for a family of four):

The House bill ditches this income-based credit and replaces it with a flat credit of $2,000 to $4,000 per person, based on their age. As we pointed out a few weeks ago, this is good news if you’re a young person with a moderate to high income, but it’s terrible news for older adults. The average 60-year-old who qualifies for a subsidy would see their premiums go up by $3,200 per year, just from that change alone. And that’s just on average– in rural areas, where insurance is often more expensive, their premiums would rise even more.

In the Senate bill, tax credits are based on both age and income:

It’s a little harder to read, but if you look closely, you can see how it jacks up premiums for older people. For example, suppose your income is at 250% of the poverty line (that’d be about $30,000 for an individual): under the Senate bill, if you’re 29-year-old making $30k, you’d pay just 4.3% of your income (about $1,300 per year); but if you’re 60, you’d pay 10% ($3,000 per year).

We should point out though– and this is crucial–  that the caps in the Senate bill are based on a very different plan than the ones in the ACA. It’s also stupidly complicated, but we’ll give it our best shot. Under the ACA, the caps were based on a plan in your area with 70% actuarial value (AV), while under the Senate bill they’re based on a plan with 58% AV. We have a whole post explaining actuarial value if you’re interested, but all you really have to know is that plans with lower actuarial values have lower premiums, but higher out-of-pocket costs.

So, using the example above: under the Senate bill, the 29-year-old would pay $1,300 for a plan that’s slightly crappier than the ACA’s bronze plans (bronze plans have an AV of 60%)– that’s about $400 less than what they’d pay for a bronze plan under the ACA on average. (By the way, the average bronze plan deductible is about $6,100). But the 60-year old would now be paying $3,000 for a plan that would have cost them less than $1,300 under the ACA– their premiums more than double under the Senate bill. And it’s like that at pretty much all income levels.

Keep in mind too that older people are more likely to need to use their coverage, so paying more for a plan with a much higher deductible will hit them much harder.

Oh, and it gets worse. The Senate bill also lowers the income range that’s eligible for reduced premiums. Under the ACA, anyone making less than 400% of FPL would have their premiums capped; under the Senate bill it’s just 350%. This is important, because one of the biggest problems with the ACA is that there’s an enormous “subsidy cliff” if your income is just over the line, especially for older people, since their unsubsidized premiums are higher: for example, a 60-year-old making $47,500 could find a silver level plan for about $4,500 a year. But if that same 60-year old made $47,600? The price of that same plan would more than double to $9,200. The Senate bill lowers the income level, exposing more people to the cliff– in other words, more people will be paying much, much more for their coverage.

Age-based changes: Here’s another provision that sucks 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. In the Senate version, like the House version, older people can be charged five times as much. Now in the Senate version, if you’re an older person who qualifies for subsidies, you’re protected somewhat– the tax credits we describe above cap your premiums, regardless of how much the insurance actually costs. So you can find a plan (although a much crappier plan than under the ACA) for a certain percentage of your income (although a much higher percentage than under the ACA). But if you don’t qualify for subsidies, this change makes that subsidy cliff we describe above much, much worse, since your premiums will be a lot more expensive.

Cost sharing reductions: The ACA has a provision called cost-sharing reduction that lowers out-of-pocket costs for people with incomes below 250% 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 Senate bill, like the House version, eliminates this help altogether.

Eliminates 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 House version 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. It’s not as effective as the individual mandate, because 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 said that the House bill 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. Still it offers some incentive for healthier people to buy coverage.

The Senate bill has neither an individual mandate, nor a continuous coverage requirement. In other words, there’s almost no incentive not to wait until you get sick to buy coverage. Honestly, it’s hard to see how the insurance market doesn’t collapse without one of these mechanisms– we’ll have to wait for the CBO score to see what they say.

Technically keeps pre-existing condition protections, but with an enormous loophole

Pre-existing conditions: The House bill would let states allow insurers charge more for people with pre-existing conditions. It was 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.

The Senate bill does not allow states to apply for waivers to opt out of pre-existing condition protections. It does however, let states opt out of another ACA requirement, which would have almost the same effect…

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. What this means is that states could simply allow insurers to deny treatment for certain conditions. So you could buy a plan if you had a pre-existing condition– it just might not actually cover your illness.

Big Medicaid cuts

The Senate bill keeps the House version’s two massive changes to Medicaid, and appears to make them worse in the long run.

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):

Typical Medicaid eligibility before the ACA

Medicaid eligibility after the ACA (in states that chose to expand)

As NPR explained, “[The House 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.”

The Senate bill still rolls back the expansion, but does it more slowly than the House version– the cuts don’t begin until 2021. The mechanism is a little different too. Under the ACA, the federal government pays 90% of the cost of everyone who wouldn’t have been eligible for Medicaid before the ACA. The Senate version starts gradually winds down the federal share, until the federal government is only paying 75% of costs.

There are a couple problems with that. One, a bunch of states that passed legislation opting into the Medicaid expansion had clauses that immediately end the state’s participation if the federal share drops even a penny. Meanwhile other states would have to figure out how to make up that lost federal share, while at the same time dealing with the bill’s other cuts to Medicaid.

Republicans argue that even if state’s opt out of the expansion, it won’t be a big deal, since they extend premium tax credits to people with incomes below the poverty line. The problem with that is that plans under the ACA already had pretty big out-of-pocket costs, and the changes in the Senate’s bill will make them even bigger. If you’re making $12,000 per year and your plan has a $7,000 deductible, your plan is basically unusable.

Converting Medicaid to a per capita/block grant system: 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. In both the House and Senate versions, 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 House version surprisingly sets the growth rate of Medicaid to the growth rate of health costs (as measured by the medical component of the Consumer Price Index), and not inflation. The Senate bill, on the other hand, ties the growth of Medicaid to the growth of health costs, but then starting in 2025, switches to general inflation. Over time that will mean an even bigger cut to the federal share of Medicaid funding. States will have to choose between cutting back on eligibility, cutting back on benefits, raising taxes, or cutting back on funding in other areas (like education) to make up for the shortfall.

A “miscellaneous” fund

The Senate version, like the House bill, provides over $100 billion in funding for a “Patient and State Stability Fund,” (although the Senate version provides slightly less funding than the House). Republicans say this will fund will allow states to fix all of the problems we mentioned above. However, that’s not nearly as much money as it cuts from the ACA, which was already fixing the same problems.

The House bill 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. A $138 billion Patient State and Stability Fund is nowhere close to enough to make up for that enormous cut. The CBO hasn’t scored the Senate bill yet, but given how similar it is to the House bill, especially on Medicaid, these numbers will likely be pretty similar as well.

Tax Changes

We’ll let Vox’s Sarah Kliff (who writes much faster than I do) explain this part:

The Senate bill [like the House bill] will eliminate many of the taxes that financed the Affordable Care Act’s insurance expansion. It includes the repeal of:

  • A tax on investment income
  • A tax on the wealthy to finance the Medicare program
  • A tax on tanning salons
  • A tax on the health insurance industry
  • A tax on the medical device industry

Many of these tax changes would, as my colleagues have previously written, disproportionately benefit high-income Americans.

“The typical American, in short, isn’t going to see any money from these tax cuts,” Matt Yglesias has written. “But when you take all that money out of the system, something has to give. And in the case of the various iterations of Affordable Care Act repeal, the thing that gives is the quality of health insurance provided to Americans with below-average incomes or above-average health needs.”

Conclusion

Ok, we know that’s a lot to take in. If you want a quick, one sentence take-away, Larry Levitt of the nonpartisan Kaiser Family Foundation managed to sum it up with one tweet (the bottom one):

Although we’d amend that somewhat: Under the Senate bill, low-income people and pretty much all older people pay higher premiums for bigger deductibles.

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