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A Republican plan to replace Obamacare

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In our last post we complained that the healthcare debate is starting to remind us of the movie Groundhog Day, but we forgot… there has been one new development! Republicans have long promised to “repeal and replace” Obamacare, but for they’ve focused almost exclusively on “repeal,” while mostly ignoring the “replace” part. Now finally, three Republican Senators–Tom Coburn, Richard Burr, and Orrin Hatch– have unveiled an actual alternative, which they call the Patient Choice, Affordability, Responsibility, and Empowerment Act (Patient CARE Act).

We almost skipped talking about it because (1) it has no chance of passing (we’re not sure who would be quicker to vote against it- Democrats or tea party Republicans), and (2) it’s not very good. Still, given all the complaining Republicans have done about Obamacare, it’s worth checking out what they suggest. 

How the plan would work

Let’s start with a quick overview of the biggest problems with insurance before Obamacare:

  1. Insurers could deny coverage to people with pre-existing conditions;
  2. Millions of people couldn’t afford to pay for coverage on their own;
  3. Many plans barely qualified as insurance: they’d have enormous out-of-pocket costs, outrageous annual or lifetime limits, wouldn’t cover certain conditions, etc.

Hopefully by now you know how Obamacare dealt with each of those issues, but just in case:

  1. Prevents insurers from denying coverage or charging more based on health status;
  2. Provides subsidies to help those making less than 400% of the poverty line pay for coverage, Medicaid to those making less than 100%;
  3. Lays out some minimum standards that plans have to meet.

And now, let’s look at how the senators’ Patient C.A.R.E. Act addresses them…

1. Pre-existing conditions: There’d be a one-time open enrollment period at the start, when anyone could buy coverage regardless of health status, but after that, it’s back to the pre-Obamacare system of denials and higher premiums for pre-existing conditions– unless you’ve been “continuously covered” for at least 18 months when you apply for a plan.

So the open enrollment period would basically work like an extremely harsh individual mandate. Under Obamacare the penalty for not having insurance is a small fine every year; here the penalty for going without coverage, even temporarily, is never again being able to get coverage should you get sick. Ouch.

2. People who can’t afford insurance: Like Obamacare, the Republican plan provides subsidies to help people with lower incomes pay for coverage, but they’re a little different. NPR’s Julie Rovner explains:

The GOP plan offers its own set of tax credits to help those with lower incomes afford coverage, and unlike those in the ACA, they would be adjusted for age but not for geography. That means the tax credit would be the same across the nation, even though insurance costs differ widely in different parts of the country.

The tax credits also would be available to those earning up to three times the federal poverty line, or $34,470 in 2013. That’s less than in the ACA, which provides help for those earning up to four times the poverty level, or $45,960.

Meanwhile, those with incomes below the poverty line would get a subsidy to purchase private insurance too, instead of Medicaid like under Obamacare. That’s a problem because Medicaid has almost no cost-sharing– people making that little money can’t afford to spend extra on health care– but the subsidies available under the Patient CARE Act are so stingy that the only policies available at those rates will have huge out-of-pocket costs.

Subsidies for those making less than 200% of the poverty line ($22,980) under the Republican plan.

Subsidies for those making less than 200% of the poverty line ($22,980) under the Republican plan.

3. Minimum standards for coverage: The Patient CARE Act would keep some of Obamacare’s new rules– young adults could stay on their parents’ plan until they turn 26, and plans couldn’t impose lifetime limits– but rolls back the rest. Ezekiel Emanuel, a health policy expert who advised the Obama administration on health reform, points out:

The proposed plan would take us back to the old days when insurance companies could charge women more than men for the same health plan. And older people would also be penalized. Under the Affordable Care Act, insurance companies are allowed to charge 64-year-olds only three times what they charge 21-year-olds. But the Republican plan allows insurance companies to charge 64-year-olds five times more. So a 64-year-old individual could pay as much as $21,900 for a plan that costs a 21-year-old only $4,380.

The senators’ plan would also eliminate Obamacare’s “essential benefits” rules, meaning insurers could again refuse to cover things like maternity benefits or mental health services. Insurers would also be allowed to impose annual limits on coverage, and there’d be no limit on out-of-pocket costs. These were all features of the “junk plans” insurers sold before Obamacare.

How it would be paid for

1. “Cuts” to Medicare: You might remember that during the 2012 election Mitt Romney ran a bunch of ads that misleadingly claimed President Obama was robbing $700 billion from Medicare to pay for Obamacare. Well, the Patient CARE Act, like every other Republican Medicare proposal, keeps these same “cuts.”

2. Taxing health benefits: Currently all health benefits are exempt from taxes, but under the Patient CARE Act only 65% of an average plan’s costs would be exempt– the other 35% would get taxed just like the rest of your income. Taxing health benefits isn’t necessarily a terrible idea, for reasons The Incidental Economist’s Nicholas Bagley lays out:

Because employees pay taxes on their wages but not on their health benefits, the tax exclusion gives workers incentives to accept lower wages and more health coverage than they would in the absence of the exclusion. The result is excess spending on health care.

That’s why Obamacare also includes a tax on health benefits– but it targets just the most expensive “Cadillac” plans, that typically only higher earners have (though not always, which is why unions aren’t thrilled with it). The Republican proposal, on the other hand, would affect most workers, and cause some employers to drop coverage altogether:

“It’s obviously a substantial increase on people who get employer-sponsored insurance,” Gary Claxton, vice president at the non-partisan Kaiser Family Foundation, told TPM of the original proposal. “This would be a meaningful hit on people. It’s a big radical change. This is not an incremental thing, and it affects most people under 65.”

The Congressional Budget Office recently analyzed a similar, though not identical, proposal and estimated that it would raise $613 billion in revenue over nine years, while six million people would lose their employer coverage in the five years after it took effect.

The Republican Senators apparently realized that a sudden, massive tax hike on the middle class isn’t gonna go over well, and seem to have scrapped it (it’s a little unclear). If they did, that brings up a new problem though: their plan isn’t paid for. A big part of Obamacare’s funding comes from increasing taxes on the wealthy– but Republicans opted to repeal that one too. So to recap, what they’re proposing here is a tax cut for the rich, and either a big middle class tax hike or an increase in the deficit.

At least it’s something…

Still, we’re glad that Republicans have at least proposed something (even if it’s sort of terrible), because it makes it clear that there are trade-offs involved in any attempt at health reform. The New Republic’s Jonathan Cohn puts it well:

The authors of the Patient CARE Act and many of their allies are acting as if conservatives have some magic elixir for health care problems—a way to provide the same kind of security that the Affordable Care Act will, but with a lot less interference in the market and a lot less taxpayer money. It’s all the goodies of liberal health care reform, they imply, but without the unpleasant parts. They’re wrong.

UPDATE: We should probably clarify that while the Patient CARE Act was proposed by three Republican senators, it’s inaccurate to call it the Republican plan- Republican leaders haven’t endorsed it and House Republicans are supposedly working on their own replacement plan. We’ve updated some of the language and title of this post to reflect that.

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