ACA Repeal and Replacement Bill

The Republican led Congress released the first version of their replacement of the Affordable Care Act (ACA) on March 6, 2017.  This bill is being called the American Health Care Act (AHCA).  The bill includes many changes that were expected for it to include and some that were not expected.

This bill is not a full repeal that was promised by President Donald Trump and the Republican members of Congress.  Instead, they are changing key provisions in the ACA.  The reason for this strategy is because to do a repeal, Republican senators would need support from Democratic senators.  By changing provisions, the Republican senators can use a legislative maneuver that would only require a simple majority.

The Congressional Budget Office (CBO) has not had an opportunity to review and rate this legislation because its drafting was conducted in secrecy.  Congress will begin debate on the bill in committee before an estimate is available.  At this time, it is not clear how the bill will affect the health care industry.  However, there has been some analysis done by members of the media of what these effects could be.  One estimate shows that the costs for the average person will increase by $1542 and by $2409 in 2020 (the year that many provisions come into effect).

The ACA was able to allow around 11 million people to get health insurance by expanding Medicaid.  The AHCA reverses that expansion by freezing enrollment in 2020.  A similar freeze in Arizona resulted in about 70% decline of adults in enrollment in two years.  By freezing enrollment, the Republicans hope to eventually phase it out.

Financial changes would change eligibility for those under the Medicaid expansion.  Due to the ACHA creating tax credits in 2020, seven of the 32 states that expanded Medicaid will immediately repeal their expansions.  The other 25 states will have to make up the difference or shut down even if people still qualify under the enrollment freeze.

The way that the government pays for the Medicaid changes.  Historically, the Federal government paid based on a percentage.  Under the ACHA, this will change to being a fixed amount per person.  A consequence of this change would be as costs go up, states would have to find ways to make up the difference or reduce coverage.  In the event of an economic downturn, states may be forced to ration coverage.  To ease this transition, the bill allocates $100 billion over 10 years.  This change would affect everyone on Medicaid not just those under the expansion.

The ACHA eliminates all penalties imposed by the ACA including the individual mandate.  The reversal of the penalties will be retroactive to the beginning of 2016.  Making this change retroactive may cause problems for insurers when determining costs and possibly cause premiums to increase.  To replace the individual mandate, the ACHA will impose a 30% surcharge on premiums for a year on those not keeping continuous coverage for more than two months.

An argument against eliminating the individual mandate is that removing it may cause a “death spiral.”  In the ACA, to offset the requirement that insurance companies have to cover people with preexisting conditions, the individual mandate forces people to buy insurance.  The idea was that the young and healthy would be paying into the pool so that premiums will not sharply increase.  This part of the ACA did not work out as well as expected.  It is not clear that the 30% penalty imposed on those who do not keep continuous coverage would completely address this issue.

Insurance companies will be allowed to increase the price of plans for the elderly.  Under the ACA, the elderly could not be charged more than three times of younger people.  This changes to five times under the AHCA.  Plus, insurers will no longer have to abide by a minimum actuarial value.

Larger employers will no longer be required to offer health insurance to full-time employees.  The tax on an employer’s most generous health insurance plans, the so-called “Cadillac” tax, will not come into effect until 2025.

The subsidies of the ACA have been replaced by refundable tax credits.  These tax credits will be based on age but are capped by income unlike the ACA where the subsidy depended on the prices in local insurance markets.  These tax credits start to phase out at $75,000 for an individual and $150,000 for a family.  The tax credits will be less helpful than the subsidies.  Some members of Congress, such as Senator Rand Paul, oppose refundable tax credits because they claim they are subsidies of a different name.

The bill opens up new types of insurance plans that can be offered.  The new possibilities can be less expensive options with reduced coverage such as providing only catastrophic coverage.  Insurers will still be restricted from rejecting people for preexisting conditions.

According to a Tweet by President Trump, there will be two more phases to the healthcare legislation.  What is planned for these phases has not been discussed.

Don't worry, getting rid of state lines, which will promote competition, will be in phase 2 & 3 of healthcare rollout. @foxandfriends

— Donald J. Trump (@realDonaldTrump) March 7, 2017

Finally, this legislation will eliminate funding for Planned Parenthood through Medicare and other government programs for one year.  The goal is for this bill to be passed before the recess that begins on April 7.  It is scheduled to go to committee on March 8.

Update 3/15/2017: The Congressional Budget Office (CBO) released its assessment of the American Healthcare Act on March 13.  This assessment represents a good faith estimate of the effects of the AHCA.  The actual effects may be different due to a number of factors.  According to the CBO, the ACHA will have the following effects.

• The legislation will reduce the federal deficit by $337 billion over the 2017-2026 time frame. This consists of a $1.2 trillion reduction in outlays and a $0.9 trillion reduction in revenues.  Most of this reduction is due to changes in how Medicaid is budgeted.
• In 2018, 14 million fewer people will have health insurance.  The majority of this number is due to people dropping coverage because of the elimination of penalties and people dropping coverage because of higher premiums.
• As a result of the changes to the subsidies, the number of people without health insurance will increase to 21 million in 2020 and 24 million in 2026. These reductions will mostly be the result of the decrease in Medicaid funding.
• The insurance market for individual policies will become unstable which could make premiums in that market unsustainable.  Policies in the nongroup market will be stable.
• In 2018-2019, premiums will be 15-20% higher than they would have under the ACA.  Starting in 2020, premium increases will be offset by several factors.  By 2026, premiums will be 10% less than they would have under the ACA.
• Some people will not see a decrease in premiums in by 2026 due to the change in how much insurance companies can charge older people.

Update 3/21/2017: On the evening of March 20, Paul Ryan released an amendment to the original American Healthcare Act legislation.  The intent of these changes is to address concerns by both moderate and conservative Republican members of Congress.  The following changes have been made.

• The legislation creates a reserve fund that the Senate will need to allocate.  The original language and the AHCA is expected to cause premiums for seniors to become unaffordable. The purpose of this fund is to provide additional assistance to seniors between the ages of 50 to 64.
• The changes allow for states to opt for block-grant Medicaid funds and to impose work requirements to enroll in Medicaid.  This change was added to address concerns of conservatives that the AHCA does not do enough to scale back the Medicaid expansion. States that implement work requirements will get an additional 5% in funding.
• The tax repeals present in the AHCA will happen on an accelerated timeline.  This is another change added to address concerns of conservatives.
• The amendment adds language to address specific concerns of New York representatives.  New York governor Andrew Cuomo has been accused of pushing the costs of his state’s Medicaid expansion onto rural counties. The new language would force Cuomo to have the state government cover the expenses or lose Federal funding.
• The changes also strengthen requirements that forbid the use of tax credits for policies that cover abortions.

Voting is expected to start on Wednesday and the final vote is scheduled for Thursday March 23.

Update 3/24/2017: The vote for March 23 was pushed back.  The CBO released its score of the revised bill.  There was no significant changes in the new score except that the reduction to the deficit was lower.

References and Further Reading

• What The Obamacare Replacement Bill Means Depends On How You Get Your Coverage
• Analysis: GOP plan to cost Obamacare enrollees $1,542 more a year
• House Republicans Unveil Plan to Replace Health Law
• The Parts of Obamacare Republicans Will Keep, Change or Discard
• GOP Obamacare repeal and replacement plan riles patients, hospitals
• Republicans plan key changes on subsidies, Medicaid for ACA replacement
• 6 terrible ideas included in the House GOP’s health bill
• CONGRESSIONAL BUDGET OFFICE COST ESTIMATE (PDF)
• 4 key policy changes in Paul Ryan’s revised health care bill, explained
• Republicans just released big changes to their Obamacare replacement bill days before its most important vote yet
• GOP Health Care Bill: Tweaks to AHCA Make Some Hate It Even More