Tuesday, June 27, 2017

The Senate Republican Obamacare Repeal and Replace Bill Will Not Reduce the Cost of Health Insurance

At the core of Republican objectives for the "repealing and replacing" of Obamacare is bringing down the cost of health insurance––not just the premiums but the out-of-pocket costs people pay as well.

If implemented, the Senate Republican bill may actually end up increasing costs compared to Obamacare.
Clearly, if Republicans cut $408 billion in current tax credits and other insurance assistance, as the Congressional Budget Office (CBO) has estimated, someone is going to be getting less and their net cost will be more.

But there is an even bigger factor at play here.

Readers of this blog are likely tired of my continually reminding them that only 40% of the Obamacare subsidy eligible ever signed up leading to a risk pool with too many sick people and too few healthy people to pay their claims. The Republicans are only going to make this problem worse.

My discussion with health plan actuaries has led me to conclude that Obamacare's expensive health plans could cost as much as 40% less if we had seen the industry objective of 75% of those eligible for a subsidy sign up.

The lesson for Republicans is that if they really want to reduce costs (premiums + out-of-pocket costs), their first objective needed to be assuring themselves of getting a bigger percentage of the pool to sign up––something a lot closer to the 75% objective.

But what do Republicans want to do in the Senate bill?

First they are proposing dramatically increasing the size of the potential risk pool by rolling back Medicaid and then booting those people into the individual health insurance market. Then they want to give those people a reduced premium subsidy. Then they want to cut their benefits by tying the subsidy to a 58% actuarial plan––effectively a high deductible Bronze plan.

Then they want to eliminate any cost sharing assistance for all of these former Medicaid people being moved into the insurance market as well as those low-income people already eligible for help with out-of-pocket expenses.

How many low-income people, at 100% of the federal poverty level making $12,000 a year, for example, will be willing to buy a $7,000 deductible plan? Other than the sickest among them?

Then they want to entirely eliminate the premium subsidies for those making between 350% and 400% of the federal poverty level.

So, when the day is done we would have millions more people in the potential individual insurance market being subsidized at levels far below what we have in Obamacare.

Millions more people being offered lousier plans.

Here's the key question: Given that only 40% of the subsidy eligible signed up under Obamacare, will the proposed Senate actions make that 40% take-up rate better or worse?

For the life of me, I can't see how it can't be a lot worse. And, if we have an even worse sign-up rate than 40% we can only have relatively fewer healthy people in the pool to pay the claims of the sick.

That means costs would be even higher under the proposed Senate bill than what we now have in Obamacare.

The CBO did say that average premiums could be 30% less in 2020. But the CBO also went on to say the "most important" reason was the "smaller share of benefits paid by benchmark plans."

Elsewhere in the CBO report, the CBO seems to be coming to the same conclusion I have:
Under this legislation, starting in 2020, the premium for a silver plan would typically be a relatively high percentage of income for low-income people. The deductible for a plan with an actuarial value of 58% would be a significantly higher percentage of income––also making such a plan unattractive, but for a different reason. As a result, despite being eligible for premium tax credits, few low-income people would purchase any plan, CBO and JCT estimate.
The Senate Republicans look to me to be going backwards with their Obamacare "repeal and replace" plan.

Now, some will argue that the state waiver provisions of the Senate bill could lead to a much more efficient health insurance market. They may be right. In fact, in my mind the state's ability to do what the Republicans have not done here, craft a much more efficient market, could be the silver lining.

But it would take 50 states to do the job the Congressional Republicans would have not done for that to happen.

So, how should this be fixed?

See my op-ed at CNBC.

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