Monday, March 13, 2017

Let’s Not Let the Republicans Make the Obamacare Replacement Debate About the Congressional Budget Office—Fewer People Will Be Covered and Many Will See Big Cost Increases

If you carve a huge chunk of revenue out of Obamacare and shift more subsidies to the middle class it should not be a surprise that the lower income folks will pay the price

The Congressional Budget Office (CBO) has estimated that 14 million of people would lose coverage in 2018, 21 million in 2020, and 24 million in 2026 if the House Republican plan is allowed to significantly amend the Affordable Health Care Act (Obamacare).

In my last post, I called the House Republican bill "mind boggling" for the negative impact I believe it would have on the number of those uninsured and the viability of the individual insurance market. Guess the CBO agrees with me.

The CBO's report came after the Brookings Institute estimated 15 million people would lose Medicaid and individual health insurance coverage at the end of ten years under the Republican plan. The arguably more business oriented S&P Global estimated between 6 million and 10 million people would lose coverage between 2020 and 2024.

Republicans are jumping on the CBO estimate reminding us that the CBO’s Obamacare projections haven’t been perfect in the past.

This is not the issue.

What Republicans are proposing, and how those proposals will impact how many people have insurance in this country, is the issue.
The House Republican bill is not a clean replacement of Obamacare. It is an amendment to it.

So, it is fair to take the number of people covered today under Obamacare and look at the impact each of the Republican changes will have.

The House Republican plan would either spend more money or take away certain sources of funding:
  • The House Republican plan would generally increase premium subsidies for the working and middle class (see chart below). Where Obamacare tended to dramatically increase people’s premiums and give working and middle class consumers comparatively little or no subsidy support to pay for them, the House Republican plan would provide subsidies for many more people—for individuals up to $75,000 a year and families up to $150,000, and slowly phasing down after these levels.
  • Republicans would spend $15 billion over five years creating a stabilization fund for consumers and insurers in the individual health insurance market and another $5 billion to support the uninsured in states that did not expand their Medicaid programs.
  • Republicans would eliminate the Obamacare cuts to hospitals for Disproportionate Share Hospital (DSH) payments.
  • Republicans would eliminate all of the many tax increases in the Obamacare law that went toward paying for it. The CBO estimates that this would be an $800 billion tax cut. Two of those taxes impacted higher income families––a Medicare tax surcharge and higher capital gains taxes. According to the non-partisan Congressional Joint Committee on Taxation, for individuals making annual incomes of more than $200,000 the elimination of Obamacare’s extra Medicare tax and the higher capital gains tax would provide $274 billion over ten years in relief.
But, the CBO estimates the Republican plan would spend $337 billion less on their amended program than Obamacare would have spent. So, with middle class subsidies up, with big new payments for consumers, insurers, and hospitals, and big tax cuts for a whole list of stakeholders, including for those making over $200,000, something has to give.

The Republicans offset these expenditures and tax cuts by doing at least three things:
  • They cap Medicaid enrollment beginning in 2020 and then begin to phase-out the Obamacare Medicaid expansion after that by not allowing any new enrollments.
  • They move the funding of the Medicaid program to a per capita allotment formula using 2016 as the base year for calculating a particular state’s payments and then increasing that in future years by the medical care component of the consumer price index. Currently, the states receive federal payments based upon their actual cost increases—a level almost always higher than the increase in the medical CPI—meaning there will almost certainly be less money for the states in future years.
  • They replace the Obamacare individual market premium subsidies, which favored lower income people, with flat age-based credits. At the lower income levels, these premium credits would generally be much less than the support Obamacare now provides:

Republicans argue that their less regulated individual health insurance market will provide cheaper plans than Obamacare currently provides meaning consumers won’t need the higher Obamacare subsidies.

It is not at all likely the House Republican proposal will provide cheaper plans:
    • Republicans are proposing the repeal of the individual mandate fines/taxes for those who don’t have coverage.
    • They are replacing the individual mandate with a paltry 30% surcharge for 12 months on anyone signing up for insurance after they become sick.
    I have long argued that if we could get more like 75% of those potentially eligible into the risk pool, it is only about 40% under Obamacare, premiums could come down 30% to 40%. The problem with this Republican proposal is that while the better middle class subsidies would likely improve participation among this group, the combination of worse low-income subsidies and the paltry late enrollment penalty would likely make the existing pool worse. There is little likelihood that these changes will, on a net basis, materially improve the overall risk pool's viability and therefore bring premiums down.

    Health plans would be able to offer skimpier plans. The Republican claim that many could buy a catastrophic plan for the cost of their flat age-based tax credit is likely credible.

    But, it is hard to see how many low income people will see value in a “free plan” that still has a $2,000, or $3,000, or $4,000 deductible before they can use any benefits given that an individual at 100% of the federal poverty level makes $12,000 a year.

    This weekend, HHS Secretary Price said, “I firmly believe that nobody will be worse off financially in the process that we’re going through, understanding that they’ll have choices that they can select the kind of coverage that they want for themselves and for their family, not [that] the government forces them to buy. So there’s cost that needs to come down, and we believe we’re going to be able to do that through this system. There's coverage that’s going to go up.”

    The CBO didn’t agree with the Secretary. And, neither can I.

    The House Republican plan does a much better job than Obamacare in providing health insurance to the working and middle class. But it does a much worse job in affording access to affordable health insurance to those with low incomes.

    Obamacare was a massive transfer of wealth from the better off to those with low incomes––and was very unpopular among the middle class because of that. The House Republican plan is just shifting much of that from the Democratic base back to the Republican base. If it becomes law, we'll just have a different group of people upset.

    It would be nice if we could have a health insurance reform plan a consensus of the people could appreciate.

    Sounds like the Republicans––according to the CBO––will have $337 billion to make things better. And, they should.


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