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American Health Care Act

Stanford health, economics, and law experts unpack the proposed GOP bill

Story by Stanford Health Policy March 9th, 2017

By Beth Duff-Brown

A vote on the Republican plan to repeal and replace the Affordable Care Act was delayed on March 23, the 7th anniversary of President Obama signing his health insurance plan into law, when House Speaker Paul Ryan realized he didn't have enough votes to pass the American Health Care Act.

The new proposal would retain the popular provisions to keep children on their parents’ health insurance plans until they are 26 and ban insurance companies from denying coverage to those with pre-existing conditions unless they have a lapse in insurance coverage.

But a key sticking point with some moderate Republicans was that the proposal no longer requires health insurance plans to provide a basic set of benefits such as maternity care, emergency, and preventative health services. Some Republicans — particularly those who are up for re-election in 2018 — were also spooked by the dismal Congressional Budget Office report that predicted some 24 million Americans would be uninsured by 2026 if the law passed.

The GOP proposal drops the requirement that everyone buy health insurance, thereby eliminating the tax penalty for those who don’t buy coverage. It converts Medicaid to a program in which states have a set amount to spend on each enrollee per year. It eliminates several taxes that previously offset the cost of the Affordable Care Act.

The Republicans have yet to say how they are going to pay for the plan and what it would cost taxpayers, saying only that it would repeal Obamacare with “fiscally responsible policies that restore the free market and protect taxpayers.”

Some respected health economics analysts estimate the GOP plan would cost current ACA enrollees $1,542 more a year if enacted today, jumping to $2,409 for the average enrollee by 2020. The CBO report estimated that average premiums would increase prior to 2020, but then start to decrease because insurers would be allowed to charge five times more for older enrollees than younger ones, rather than three times more under the current law.

Any new version of the Republican bill still must go through revisions and will ultimately need the approval of the House and Senate before it goes to President Donald Trump for his signature.

Several Stanford health policy, economics, and legal experts answer questions about the proposal:

Trump recently pledged that the GOP plan would cover all Americans and that premiums would be less costly. Is this possible under the GOP proposal?

Bhattacharya: The U.S. has never had universal insurance coverage, including under the ACA. No projections have been done yet of the coverage implications the Republican plan, but I think it is unlikely to reduce the number of uninsured since it eliminates the individual mandate. Of course, this is one of the least popular provisions of the ACA; it was enacted to force younger and healthier people to join plans that were too expensive for their health needs. So I’m not surprised to see the mandate go.

Kocher: This plan, unequivocally, violates this promise. In fact, if enacted, the U.S. would likely revert to pre-recession levels of uninsured and have the lowest coverage rates of any developed country.

Mello: No, this pledge comes from the Department of Wishful Thinking. The bill reduces the amount of financial assistance the government gives low-income Americans to offset the cost of buying insurance. It also wrecks the delicate balance in the Affordable Care Act that prevents insurance premiums from spiraling upward — the so-called “death spiral”— because the new bill allows people to wait until they get sick to enter the risk pool. The other thing to recognize when people start talking about lower premiums is that increasingly, what consumers pay for their healthcare comes in forms other than premiums. High-deductible health plans and higher copayments (your out-of-pocket share when you see a physician or fill a prescription) are more and more common. The new bill eliminates provisions in the Affordable Care Act that protect consumers below 250% of the federal poverty line from these types of costs. This paves the way for huge increases in what poor and lower middle-class families will pay before they get their first dollar of insurance coverage, and what they will pay every time they need a health-care service.

The Republican plan allows young adults to remain on their parents’ plans. Isn’t this good news?

Bhattacharya: For dependents under 26 whose parents have health insurance through their employer, this is certainly good news. Of course, there’s no such thing as a free lunch; the provision is paid for indirectly via higher health insurance premiums, which in turn are paid for by workers whose kids are covered under their plans.

Stanford Health Policy's Jay Bhattacharya

Kocher: Yes, but the continuous coverage provision is more onerous than the individual mandate. If coverage lapses for more than 63 days, people pay a 30% tax, which will be unaffordable for most people since the tax credits are so skimpy. So over time, the pool of people who stay protected is going to get progressively smaller.

Mello: Yes. This provision is so popular that fortunately, Republican leaders realized they needed to retain it.

The bill would offer tax credits, refundable in advance, to people with income lower than $75,000 a year. But some estimate that those credits will be lower than the subsidies now offered under the ACA, so what does this really mean?

Bhattacharya: The ACA gave declining subsidies to people who earned up to 400% of the poverty line ($98,000 a year of income for a family of four) for the purchase of insurance in the individual market. The Republican plan targets subsidies to poorer people than those provided subsidies under the ACA. On the negative side, I am concerned that the Republican plan does not provide enough subsidies to the sick, who may thus be unable to afford a plan on the insurance market.

One major concern about the plans purchased through the ACA’s exchanges has been skimpy coverage with thin networks of providers and high cost sharing for the bronze and silver plans. Whether the plans in the individual under the Republican plan have similarly narrow networks and high cost sharing will depend on the nature of demand for insurance in this population, so it is hard to project at this point.

The effect of the Republican plan on the kinds of insurance provided on the market will depend on in part on health risk. Younger and healthier people, not forced to pool with older people, will probably find much cheaper plans. Older people, without younger people in the pool overpaying for their health plans, will probably face higher premiums. Removing certain coverage requirements mandated by the ACA will probably reduce premiums on the margin, but by how much remains to be seen.

Kocher: It means that health insurance premiums become more expensive for everyone. And that plans that you can buy with the tax credits will cover much less and have lots more cost sharing.

Mello: Whether you do better or worse under the new bill than under the ACA depends on your age and income, as a chart here shows. In short, the younger you and are the less money you make, the less help you’ll get. For example, a 40-year-old making $20,000 a year (160% of the federal poverty line) would qualify for $4,143 in subsidies, on average, under the ACA, but only $3,000 under the proposed House bill.

The proposed act would provide a tax credit between $2,000 and $14,000 a year for low- and middle-income individuals and families who don’t get insurance through work or a government program. What about those Americans who are so poor that they are not required to pay taxes?

Bhattacharya: As with the ACA, poor people who do not work will potentially be eligible for Medicaid under the Republican plan. The Republican plan retains the ACA’s formula of 90% federal subsidies to states, but gives states much more flexibility about how they will administer their Medicaid plans. I anticipate that many states that did not expand Medicaid under the ACA will choose to do so, thus expanding the set of poor people in those states who are covered. In states that have already expanded, what happens to the Medicaid poor will depend on decisions made by each state government, so the ultimate effect remains to be seen.

Kocher: Rebates would only be available to people who pay taxes. So poor people who do not file would be out of luck. That said, since the premiums are not income adjusted and much smaller than subsidies for the poor under the ACA, poor people will have a hard time affording insurance that resembles what they have today.

Bob Kocher addresses Stanford Health Policy symposium on health care through 2020

The ACA prohibits insurance companies from denying a woman insurance coverage if she is pregnant. It also prevents insurers from charging women more for the same level of coverage as men. Does the proposed plan protect women from discrimination against pregnancy and gender?

Bhattacharya: There are laws other than the ACA at both the federal and state level that require insurance plans to provide maternity benefits. Under the Republican plan, health insurers will have more freedom to tailor plans that meet the specific health needs of the covered population. Presumably, if insurers do a bad job at that, they will lose in the marketplace to plans that do a better job at a lower price. How this actually plays out in the marketplace is, of course, uncertain at this point.

Under the Republican plan, insurance plan pricing on the individual market will be less regulated than they are under the ACA, so health insurance premiums will more closely correlate with the expected costs of coverage. In general, I think this is a good idea because it helps reduce problems caused by so-called community rating laws that mandate the same price for low health risk and high health risk people. These laws create problems because young and healthy people will not voluntarily choose to buy insurance because they are forced to pool with older and sicker people – health insurance is a bad deal for them. Rolling back community rating, as the Republican plan does, limits this problem.

Chelvakumar: When it comes to women’s reproductive health, this plan would make it harder for women to obtain the care they need to avoid pregnancy and also puts provisions in place that will likely make prenatal care much more expensive. Medicaid plays a huge national role in providing family planning services including providing coverage for half of all prenatal visits and deliveries and making up a large portion of the federal funding for organizations like Planned Parenthood. The AHCA’s plan to end Medicaid expansion in 2020 will limit its ability to play this vital role.

Additionally, the AHCA eliminates a lot of the transparency in insurance plans that make it easy for consumers to see what kind of coverage they’re getting. In such a setting women seeking maternity coverage could end up paying more for a plan that offers them less care than what they need and decreases the incentive for insurance companies to cover maternity care, a situation that will likely lead to more cost-sharing for pregnant women needing basic prenatal care. The plan the AHCA outlines to roll back the Obamacare Medicaid Expansion and coverage for basic reproductive health care as well as their plans to defund Planned Parenthood will make it difficult for millions of women in this country to avoid pregnancy, safely terminate a pregnancy, and access prenatal care to safely carry a pregnancy to term.

Kocher: It is a certainty that many plans will not cover women’s health, maternity coverage, and mental health care. It is also possible that women will pay much more.

Mello: One notable feature of the bill is that a woman is not eligible for the tax credits to help pay her insurance premiums if her health plan covers abortion services. So in addition to prohibiting the use of Medicaid funds to pay for abortion, the federal government will now make it harder for poor women to access abortions using the insurance they bought in the private market.

What about preventative services? The ACA required that insurers provide screenings for depression, diabetes, cholesterol, obesity, cancer, HIV and sexually transmitted diseases, as well as routine immunizations. What does the GOP plan offer?

Bhattacharya: The Republican plan leaves decisions about coverage of preventative care in the hands of employers, insurers, and enrollees. In the individual market, people who want those things can sign up for plans that provide them.

Under the ACA’s preventative care mandated coverage requirement, research about the efficacy of prevention has become politicized. Decisions to mandate are linked to decisions by the US Preventative Services Task Force, which reviews evidence on a topic–by-topic basis. In principle, depoliticizing this research should lead to higher quality research output on these topics, though cuts in federal monies for this research will likely reduce its volume.

Kocher: The AHCA does not cover any preventive care, which over the long term will lead to higher cancer mortality, more chronic diseases, and higher premiums. It also eliminates billions of dollars of public health-care spending by the Department of Health and Human Services. While it does support Federally Qualified Health Centers, there will be fewer dollars for population-based, federal public health programs such as the Agency for Healthcare Research and Quality and the Centers for Disease Control and Prevention.

Mello: One of the most shortsighted and inexplicable features of the bill is the elimination of the Prevention and Public Health Fund, which provides CDC with about $1 billion a year to fight infectious disease, maintain anti-bioterrorism measures, and fund other crucial public health programs. Most of this money goes to state and local public health departments; it also funds 40% of CDC’s immunization program. Coming off the Ebola and Zika outbreaks, this move is a shocker.

Planned Parenthood receives $500 million annually from the federal government to help run its 650 health centers, which cater to some 2.5 million women from mostly poor and underserved communities. The new plan prevents Medicaid dollars from being used at the health-care facilities that offer abortion. What does this mean for the women without health insurance who have long relied on Planned Parenthood for their wellness visits, family planning, and cancer screenings?

Bhattacharya: One of the major political problems that the ACA has is that it mandates the provision of services that violate the conscience and religious sensibilities of some people (e.g. the contraception mandate and the Little Sisters of the Poor). The Republican plan addresses this problem by not mandating the coverage of such services, which will presumably upset those who were in favor of those mandates.

It seems likely that policy in this area will bounce back and forth between federal support for groups like Planned Parenthood, which perform abortions, and no federal support for such groups. This is similar to what happens to federal international aid under Mexico City Policy; Republican administrations while in power institute a ban on support for NGOs that promote abortions, while Democratic administrations when in power support such NGOs. This is a political problem with no long-term resolution that I can see.

As far as access to cancer screenings for poor women, every state Medicaid program pays for such services, and that does not seem likely to change in the future.

Chelvakumar: Federal funding currently makes up almost half of Planned Parenthood’s total budget. Given that 78% of Planned Parenthood’s clients have incomes of 150% or less of the federal poverty level, loss of this federal funding would severely impact their ability to serve a substantial portion of their clientele and potentially result in clinic closures, an outcome that would negatively affect all women who rely on Planned Parenthood for their healthcare. The same bill strips federal funding for women’s health services and places restrictions on the kind of private insurance coverage women can purchase with their tax subsidies. It also does not appear, in its first draft, to provide any coverage for basic preventive services, so it is unclear how low-income women would be able to obtain comprehensive healthcare.

Kocher: The AHCA will lead make it harder for women to access care. Fewer plans will cover women’s health services, FQHCs will likely not offer women’s health given their federal funding dependence, and safety net organizations like Planned Parenthood will have to raise lots of additional money.

Michelle Mello of Stanford Health Policy and Stanford Law
Stanford Health Policy's Meena Chelvakumar

The proposed plan would eliminate penalties for those who don’t buy coverage. Would this provoke some employers to drop their plans? And how would new plan encourage healthy young people to buy insurance and pay into the system?

Bhattacharya: The ACA’s employer mandate was politically unpopular because of the requirements it imposed on small businesses (most large businesses would provide health insurance with or without the mandate). The employer mandate was backed by a $2,000 penalty per worker on employers above 50 employees who do not provide insurance. For employers on the margin between providing and not providing insurance, this penalty is not high enough to change behavior in favor of providing insurance. Removing the employer mandate is thus likely to have little effect on employer provision of insurance.

The Republican plan encourages healthy young people to buy insurance by permitting insurers to charge a 30% surcharge for people who have insurance gaps. The surcharge penalizes people who wait until they know they will need expensive health care before they buy into a plan. The idea is to reward people who buy into a plan when health and stay in a plan. I do not know of any empirical work that directly addresses whether this idea will be more or less effective than the ACA’s individual mandate in encouraging young and healthy people to purchase insurance.

Kocher: The absence of a mandate will likely lead to fewer healthier people buying coverage. The change in age will lower premiums for young people and is an attempt to try to get more health young people to voluntarily buy coverage. However, the tax credits are still small, since they are age-adjusted, which could be lead to low uptake.

Mello: The bill does impose a one-time penalty for people who let their insurance coverage lapse; they’ll pay 30% higher premiums in the next year. But the absence of a broader mandate to buy coverage is an elementary economic mistake, because the bill still requires insurers to avoid most kinds of price discrimination. That means you can put off buying insurance until you really need it, and still get it at the same price you’d have been given when you were healthier. It has always been understood by everyone from freshman economics students to the justices of the U.S. Supreme Court that this causes a phenomenon known as adverse selection that leads to sustained, untenable increases in insurance costs. Expect loud howls from insurers over this.

The GOP says the new plan “responsibly unwinds” Obamacare’s Medicaid expansion by freezing new enrollment after two years and grandfathering in current enrollees. But what happens in two years?

Bhattacharya: One idea behind the treatment of Medicaid by the Republican plan is to equalize the treatment of the poor in states that expanded Medicaid under the ACA and in states that did not so expand. In the short run, the plan will greatly benefit the Medicaid eligible poor in states that did not expand under the ACA, and will have unclear effects on the Medicaid poor in states that did expand. For the latter group, the effects will depend on state-level decisions about how to distribute Medicaid money. It is hard to say what the longer run effects are likely to be since those will depend on future federal decisions about per-capita funding of Medicaid, and on state-level decisions about how to spend that money on the health its Medicaid-eligible poor.

Kocher: Medicaid enrollment plummets. Thirty percent of Medicaid patients churn in and out of Medicaid each year, so after a short time, most people will lose coverage.

Mello: Right. It’s a clever way of portraying that the Medicaid expansion isn’t being rolled back, by just doing it through attrition. It is better than cutting off coverage to the new Medicaid entrants abruptly, to be sure. But over time, we will see a contraction in the Medicaid rolls, and familiar stories about the poorest Americans being unable to access essential care. One thing Americans should definitely take away from this bill: whether you have Medicaid or private insurance, don’t let your coverage lapse!

The bill would establish a “Patient and State Stability Fund,” which would provide states with $100 billion to design programs to meet the “unique needs of their patient populations and help low-income Americans afford health care.” This sounds pretty good. Is there a catch?

Bhattacharya: I think this is a good idea because it will provide resources for experimentation by states about how best to meet the health needs of the poor. Whether it turns out in retrospect to have been a good idea will depend on how creative and wise those state-level experiments are.

Kocher: This is a guise to encourage states to add cost-sharing to Medicaid like what they’re doing in Indiana. While this sounds good on paper, it leads to patients foregoing preventive care.

In unveiling their plan, Republicans did not give costs or coverage estimates. Four key Republican senators say they would oppose any plan that would leave Americans uninsured. What are the real chances of its passage?

Bhattacharya: Given that President Trump and Congressional Republicans have staked much of their political capital on repealing and replacing the ACA, I think the likelihood of passage of some bill is very likely, but I suppose we shall see.

The initial Congressional Budget Office (CBO) estimates of the ACA were shockingly large, which led Democrats to substantially alter fundamental aspects of that legislation and to play some games with various parts of the legislation to make it appear to be more fiscally responsible than it actually is (e.g. the CLASS Act). I predict a similar process will unfold here, except on the Republican side.

Kocher: The CBO score is likely to startle Republicans. Millions of people are likely to lose insurance, the uninsured rate will sky rocket, many employers will drop coverage, and cost-sharing for everyone will go up a lot.

Mello: It seems that just about every Republican, there’s something to hate about this bill. For some, it doesn’t gut the Affordable Care Act enough; for others, it goes too far. It’s hard to predict at this point whether Republicans will come to view it as the best they can do—but there aren’t many votes they are able to lose and still get the bill passed since no Democrat will vote for it.

But there is no Congressional Budget Office score yet. Does this mean that it still would have to go through that process before the House vote?

Bhattacharya: I think the House intends to pass the bill through its normal process of having various committees do the work of marking up and amending the bill before it is scored by the CBO or voted on.

Kocher: The House can set their own rules, but normally bills are scored by the CBO and must be paid for through taxes and budget cuts. The GOP has also not released how they plan to pay for this bill.

House Majority Speaker Paul Ryan has repeatedly said that Obamacare is “collapsing.” He released this statement on Monday:

“The American Health Care Act is a plan to drive down costs, encourage competition, and give every American access to quality, affordable health insurance. It protects young adults, patients with pre-existing conditions, and provides a stable transition so that no one has the rug pulled out from under them.”

Does the proposed bill accomplish these goals?

Bhattacharya: Politicians often promise more than can be realistically achieved, and this was certainly the case with the ACA and it is also the case with the Republican plan. The question for me is whether the Republican bill represents an improvement the ACA. I suspect the answer is that the Republican bill will improve the lot of many people, and hurt others relative to ACA, just as the ACA improved the lot of some people and made the lives of other worse relative to the status quo ante. It would take a significant research project to more carefully and precisely answer that question.

Kocher: I do not think that this bill accomplishes any of these goals. The AHCA appears to lead to fewer Americans with access to coverage, higher cost sharing, and an unstable transition where most people lose their current plans.

Mello: It protects adults under age 26 who are currently on their parents’ insurance plans, and continues the Affordable Care Act’s prohibition on pre-existing condition discrimination, but only if you never have a lapse in your insurance coverage. Other than that, it has no chance of meeting these goals.

Where can readers go to find trustworthy information about the bill and its likely effects?

We recommend the Henry J. Kaiser Family Foundation’s website, which focuses on health reform. It is well regarded, unbiased and not too technical.