The American Health Care Act: the Republicans’ bill to replace Obamacare, explained

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This article was recommended to WSPA by Colin Goldfinch, Senior Health Policy Advisor to Senator Murray and the Senate Committee on Health, Education, Labor & Pensions, and was developed by the staff at Vox.com


House Republicans released their long-awaited replacement plan for the Affordable Care Act on Monday.

The American Health Care Act was developed in conjunction with the White House and Senate Republicans. Two big questions — how many people it will cover and how much it will cost — are still unresolved: It will likely cover fewer people than the Affordable Care Act currently does, but we don’t know how many. And the Congressional Budget Office has not yet scored the legislation, so its price tag is unknown.

But what we can say for sure is this:

  • Some of Obamacare’s signature features are gone immediately, such as the tax on people who don’t purchase health care. Other protections, including the ban on discriminating people with pre-existing conditions and the provision that allows young adults to stay on their parents’ plan through age 26, would survive.
  • The plan maintains the Medicaid expansion — for now. The Affordable Care Act expanded Medicaid to cover millions of low-income Americans. And, in a big shift from previous drafts of the legislation, which ended Medicaid expansion immediately, this bill would continue to that coverage expansion through January 1, 2020. At that point, enrollment would “freeze,” and legislators expect enrollees would drop out of the program as their incomes change.
  • The replacement plan benefits people who are healthy and high-income, and disadvantages those who are sicker and lower-income. The replacement plan would make several changes to what health insurers can charge enrollees who purchase insurance on the individual market, as well as changing what benefits their plans must cover. In aggregate, these changes could be advantageous to younger and healthier enrollees who want skimpier (and cheaper) benefit packages. But they could be costly for older and sicker Obamacare enrollees, who rely on the law’s current requirements.
  • The bill looks a lot more like Obamacare than previous drafts. A curious thing has happened to the Republican replacement plan as it has evolved through multiple drafts: it has begun to look more and more like Obamacare itself. The bill keeps some key features of Obamacare, like giving more help to lower-income Americans and the Medicaid expansion, in a scaled-back form. This speaks to how entrenched the health care law has become since its enactment seven years ago, and how difficult it will be for the GOP to repeal it entirely.

AHCA would end Medicaid expansion in 2020

One of the main ways that Obamacare increased insurance coverage was by expanding the Medicaid program to cover millions more low-income Americans. Prior to the health law, the entitlement was restricted to specific groups of low-income Americans (pregnant women, for example, and the blind and disabled).

Obamacare opened the program up to anyone below 138 percent of the poverty line (about $15,000 for an individual) in the 31 states that opted to participate.

Initial GOP plans would have ended this coverage expansion outright — but in a big reversal, the replacement bill will allow Medicaid expansion to continue through January 1, 2020. States will be able to continue to enroll people in the program. States that haven’t expanded yet but are considering the option could join the Medicaid expansion, and enroll people over the same time period as well.

In 2020, enrollment in the Medicaid expansion will “freeze” and states with no longer be able to sign new enrollees up for the program. Legislators expect that enrollment would slowly decline, as enrollees’ incomes change and they shift off the program.

This change is near certainly due to intense pressure from the 15 Republican governors who run states that have expanded Medicaid, and have lobbied aggressively in favor of the keeping the program alive. It could encourage some states eyeing Medicaid expansion like Kansas and Maine to move forward before the enrollment freeze.

There are significant changes to Medicaid in the American Health Care Act outside of the expansion, too. This bill would convert Medicaid to a “per capita cap” system, where states would get a lump sum from the federal government for each enrollee.

This is different from current Medicaid funding. Right now, the federal government has an open-ended commitment to paying all of a Medicaid enrollee’s bills, regardless of how high they go.

Previous analyses of different version of this proposal suggest it could lead to very deep cuts to Medicaid. It’s unclear, at this point, how much this new version of the policy would reduce Medicaid spending.

The AHCA bans discrimination against those with preexisting conditions — but charges more to people who have a break in coverage

AHCA keeps many of the popular health insurance reforms from Obamacare. This includes a ban on annual and lifetime limits, allowing kids to stay on their parents’ plans until they’re 26, and requiring insurance plans to offer coverage to all patients regardless of how sick they are. But AHCA, unlike Obamacare, does not mandate that all Americans be covered by health insurance or pay a fee.

Instead, it has a different way of penalizing people who decide to remain uninsured: requiring those who don’t maintain “continuous coverage” to pay a hefty fine when they want to reenter the insurance market.

This continuous coverage policy has shown up a lot in Republican replacement plans. It was part of Speaker Ryan’s A Better Way proposal and Rep. Tom Price’s Empowering Patients First Act.

Here’s how it works: If a worker goes straight from insurance at work to her own policy, her insurer has to charge her a standard rate — it can’t take the cost of her condition into account.

But if she had a lapse in coverage longer than 63 days — perhaps she couldn’t afford a new plan between jobs — and went to the individual market later, insurers could charge her a 30 percent premium surcharge. She would need to pay that higher premium for a full year before returning to the standard rate.

A Congressional aide clarified that this surcharge would be the same for both healthy and sick people; insurers could not use it to turn away people they expect to have significantly higher medical costs.

This might end up having unintended consequences, because only the people who really need insurance — and who have high medical costs — may want to pay the surcharge. Healthy people might be more comfortable staying out of the individual market for longer, perhaps until they get a job that offers coverage. That could drive up premiums for everybody.

This is a less harsh penalty than the one Price suggested in his 2015 Empowering Patients First Act. In that bill, he would have allowed insurers to charge people like this 150 percent of the standard premium for 18 months.

The leaked draft does have a safety net for people who can’t afford to buy this more-expensive coverage. It would invest $100 billion over 10 years into a Patient and State Stability Fund. States could use this money to bump up the size of the tax credits in the individual market (more on that in a minute), build high-risk pools for those with exceptionally costly medical conditions, or send money to insurers who get stuck with especially costly patients (people who have claims higher than $50,000 in a single year).

The AHCA would let insurers charge older enrollees more

Obamacare currently restricts how much insurers can charge their oldest enrollees in the individual market. It says that insurers can only charge the oldest enrollee three times as much as the youngest, which pushes down premiums for those in their 50s and 60s. This used to be a group that faced prohibitively steep premiums on the individual market.

The AHCA would get rid of that regulation, allowing insurers to charge their oldest enrollees as much as they want. This change “increases the overall number of people with coverage, but older people end up falling out of the market as premiums rise,” says Christine Eibner, an economist with the RAND Corporation who has modeled similar changes to Obamacare’s age-rating provisions.

Eibner estimates that this particular policy would lower premiums for a 24-year-old from $2,800 to $2,100. But premiums for a 64-year-old would rise from $8,500 to $10,600.

And while young people might have cheaper premiums and an easier ability to enroll, older Americans could struggle to purchase coverage in this market, where their costs would rise. These are people who tend to have more urgent health care needs and could be in a worse position without health care than a young adult might be.

This worries some Obamacare supporters, who say the goal of insurance reform isn’t just to expand coverage — it’s to expand coverage for people who really need health care.

“If you replace a 60-year-old with a 20-year-old, that doesn’t change the number of people covered, but it changes the value of the coverage and of the program,” says Jonathan Gruber, the MIT economist who helped the White House model the economic effects of Obamacare.

The AHCA provides tax credits for the individual market that would benefit high-income Americans

The Republican replacement, like Obamacare, envisions that Americans will use tax credits to purchase individual health insurance. But the structure of the tax credits is very different.

Obamacare’s tax credits are based on income, with those who earn less getting more help. Under Obamacare, people who earn less than 200 percent of the poverty line (about $24,120 for an individual or $49,200 for a family of four) get the most generous help. They would get enough money so that a midlevel plan would cost no more than 6.4 percent of their income. People who earn more than 400 percent of the poverty line ($48,240 for an individual or $98,400 for a family of four) get nothing at all. There is no cap on what they have to pay for insurance.

The Republican plans would be based mostly on age and a bit on income. Everyone who earns less than $75,000 (or $150,000 for a couple filing jointly) would get the same amount of help. Those above the income threshold would have the help slowly phased out in 10 percent increments. The tax credits would be doled out this way:

  • $2,000 for those under 30
  • $2,500 for those between 30 and 40
  • $3,000 for those between 40 and 50
  • $3,500 for those between 50 and 60
  • $4,000 for those over 60

On the surface, the tax credits for the oldest Americans seem the most generous. People in their 60s, for example, get twice as much help as those in their 20s.

But under the Republican plan, insurers would be allowed to charge the oldest Americans five times as much as the youngest Americans. Their financial help would not scale nearly as much as their premiums would.

“You’re both jacking up the prices and giving people less of a subsidy, which is a damaging combination,” says David Certner, legislative policy director for the AARP, which lobbies on behalf of Americans over 55.

This new tax credit structure could also hurt to many low-income Americans, whose subsidies would fall substantially. The Kaiser Family Foundation estimates that these new tax credits would be anywhere between 31 and 82 percent lower for a 60-year-old who earns $20,000, depending on where that 60-year-old lives.

Higher-earning Americans, however, could see their benefits increase significantly. People who earned $48,280 or more under Obamacare got no help — but now anyone under the $75,000 threshold gets the biggest tax credit.

Still, this is a big difference from previous replacement plans, which had no income cap on who could receive financial help.

AHCA kills a new tax on employer-sponsored coverage — but keeps Obamacare taxes around for a year

Most drafts of the AHCA capped the tax exclusion for employer-sponsored coverage, meaning that costly health plans would be subject to income taxes.

The health insurance tax break is the biggest in the federal budget; the government loses out on $260 billion annually by not taxing health benefits. And economists across the political spectrum agree that Congress should eliminate or at least reduce this tax break, which currently gives those with jobs a huge discount on their coverage — and an incentive to buy more coverage than they actually need.

Original drafts of the Republican plan would have taxed any employer-sponsored coverage above the 90th percentile of current premiums. But this provision got significant blowback from employers, who knew it would raise the cost of health insurance significantly — and were ready to frame it as a tax hike on the 158 millions who get coverage at work.

The Republicans still need a way to pay for the tax credits and Medicaid expansion in their bill. So instead of the cap on the tax exclusion, they now will keep Obamacare’s taxes in place through January 1, 2018. This includes taxes on everything from insurers and hospitals to taxes on tanning salons — Obamacare’s so-called “Snooki tax.”