The most noteworthy thing about the House Republican leadership’s new American Health Care Act is that a lot of Republicans appear to be unhappy with it.
It leaves in place some of Obamacare’s most destructive provisions. For instance, the reform allows children to stay on their parents’ plans until 26, and requires private plans to cover certain essential benefits. But the bill also takes several steps toward creating a market-based health care system capable of expanding access to quality, affordable care.
Several parts of the American Health Care Act deserve applause. For instance, the bill would immediately end the individual mandate requiring Americans to purchase coverage or else pay a tax penalty of $695 or 2.5% of income—whichever is greater. It would also scrap the mandate requiring employers with 50 or more full-time workers to offer coverage.
By bolstering Health Savings Accounts, the measure would empower Americans to spend more of their health care dollars as they see fit. HSAs allow individuals to put aside money, tax-free, to cover out-of-pocket medical expenses. Starting next year, the act would increase the maximum individual HSA contribution from $3,400 to $6,550, and the top family contribution from $6,750 to $13,000.
The bill would also roll back Obamacare’s complex system of income-based insurance subsidies and replace them with more straightforward, age-based, refundable tax credits. An individual who does not get coverage through work or another public program would receive the credit once a month to help cover premiums for any health insurance policy he chooses—not just those available on Obamacare’s exchanges.
The new credits would increase by $500 for each decade of age—from $2,000 annually for Americans under 30, to $3,000 for those between 40 and 50, to $4,000 for those 60 and older. If a person selects a policy that costs less than his credit, he could deposit the remainder in an HSA.
The credits aren’t perfect. They’d decrease by $100 for every $1,000 of income above $75,000 for individuals and above $150,000 for families. Not only is this scheme overly complicated—it’ll require the IRS to verify people’s incomes in order to determine eligibility. That’s barely an improvement over the Obamacare status quo.
The GOP bill would help to drive down premiums and deductibles for the young by loosening its “community rating” rules. Obamacare prohibited insurers from charging older patients more than three times what they charged younger ones; the American Health Care Act would increase that ratio to 5:1.
In so doing, the bill would end an unfair arrangement that shifts insurance costs from older, sicker Americans to younger, healthier ones. Older Americans may see their premiums rise, but they’d also receive more generous tax credits than younger people. And by attracting more young people into the insurance pool, this reform would stabilize the adverse-selection “death spiral” plaguing Obamacare’s exchanges.
The act would further bring down premiums by repealing Obamacare’s many taxes, including its multibillion-dollar levies on health insurers, medical device manufacturers, and pharmaceuticals—which have been passed onto consumers for years.
However, the American Health Care Act is also a far cry from full-scale repeal and replacement of Obamacare. It would preserve many of Obamacare’s “essential health benefits,” like free coverage of preventive care and addiction treatment. Each of these mandates increases the cost of a policy. These mandates also undermine consumer choice; surely, some people would forego coverage of certain “essential” benefits in exchange for lower premiums.
The act also maintains the unlimited tax exclusion for employer-sponsored health plans. This tax break essentially subsidizes employer-based coverage by excluding the value of health benefits from employees’ taxable income.
Since those purchasing coverage in the individual market enjoy no such tax break, the policy has helped entrench a system in which coverage is tied to employment. And it’s contributed to the runaway growth of health costs. After all, a dollar of taxed wages is worth less than a dollar of untaxed health benefits. Americans have put those generous health benefits to use, driving up demand for health care and thus its price.
The GOP bill would also preserve Obamacare’s expansion of Medicaid to childless adults making up to 138% of the poverty level until the end of 2019. Thereafter, anyone who was in the program thanks to Obamacare’s expansion of eligibility could stay in.
The only saving grace for the bill’s treatment of Medicaid is that it begins to transform the program’s funding formula from an open-ended federal commitment into a “per capita allotment” system, wherein states receive a set amount of federal funding for each Medicaid enrollee.
This reform would put significant pressure on states to rein in Medicaid’s out-of-control costs—instead of rewarding them for spending increases, as the current system does. And it would give states the flexibility to manage their programs in order to meet the unique needs of their populations.
Unfortunately, that per-capita allotment will be based on the Obamacare era’s artificially high levels of Medicaid spending.
Since its release Monday evening, the bill has taken a beating—from Republicans. But the members of the GOP, moderates and conservatives alike, have to remember that a repeal-and-replace effort that devolves into infighting will just leave Obamacare in place.
The American Health Care Act is Republicans’ imperfect first crack at a replacement plan. It won’t be their last.