To Understand What Obamacare Replacement Would Do, Follow The Money

GOP plans would shift federal dollars from those who need it most.

You’ve heard all about pre-existing conditions, and allowing young adults to stay on their parents’ health insurance policies. But if you want to understand what Republican plans to replace the Affordable Care Act would mean for the country, and perhaps for you individually, pay close attention to the money.

Thanks to the Affordable Care Act, the federal government now spends tens of billions of dollars each year providing financial assistance to people who buy insurance through HealthCare.gov or one of the exchanges (like Covered California) that some states run on their own. The financial assistance takes two forms ― tax credits that discount premiums, and direct subsidies that reduce out-of-pocket costs.

Most of the Republican schemes under consideration, including a working draft of House legislation that Politico obtained last week, envision the federal government continuing to provide assistance to people who buy coverage on their own. But the assistance would take a different form ― with a new formula for the tax credits, and no special assistance for out-of-pocket costs.

The result would be some fairly dramatic shifts in who gets insurance, how much they pay for it, and, eventually, what kind of insurance they have. This isn’t accidental. The decision to restructure financial assistance for insurance flows directly from the very different way Republicans and Democrats think about health care.

Basically, Democrats believe there should be a right to decent, affordable insurance. They wrote the Affordable Care Act with that principle in mind. Democrats didn’t achieve their goal ― millions of Americans remain uninsured, while millions more with coverage still face high costs. But something like 20 million people now have comprehensive policies they didn’t have before. Overall, financial security and access to health care have improved.

Republicans take a different view. They are willing to give people a tax break to defray health insurance costs, and some Republicans are even willing to extend assistance to lower-income people who don’t make enough money to owe income taxes. But Republicans reject the idea of government guaranteeing coverage, and their proposals to replace “Obamacare” wouldn’t even attempt to provide such a guarantee.

It’s a big reason why the mainstream Republican plans would likely result in more uninsured, weaker coverage, or some combination of the two.

How Obamacare Assistance Works

Under the Affordable Care Act, if you buy insurance through HealthCare.gov or one of the state-run exchanges, you can get tax credits that help offset the cost of premiums. These are special tax credits, in that they go straight to the insurance companies at the beginning of each month, so you don’t have to wait until tax-filing season to get the money.

The tax credits are also “refundable,” which means that if your income tax liability is smaller than the value of the credit, or if you have no liability at all, you still get the full value. This is very important in health care because a large number of people buying through exchanges are working in low-paying jobs. They are hotel housekeepers and clerks at big-box stores, home health aides and security guards. If the credits weren’t refundable, they wouldn’t get much or any assistance, even though they are the ones who need it most.

The formula for calculating these tax credits is important. It varies based on income, so that you’ll get a bigger tax credit if you make less money. The value also varies depending on how much insurance costs in your area ― in particular, the price of the second-cheapest “silver” plan, which the law treats as a benchmark. (Silver plans, which are less generous than typical employer plans, cover roughly 70 percent of the typical person’s medical expenses.) 

Then there is the assistance on cost-sharing. It is available only to consumers who buy silver policies and whose incomes are below 250 percent of the poverty line ― about $30,000 for an an individual and $61,000 for a family of four this year. It gets very little attention because even most of the people who get the money don’t realize it. (The exchanges factor in the assistance automatically, so that policies simply appear to have lower deductibles and co-payments.) But for the millions who get it, it’s the difference between insurance that works and insurance that doesn’t.

Yes, the whole scheme is awfully complicated. But put it all together and what you have is a system in which, generally speaking, people who need more financial assistance get it.

How GOP Tax Credits Would Work

So what would Republicans do instead? At the moment, nobody can say for sure, because they are still arguing among themselves over some pretty basic design questions. Moderates talk of “repair” as much as “replace,” while conservatives are determined to tear the law down entirely ― and then put little or nothing in its stead.

Just this week, for example, several conservative Republicans in Congress said they would vote against any bill with refundable credits, because they would consider giving money to people with no income tax liability akin to creating a new entitlement. Of course, a bill with no refundable credits would, by definition, leave out a huge chunk of the population now getting coverage through Obamacare.

This approach ... would make it impossible for most lower-income people to purchase adequate health insurance coverage Linda Blumberg, The Urban Institute

Republican leaders like House Speaker Paul Ryan (R-Wis.) haven’t gone that far, at least not yet. The draft legislation that leaked last week still had refundable credits, and looked a lot like the plan that Health and Human Services Secretary Tom Price had proposed when he was in Congress last year. The “Better Way” proposal, a set of reform principles that Ryan released over the summer, also had refundable credits. President Donald Trump also endorsed tax credits during his speech to Congress on Tuesday night, although he didn’t specify what kind.

But the tax credits in the Republican bills are different from the Affordable Care Act’s. Instead of adjusting the value to account for premiums and income, as the law does today, the Republican plans envision tax credits whose value would vary based only on age. In the leaked bill, for instance, 25-year-olds would get $2,000 a year, while 55-year-olds would get $3,500. It wouldn’t matter how much these people make, or what insurance costs in their communities.

The federal government would still be spending a lot of money on tax breaks for people getting health care. But it wouldn’t steer that money in the way that the Affordable Care Act does ― in other words, it wouldn’t target people who struggle the most with medical bills.

Why The Difference In Tax Credits Matters So Much

Several recent studies, including two that were released on Wednesday morning, examined what the Republican approach would mean in practice.

  • Researchers at the Henry J. Kaiser Family Foundation looked exclusively at the premium tax credits and how they’d affect different groups of people. The results were predictably complex, with lots of variation from person to person, but the general pattern was clear. “Lower income and older people and those who live in high-premium communities tend to get less help,” Larry Levitt, senior vice president at Kaiser, told the Huffington Post. “Those who are higher income and younger and live in low-premium areas tend to do better.”

  • Linda Blumberg, senior fellow at the Urban Institute, decided to take into account how changes to financial assistance would interact with other changes that Republicans propose, like allowing insurers new flexibility over what to cover and how much they could charge. If such a plan became law, Blumberg concluded, it would be “impossible for most lower-income people to purchase adequate health insurance coverage, given their limited financial resources and potential medical needs.”

  • Three health care experts broke down the original Price bill, to see how it would affect total costs for enrollees ― in other words, not just premiums, but also out-of-pocket costs. They published their results in Vox last week: “Although premiums would be lower under the Republican plan, this decrease would be offset by an increase in cost sharing. Once the differences in tax credits are accounted for, the Republican plan would increase total costs for every age group except for those under 25.”

  • McKinsey & Co. ran a rough analysis on the leaked House bill, and presented its findings to a meeting of the nation’s governors over the weekend. Some presently uninsured young people would get coverage, McKinsey’s analysts predicted, because the GOP’s tax credits would make insurance more financially attractive. But those gains would be more than offset by older people dropping insurance as it suddenly became a lot more expensive. Overall, McKinsey’s researchers said, non-group insurance ― that is, coverage for people buying on their own ― would decline by 30 percent to 50 percent.

None of this should be surprising. The architects of the Affordable Care Act were trying to make sure everybody could get decent insurance, regardless of income, and they were willing to adjust financial assistance in order to make that possible. The Republicans who would replace the Affordable Care Act aren’t trying to put insurance within everybody’s reach. They are simply trying to offer a tax break that would available to people buying health insurance, and even then only under some circumstances.

The Republican approach would be a lot more straightforward, and it would likely mean a lot less federal spending. But it would also mean many fewer people buying insurance, much weaker coverage for those who have it, or both.

That’s an alternative to the Affordable Care Act ― not a replacement.

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