Repug Replacement Options under Consideration for ACA

I read 7 Republican Obamacare replacement plans. Here’s what I learned.

11/17/2016

If there’s one thing Republicans have been clear about for the past six years, it is that the top of their agenda includes repealing Obamacare.

But Obamacare repeal would leave an estimated 22 million Americans without coverage and wreak havoc on the individual insurance market. It’s becoming increasingly clear that Republicans can’t just repeal Obamacare — they need to replace it with something.

It turns out Republicans have a lot of choices: There are at least seven different replacement plans that Republican legislators and conservative think tanks have offered in recent years. I’ve spent the past week reading them, and what I’ve learned is this:

  • Yes, Republicans have replacement plans. It is true that the party has not coalesced around one plan — but there are real policy proposals coming from Republican legislators and conservative think tanks. There is a base that the party can work from in crafting a replacement plan.
  • There is significant variation in what the plans propose. On one end of the spectrum, you see plans from President-elect Donald Trump and Sen. Ted Cruz that would repeal Obamacare and replace it with virtually nothing. On the other end of the spectrum, there are plans from conservative think tanks that go as far as to keep the Affordable Care Act marketplaces and continue to give low-income Americans the most generous insurance subsidies.
  • If we can say one thing about most Republican plans, it is this: They are better for younger, healthy people and worse for older, sicker people. In general, conservative replacement plans offer less financial help to those who would use a lot of insurance. This will make their insurance subsidies significantly less expensive than Obamacare’s.
  • Economic analyses estimate that these plans reduce the number of Americans with insurance coverage. The actual amount varies significantly, from 3 million to 21 million, depending on which option Republicans pick. They will near certainly provide more coverage than Americans had before Obamacare, but also less than what exists currently under the health law.

I’ve spent the past week talking to authors of Republican replacement plans, economists who support them, and economists who oppose them. I’m focusing here on the two plans that are likeliest to be the most influential in the coming replacement debate: Better Way, from House Speaker Paul Ryan (R-WI), and the Patient CARE Act, from Sen. Orrin Hatch (R-UT), who chairs the Senate Finance Committee.

This is the universe of ideas that Republicans will draw from in coming weeks and months — and while they don’t agree on one plan right now, the goal for creating a replacement plan is that they will come to agreement soon.

“It’s true they haven’t coalesced around a plan — but it was also true Democrats didn’t coalesce around a plan until Scott Brown was elected,” says former Congressional Budget Office director Doug Holtz-Eakin. “I think the GOP will, in the same way, coalesce at the point they have to. There isn’t uniform agreement now, but you’ll see the White House lay out priorities and a time table that dictates when agreement happens.”

Better Way (Speaker Paul Ryan)

House Speaker Paul Ryan And House GOP Leadership Speak To Media After Party Conference MeetingPhoto by Win McNamee/Getty Images

Rep. Paul Ryan (R-WI) released his Better Way for Health Care plan on June 22, 2016, about six months after his election as House speaker. The plan is expected to be integral to the health care debate on the Hill, given that it comes out of the House speaker’s office.

Better Way would overhaul both the individual market and Medicaid. Economists with the Center for Health and Economy worked with the speaker’s office to model the effects of proposal, and estimate it would lead to 4 million Americans losing coverage.

Outside economists say these estimates might be too optimistic, and, especially because of changes to Medicaid, Better Way could leave additional millions more uninsured than the CHE numbers suggest.

Better Way restricts — but doesn’t entirely ban — use of preexisting conditions in determining coverage

Better Way, like Obamacare, requires insurance plans to offer coverage to any patient regardless of how sick they are. But to be clear: This is not a repeal of preexisting conditions altogether. Because the Better Way plan would let insurers charge sick people more if they did not maintain “continuous coverage.”

This continuous coverage policy shows up in a lot of the Republican replacement plans, and is likely something we’ll hear lots of debate about in the coming months. It is a replacement for the individual mandate, meant to nudge healthy people into keeping their insurance plans even when they don’t need much medical care. Those who don’t keep coverage could ultimately face much higher premiums when they do decide to purchase coverage.

For example: If a cancer patient 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 and went to the individual market under Better Way, insurers would still have to offer her a plan — but it wouldn’t have to be affordable. And this is really different from Obamacare, which completely eliminates this type of insurance behavior. This change to the preexisting condition ban is worrisome to ACA supporters.

Better Way does have a safety net for people like this: It would invest $25 billion in a high-risk pool to cover those with preexisting conditions who are unable to afford coverage on the marketplace. There are not details about who would be eligible for this pool in Better Way, and whether it would include everyone with a preexisting condition.

Better Way makes insurance better for people who are young and healthy. It makes insurance worse for people who are old and sick.

One constant Obamacare gripe from Republicans is that the health care law mandates too big of a benefit package. This drives up premiums, they argue, and scares off some healthy and young enrollees who want to buy a skimpier plan.

There is some truth to this argument. Obamacare’s marketplaces have struggled to attract young adults at the level the White House had initially hoped (the Obama administration originally said it wanted one-third of the marketplace to be people between 18 and 34 but, right now it’s only about a quarter).

Better Way takes a lot of steps to re-regulate the individual market to make it more advantageous for healthier people. It eliminates the essential health benefits package, which mandated that all insurers cover a set of 10 different types of care including maternity services and pediatric care. Better Way would allow insurers to cut whatever benefits they no longer want to cover — a move that will likely benefit healthy people, who generally want less robust coverage.

There are other ways Better Way makes insurance better for young people too: by letting insurance plans charge them lower rates.

It does this by allowing insurers to charge their oldest enrollees five times as much as young enrollees. Right now, insurers can only charge the oldest enrollees three times as much as the youngest.

The nonpartisan RAND Corporation has modeled the effect of this switch. It found that premiums for a 24-year-old would decline from $2,800 to $2,100. But premiums for a 64-year-old would rise from $8,500 to $10,600.

Widening the age band, as this ratio is known, “increases the overall number of people with coverage, but older people end up falling out of the market as premiums rise,” says Christine Eibner, the RAND economist who has studied the provision.

Premiums on the individual market would likely decline under Better Way because insurers would offer slimmed-down coverage and charge lower prices to healthy young consumers.

Stephen Parente, a health economist at the University of Minnesota, worked with Speaker Ryan’s office to model the economic effects of the plan and found that premiums could drop anywhere between 9 and 35 percent over the next decade, depending on the plan.

But it’s important to keep in mind: These are not the same plans currently offered under Obamacare. Enrollees will pay less but also get less.

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.

And this worries some Obamacare supporters, who say the goal of insurance reform isn’t just expanding coverage — it’s expanding coverage to people who really need health coverage.

“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. “You would see a shift in who is covered.”

Better Way would provide tax credits, but they would help the older (and likely richer) more

Better Way, like Obamacare, envisions that Americans will use tax credits to purchase individual health insurance, but the structure of the tax credits is very different in an important way.

Obamacare’s tax credits are based on income, with those who earn less getting more help. Better Way’s tax credits would only be based on age, giving more help to those who are older (and who will presumably be charged higher premiums).

This means that anyone up through Bill Gates would qualify for a subsidy under Better Way, solely based on age.

18 million people would lose their Medicaid coverage under Better Way

Better Way wouldn’t fully kill Obamacare’s Medicaid expansion — but it would significantly scale back funding. The proposal also makes significant changes to how the rest of the Medicaid program would work.

Ryan has long advocated for turning Medicaid into a “block grant” program. In its simplest form, this means handing control of the program — and the funding for it — over to the states. But many Republican block grant plans include something else at the same time: a massive cut to Medicaid spending that could throw tens of millions of people off the program.

There aren’t a lot of details about how block-granting would work in Better Way, but Ryan has released more detailed plans in the past in budget proposals. The Bipartisan Policy Center analyzed his 2013 block grant plan and estimated it would reduce Medicaid spending by $160 billion by 2022 — about one-third of the program’s entire budget.

Better Way does allow states that have already expanded Medicaid to continue to run the expansion program, although the federal government would provide significantly less funding for it. Low-income Americans would be eligible to forgo Medicaid and buy private coverage through the marketplace — but given that the tax credits aren’t larger for poorer people, they might struggle to afford the premiums.

Parente estimates that Better Way would reduce Medicaid enrollment by 18 million people by 2026, but that a significant number of those people will shift into the individual market. He projects that in a decade, Better Way will leave an additional 4 million Americans without coverage compared with the Affordable Care Act.

Other economists are skeptical that coverage will remain so high, mostly arguing that many of the people who lose Medicaid won’t find coverage elsewhere.

“We find some of those people are left behind,” says Eibner at RAND. “Even though they get the tax credit, our model shows fewer people than Parente’s does actually moving into the individual market.”

Better Way would change employer-sponsored insurance too

Most of the changes in Better Way have to do with people who get insurance through Medicaid or on the marketplaces. But there is one important change the plan would make to employer-sponsored insurance: It would cap the tax exclusion for employer-sponsored coverage.

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 we 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.

As popular as this provision will be with economists, you can bet that the public will hate it, as it would make some health plans significantly more expensive — and face similar pushback to Obamacare’s Cadillac tax.

Better Way isn’t especially clear on how where the new threshold would be, only specifying that “our plan proposes to cap the exclusion at a level that would ensure job-based coverage continues unchanged for the vast majority of health insurance plans.”

Patient CARE Act (Sen. Hatch (R-UT), Sen. Burr (R-NC), Rep. Upton (R-MI))

House Republicans Introduce Balanced Budget Amendment At Press Conference
Sen. Orrin Hatch (R-UT).
Photo by Win McNamee/Getty Images

The Patient CARE Act comes out from Sen. Orrin Hatch (R-UT) who chairs the Senate Finance Committee, which will be heavily involved in any health care legislation in the chamber. Structurally, it is pretty similar to Ryan’s Better Way. The proposal makes similar changes to Medicaid and employer-sponsored coverage, so the sections above apply to the CARE Act too.

There are, however, key differences in some of the individual market provisions that will need to be hammered out in legislative debate.

There are two economic analyses of CARE Act available at this point. One, from the RAND Corporation, estimates that it would cause 9 million Americans to lose coverage by 2026. Another, from Parente’s Center for Health Economy, estimatesthat 4 million would lose insurance the same year.

Patient CARE would attempt to help maintain “continuous coverage” by having the government enroll some people in fallback plans

Like Better Way, the CARE Act would let insurers charge sick people more if they did not maintain continuous coverage. But the CARE Act gets a bit more aggressive about making sure people actually enroll in plans. It envisions the government picking a “default” health plan that those who don’t pick anything would automatically be enrolled into.

The default plans would have “premiums equal to the value of the tax credit,” so that enrollees wouldn’t be forced to spend additional money. This means the premiums would need to be quite low — for 18- to 34-year-olds, for example, they’d need to be $164 per month — and likely provide pretty narrow, catastrophic coverage.

It will be interesting to watch the political debate around this provision, given all the pushback to an individual mandate — and how the idea of the government defaulting people into insurance coverage ultimately plays out.

The Patient CARE Act is different from Better Way because it gives poorer people higher subsidies

The Patient CARE Act makes many of the same changes to the individual market as Better Way does. It repeals the mandate that insurers cover an essential set of health benefits, and also moves to letting insurers charge the oldest patients five times as much as the youngest.

One significant difference between Patient CARE Act and Better Way is how they structure subsidies for the individual market. Patient CARE appears to be the one Republican replacement plan that offers more financial support to lower-income enrollees. The proposal envisions the highest tax credits — the amounts shown below — given to those who earn less than 200 percent of the federal poverty line. The amount of support would phase down between 200 and 300 percent of the poverty line, when it would phase out entirely.

But the CARE Act would still be better for young people than it would for the old

Still, CARE still ends up with some of the same outcomes as Better Way: namely, making insurance cheaper for young people and more expensive for old people.

Eibner has done economic modeling of the CARE Act (although not Better Way yet) and is able to show who benefits and who loses under the proposal.

She finds that under the CARE Act, only 85 percent of 21-year-olds would see their premiums either stay the same or decline compared with Obamacare. But 100 percent of 50- and 60-year-old enrollees would see their premiums increase under CARE Act.

There are at least two repeal bills introduced in Congress

House Budget Committee Meets On Their Budget Plan For 2016
Rep. Tom Price (R-GA) has an Obamacare replacement plan — and is in the running to become secretary of health and human services.
Photo by Allison Shelley/Getty Images

Most Republican replacement plans are still white papers rather than actual legislative language. This means they leave out a lot of key details — who, for example, would qualify for a high-risk pool or how big tax credits would be. But there are at least two actual bills that legislators have introduced that get into much more granular detail of what a replacement plan might be.

These bills didn’t come up much in the conversations I had over the past week as the leading contenders for what a replacement bill would look like. But their legislative language could become important as Republicans attempt to fill in the details that the white paper repeal bills leave out.

Empowering Patients First Act (Rep. Tom Price)

Rep. Tom Price (R-GA) has been working on this proposal to repeal Obamacare for a while, and it’s gone through a number of iterations. His bill hasn’t gotten a ton of attention lately, but given that he is in the running to become health and human services secretary, it certainly is one to watch.

It has some of the familiar provisions of the other proposals we’ve run through so far: the return of preexisting conditions for those who don’t keep continuous coverage, age-based tax credits, and a limit on the tax exclusion for employer-sponsored coverage.

Price’s bill arguably does less to protect sick people than Better Way does. It includes very little funding for the high-risk pools: $3 billion, compared with Better Way’s $25 billion. Its limit on the employer-sponsored tax exclusion is significantly lower than other proposals ($8,000 for an individual, compared with Patient CARE’s $12,000 cap). Both of these differences would make Price’s bill less expensive for the government, and might be alluring to legislators as they begin the budgetary scoring process.

Health Care Choice Act (Sen. Ted Cruz)

“Every last word of Obamacare must be repealed,” Sen. Ted Cruz (R-TX) said when introducing his replacement plan. But what is striking about his plan is that it doesn’t repeal all of Obamacare: Instead, it just gets rid of the law’s changes to the individual market and leaves everything else the same.

The Health Care Choice Act leaves the rest of the law — the Medicaid expansion, for example, or changes to Medicare payments — totally untouched.

The Health Care Choice Act has no individual mandate, no continuous coverage requirement, and no insurance subsidies. It is way, way further from Obamacare than the other plans. The one reform it offers is allowing insurers to sell coverage across state lines, something that shows up in other Republican plans as well.

This plan wouldn’t erode the coverage gains of the Medicaid expansion but would undoubtedly erode coverage in the individual market. There would be no requirement that insurers sell to those with preexisting conditions, returning the individual market to a state similar to before Obamacare had ever happened.

Other notable replacement plans take slightly different approaches

There are a handful of other Republican and right-leaning replacement plans out there that differ from these two congressional proposals in significant ways. Here are some of the highlights:

Improving Health and Health Care: An Agenda for Reform (American Enterprise Institute)

This plan would make a lot of the changes to the individual market that others propose — repealing the essential benefits, getting rid of the mandate. It includes the “default” plan idea, of the government signing people up for a low-cost plan if they fail to sign up for anything themselves, that shows up in the Patient CARE Act. But it would, somewhat surprisingly, allow states to maintain their Obamacare-era insurance marketplaces. These are the government-run websites that allow consumers to compare different insurance plans.

“It would be impractical to require states to roll back exchanges they have already created,” the paper argues. Instead, it envisions these marketplaces sticking around to “enhance choices for consumers rather than to limit them.”

Government for People Again: Health Care (President-elect Donald Trump)

Trump’s health care proposals are the most bare-bones of any plans. His transition website currently includes a three-paragraph health policy proposal. It seems quite plausible that he, like President Obama before him, will take let Congress take the lead on figuring out the nuts and bolts of health reform.

On his transition website, and previously during the campaign, Trump had proposed repealing Obamacare with a sparse set of replacement policies: Letting insurers sell across state lines, for example, is one that the president-elect mentioned numerous times during debates. He also seems to support Medicaid block-granting, noting that he wants to “enable States to experiment with innovative methods to deliver healthcare to our low-income citizens.”

There is no discussion in any Trump proposal of what the individual market might look like.

Transcending Obamacare (The Foundation for Research on Equal Opportunity)

Avik Roy is a longtime health policy analyst, and has released multiple editions of this plan. Roy’s plan is notable in that it doescontinue to tether the insurance premiums to income, giving those who earn less more generous support — much like Obamacare.

Roy would increase the space between premiums for young and old enrollees even more than other Republican options, allowing insurers to charge the oldest patients six times as much as the youngest. He argues that this would drive down the cost of health insurance for both old and young people, as it would create a healthier insurance pool — so premiums for the oldest-insured people would fall by $100 and premiums for the youngest decline by $833.

Roy also has an interesting alternative to the individual mandate. He proposes only running open enrollment every two years.

Under this system, individuals who choose to forgo coverage could do so without paying a fine,” Roy writes. “However, they could not simply enter and exit the system at will.”

In other words: If someone skipped open enrollment one time, they’d have to wait another two years to get back into the system.

So what happens next?

The space between the different Republican replacement plans is quite broad, and the decisions legislators make about which direction to go in will be hugely important for the people who rely on Obamacare for coverage.

There are likely to be specific flashpoints in the coming debate, such as:

  • How far should Republicans go to replace Obamacare? As I wrote in the beginning, the options on the table range from just letting insurers sell across state lines to building a completely new structure for subsidized health insurance. Replicating parts of Obamacare, especially Medicaid expansion and tax credits, will be expensive — especially when Republican legislators have been adamant about rolling back the taxes that Obamacare uses to raise money.
  • Should the tax credits be more generous for the lowest-income Americans? This is one key difference between the Patient CARE Act and Better Way — with Better Way only adjusting subsidies on age and Patient CARE Act looking a bit more like Obamacare, and giving the most money to those who will struggle the most to afford coverage.
  • Will Republicans weather the political backlash to raising the costs of employer-sponsored insurance? The proposal to limit the tax exclusion for health insurance would amount to a significant price increase for those with the most generous health insurance plans. Like Obamacare’s Cadillac tax, it would almost certainly face significant political backlash.

The question right now isn’t whether Republicans have plans to repeal Obamacare. It’s which parts of which plans they’ll pick — and how quickly they’ll coalesce around one option.

Correction: An initial version of this article inaccurately described the chart from Roy’s Transcending Obamacare plan. It shows premiums for the oldest Americans going down, not up, under his plan.

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