6 Republican plans to replace Obamacare — an overview.
Part 1: Individual health plans
Here at HealthSherpa we’ve enrolled over 800,000 people in individual health insurance through the ACA (Affordable Care Act) aka “ObamaCare,” so we’re naturally interested in how Republicans in Congress will transform that market through replacement legislation. As such, we’ve completed a review of the major Republican healthcare proposals, covering:
Healthcare Reform. Donald Trump, POTUS
A Better Way. Paul Ryan, Speaker of the House
Empowering Patients First Act. Tom Price, Nominated for Secretary of HHS
The Patient Choice, Affordability, Responsibility and Empowerment Act. Senators Burr (R-NC) and Hatch (R-UT), Congressman Upton (R-MI)
Patient Freedom Act. Senators Collins (R-ME), Cassidy (R-LA)
Improving Health and Health Care: An Agenda for Reform. American Enterprise Institute
Overview of the ideas contained in each proposal:
In this article we’ll summarize each idea and why it matters. This is Part 1, covering the individual health insurance market. Part 2 will cover employer insurance, and Part 3 will cover Medicare, Medicaid, and general reforms.
Note: this is not a comprehensive analysis of each proposal, but merely a tool to get a sense for what’s being proposed. If you have feedback, drop me a line in the comments or at george@healthsherpa.com.
Idea #1: Provide a subsidy or tax credit to help people pay their premiums
What: Give people money to help them pay for their health insurance (if they don’t get insurance through their job or a family member). This is a key pillar of the Affordable Care Act.
Why: Over 9 million Americans currently receive subsidies under the ACA. Repealing the ACA without replacing the subsidies would likely make insurance unaffordable for these people and they would lose their coverage.
Details:
Idea #2: Keep dependent coverage up to age 26
What: Under the ACA, dependents can remain on health insurance until age 26.
Why: This is one of the more popular provisions of the ACA, with broad bipartisan support.
Idea #3: Let people shop for insurance across state lines
What: Let insurance companies market the same plans in multiple states.
Why: States like California and New York heavily regulate their domestic insurance markets, including placing limits where insurers can offer plans and what those plans have to cover. These consumer protections can limit choice and raise premiums, so letting insurers sell across state lines should lower premiums and increase choice for consumers.
Details:
Idea #4: Pre-existing conditions do not prevent coverage
What: Prior to the ACA, insurance companies could deny coverage to people that they expected to lose money insuring because of pre-existing health conditions. The ACA not only made it impossible to be denied coverage for pre-existing conditions, but prevented insurers from charging individuals with pre-existing conditions more for their insurance. This provision would retain that protection, but depending on the specific proposal, may penalize people who do not maintain continuous coverage (see details below).
Why: Preventing insurers from taking pre-existing conditions into account is one of the more popular provisions of the ACA. Prior to the ACA there were people who were essentially uninsurable due to their pre-existing conditions.
Details:
Idea #5: Promote the use of Health Savings Accounts (HSAs)
What: A health savings account (HSA) is an account that you or your employer can contribute tax-free money to. You can then use that money to pay for most medical expenses, and while the money is sitting in the account, you can invest it in assets like stocks and bonds.
Why: HSAs are considered a great way to control healthcare spending because it is believed that people who have an HSA feel like they are spending their own money, and will be more price sensitive when making health care purchasing decisions. This works because under current law HSAs have to be paired with a high deductible health plan where the individual pays a lot of money out of pocket before the insurance contributes.
Details:
Idea #6: Keep the “Individual Mandate” requiring people to have insurance
What: The ACA requires everyone to have health insurance or pay a fine. These Republican plans keep this provision in place.
Why: People in favor of the individual mandate argue that uninsured people still end up using healthcare, and that the individual mandate forces healthy people to participate, which lowers premiums by keeping the risk pool healthy. People opposed are against forcing people to buy health insurance, and this provision of the law is unpopular with voters.
Idea #7: Insurers can’t impose lifetime limits
What: Before the ACA, insurers could limit how much they would pay in claims for a particular customer over the course of their lifetime, typically setting that number in the hundreds of thousands to millions of dollars. This was a big problem for people with expensive, chronic conditions as well as for e.g. children who required neonatal intensive care.
Why: The ban on lifetime limits is a popular provision of the ACA, and successfully addressed a major problem with pre-ACA health insurance.
Idea #8: Relax cap on premiums for seniors
What: Under the ACA, a 64 yr old cannot pay more than 3 times the health insurance premium of a 21 yr old. This would change that limit so that a 64 yr old could not pay more than 5 times the premium of a 21 yr old, and states could vary that at their discretion.
Why: Before the ACA, the market set that multiple as high as 11 times. Going from 3x to 5x or more would make plans cheaper for younger people and more expensive for older people. This could incentivize younger, healthier people to sign up for coverage, lowering the uninsured rate and improving the risk pool and lowering premiums.
Idea #9: Default enrollment at states’ discretion
What: States can choose to automatically enroll people in a plan that costs exactly what their subsidy would be if they don’t proactively pick a plan for themselves.
Why: People are uninsured for a lot of reasons — cost, lack of knowledge, personal priorities — and this would ensure that everyone would have some level of catastrophic health insurance coverage.
Idea #10: Federally funded high risk pools, run by states
What: Some people are very sick and require a lot of health care over time, which drives insurance costs up for everyone and discourages healthier people from buying insurance. This plan would create a special pool of federal funding to insure these people, getting them out of the, “risk pool” of generally healthy people.
Why: Very sick people incur a disproportionate share of healthcare costs, driving the cost of insurance up a great deal for everyone. Indicatively, 20% of healthcare spending is spent on the sickest 1% of the population, 65% of healthcare spending goes to the sickest 10%, and the healthiest 50% incur only about 3% of total healthcare costs.
Details:
Idea #11: Create nonprofit Independent Health Pools (IHPs)
What: IHPs would allow people to band together to buy insurance.
Why: A group of people would have more bargaining power than an individual.
Idea #12: Replace metal tiers with less prescriptive approach
What: The ACA defines four metallic tiers — platinum, gold, silver and bronze, which correspond to the actuarial value of the insurance plan. Actuarial value is the rough percentage of the typical enrollee’s expected annual health costs that the plan would cover, with platinum plans covering 90% of expected annual health costs, gold plans 80%, silver 70% and bronze 60%.
Why: Having four defined metallic tiers may limit the diversity of plans that insurers can offer, and commoditize insurance plans with a, “one size fits all” approach.
Idea #13: Keep the ACA’s “Essential Health Benefits”
What: The ACA outlines 10 categories of care, called the Essential Health Benefits (EHBs), that all health insurance plans must pay for in order to be eligible for subsidies and to exempt the holder from paying the fine for not having insurance.
Why: People in favor of EHBs argue that they ensure plans meet an acceptable standard of coverage in the interest of the consumer’s health, and that a healthier risk pool reduces plan costs as a whole. People opposed to EHBs argue that covering will cost more, and limits options, reducing the number of people who will enroll, thus making all plan coverage more expensive.
Idea #14: Individual insurance premiums are tax deductible
What: Let people who purchase individual health insurance deduct the premiums they pay from their taxes.
Why: Health insurance provided by employers is tax deductible, while individual health insurance is not. This means people who buy insurance on their own (e.g. the self-employed, or if your job doesn’t offer coverage) pay higher taxes, all else equal, than people who get insurance through their jobs.
Idea #15: States can keep the ACA if they want it
What: States can choose to continue with the ACA, but will only receive federal dollars for subsidies and Medicaid expansion equal to what they would receive under the replacement plan.
Why: States like California and New York are strongly in favor of the ACA and have invested significant resources in their state exchange websites and state Medicaid programs.
To be continued
While a few themes emerge across these proposals – more choice, more affordability, more individual responsibility – we’re still very early in the legislative process. The final replacement bill will almost certainly include a number of compromises (to get the Democratic votes needed to pass) and may include some surprises, so stay tuned.
Up next, in Part 2 of this series, I’ll cover the impact these changes will have on the employer-sponsored insurance market.
