Tuesday, January 17, 2017

The basic elements of the Repulican plan for Obamacare replacement

There is little doubt that Obamacare was imploding prior to the Republican victory in November. Even people who were benefiting from Obamacare were chaffing under exorbitant premium rate increases and deductibles of thousands of dollars. For many people a $5,000 deductible is no insurance at all. A $5,000 deductible causes them to avoid needed treatment and if they must get treatment it can force them into bankruptcy.  In about a third of the counties in America, consumers have a "choice" of only one provider. It was obvious to everyone except the most loyal of Democrat partisans that Obamacare had not kept the promise of letting people keep their doctor or the promise of lowering cost. People were souring on Obamacare and the worst of the mandate tax penalty had not even hit yet and 2017 premiums had not yet been implemented. Next to a promise to "build the wall," the promise of Obamacare "repeal and replace" was probably the primary reason people voted for Donald Trump. So, Trump and Republicans won, now what?

Repealing and replacing Obamacare is a big challenge and will not be easy. Simply repealing Obamacare and not replacing it with something different is not a realistic option. Obamacare was a disaster but what we had before Obamacare was not working very well either. One thing seems pretty clear; most folks don't want to go back to the days when insurers could deny coverage for pre-existing conditions or having limits on care such that getting cancer wiped out a lifetimes of saving in a few short months, or having a whole lot of people without health insurance. Those thing must be considered in any replacement plan. Trump has pledged any replacement plan would provide protection for per-existing conditions and that young adult could stay on their parents plan until age 26. To meet all of these promises and expectation is going to be tough.

Critics claim Republicans do not have a plan to replace the Affordable Care Act and while there is not one specific proposal there are certain elements that will most likely be in any Republican plan. This not unknown.  These proposals have been floating around for years. From my reading, here is what is likely to be in any Republican Plan.

  • Repeal of the individual mandate, which  requires individuals to buy health insurance and imposes a  huge tax penalty if they do not.
  • Create new tax credits to incentivize individuals to buy insurance
  • Health Insurance plan choice: Health insurance customers will be able to chose the features they want in a plan. Women past child bearing age and men may not want plans that provide for child birth and maturity care. People would not have to buy features they do not want.
  • States would decide minimum coverage requirements.
  • Planned Parenthood would no longer receive federal funds through Medicaid reimbursements for services. 
  • Insurance customers could buy insurance policies across state lines, much the way one can now do with car insurance.  
  • Health Savings Accounts: HSAs  allow people to set aside money to pay for expenses not covered by insurance and that money is not taxed.
  • Auto-enrollment in health insurance. New employees would automatically be enrolled in an employer's health insurance plan unless they opt out. This would be combined with the new tax credits so the premium would equal the tax credit and the employee would have no reason to opt out.
  •  Provide grants to states for high risk health insurance pools.
  • An increase in medicaid waivers and block grants to states so states could innovate and design their own safety-net programs.

There are some difficulties in crafting any Obamacare replacement including these: 
  • Cost. Some of the taxes that fund Obamacare would go away with repeal of Obamacare. Part of the way Obamacare is funded is that healthy people are subsidizing sick people through higher insurance rates. To insure those with a preexisting condition would probably require the creation of a government subsidized high risk pools. That will not be cheap and Republicans are loath to raise taxes. Also, while there is a philosophical difference between not taxing someone and taxing them and then spending the money, it is still a "cost."  Massive tax credits will be expensive.
  • Keeping people covered. Some Republicans have promised that if people had insurance thorough the ACA, they would still have insurance under the Republican plan. Many of those who have insurance under Obamacare however, have it because they are forced to purchase it. Remove the mandate and fewer people will have coverage. 
  • Getting bi-partisan support. Obamacare was passed on a strictly partisan basis with no compromise and the use of heavy-handed tactics and bribes (Louisiana Purchase, Corn husker kickback) to keep Democrats on board.  When there is no buy-in from the other party, then the victorious party cannot expect their victory to last.  The same fate will befall a Republican plan if they do not get Democrat support but to get Democrat support would most likely require keeping Obamacare. A bi-partisan plan seems highly unlikely. 
Some problems will not be resolved by the best Republican plan: 
  • Rising cost: Just as Obamacare did not lower health care cost, there is not much in a Republican plan to significantly lower cost.  Insurance payments are third party payments and no one cares what something cost as long as someone else is paying for it and it doesn't much matter if the "somebody" is the government or an insurance company. 
  • There is not a market in health care: Some of the Republican elements would introduce more market forces but not much. For one thing, it is hard to have a market when people do not care what something cost and secondly, people do not think rationally about the cost and benefits of prolonging life or getting well. Someone will spend all their life saving to keep their spouse or child alive a week longer. 
  • There is not health care cost transparency. It is hard to have a market without price transparency and a health care consumer does not know the price of what he is purchasing until after it is purchased. Since someone else is paying the bill people don't care, but also, no one can understand all the bills they get and what each bill pays for. Paying for healthcare is like having an addition build on to your house without getting an estimate or discussing cost and then getting bills from various workmen and suppliers after the fact.
For the best of more information on Republican plans for health insurance reform and issues related to replacing Obamacare, follow these links:
H.R. 2653 (114th): American Health Care Reform Act of 2015,  sponsored by Rep. Phil Roe.
A Better Way,  Paul Ryan
GOP's Go-Slow 'Rescue Mission' Plan To Replace Obamacare.  NPR
The GOP must be practical when replacing the ACA, American Enterprise Institute
Fulfilling the Promise of Obamacare Repeal, National Review

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  1. "....much the way one can now do with car insurance." Auto insurance is sold based on your residency. You don't buy car insurance accross state lines. Humana sells policies in KY and they sell in TN. Auto-owners sells in KY and in TN. But you buy only IN the state (and only at your specific address).
    I wish someone would give specific examples of how purchasing accross state lines will make any significant difference to individual consumers. The bland, it will produce competition doesn't cut it.

    1. I would suggest you read the following from Forbes: Why Selling Health Insurance Across State Lines Is a Good Thing. http://thefederalist.com/2014/05/28/why-selling-health-insurance-across-state-lines-is-a-good-thing/ . While that in itself will not solve the problem, it will introduce competition and help.