The Republican Obamacare Replacement Plans Explained

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**Note: This doesn’t go through every provision in both House and Senate bills because it would be the length of an e-book. I highlighted some of the main provisions in both.**

The key differences between the Republican replacement bills and the Affordable Care Act

  1. Cuts/reorganizes Medicaid

Context:

I hate when news articles just say “the bill does x” without telling you what x means and why it’s a big deal. So here’s the context.

The Affordable Care Act expanded Medicaid by a ton, covering roughly 14 million new people.

Let’s start with what the eff Medicaid even is. Medicaid was passed in 1965 as a government healthcare program to cover low-income Americans. It is jointly funded by the Federal and State governments at about a 60/40 split, respectively.

How low-income you ask? Before the ACA, Medicaid pretty much only covered working parents who made less than about 61% of the Federal Poverty Level ($14,366 a year for a family of four). If you were a jobless parent, you had to make less than 37% of the FPL to qualify for Medicaid (($8,714/year for a family of four). If you were an adult with no children, most states didn’t cover you under Medicaid at all.

But most importantly, it was up to each state to decide on their own who was covered by Medicaid in there state. So essentially we had 50 different Medicaid programs.

The ACA did 2 major things to Medicaid.

  1. It replaced the old patch-work system with a more uniform system where each state has the same qualifications for who should be covered by Medicaid.

The new requirement was:

  • Covers every adult up to 138% of the poverty line (about $34,000 for a family of four).

So millions more people would now be eligible for Medicaid coverage in states that didn’t cover them before.

That costs a lot of cash that most states didn’t have, so the federal government sweetened the deal by picking up the tab.

Details for the nerds: The federal government normally pays for only 50-75% of Medicaid’s costs, and the ACA offered states 100% federal funding for the newly eligible enrollees for 2014 through 2016. The match is gradually phasing down to 90% by 2020, where it’s supposed to stay.

But of course, it’s not quite that simple. Because the Supreme Court threw a wrench in that plan.

This part of the law was supposed to be mandatory, meaning states would have no choice, they HAD to expand Medicaid coverage. But in 2012, the Supreme Court decided that forcing each state to expand Medicaid was unconstitutional.

This meant that going forward, expanding Medicaid was optional for each state. So now, we have 32 states that decided to expand Medicaid, and 19 who opted out (the rest of the states are still discussing it).

Source: Kaiser Family Foundation

This resulted in around 14 million more low-income Americans being covered under Medicaid.

Interesting note: About 75% of Medicaid recipients are children or young adults, but they represent only 1/3 of Medicaid’s costs. 25% of recipients are elderly/disabled, representing 2/3 of Medicaid’s costs.

Ok, now that we have that context…

The Republican plan does 2 main things to Medicaid:

  1. Gradually rolls back the ACA’s Medicaid expansion starting in 2019.

2. It completely changes how Medicaid is funded.

Right now the federal government matches (at about 60/40) how much a state spends on Medicaid (except the expansion is paid 100% by the feds).

Instead, under the Republican plan, the federal government gives a big chunk of change to the state to cover everyone on Medicaid. Any Medicaid costs that go over that stack of cash have to be covered by the state. That = a major shift in the cost of paying for Medicaid over to the states.

This is called “per-capita caps”. It’s called that because the federal government determines how much cash each state gets based on how much each person costs to cover.

What this ends up doing is cutting Medicaid significantly, like by $772 billion over ten years. That means fewer poor adults and children get healthcare coverage. The problem lies in the way the federal government determines how much $$ each Medicaid beneficiary (what people covered by Medicaid are called) costs.

Some proposals, for example, set numbers based on states’ current per-beneficiary spending and then raise it each year based on inflation. Problem is historically, health costs have outpaced inflation, so the annual federal funding cuts would grow over time.

The Senate bill’s plan ties per-enrollee spending to medical inflation through 2025, and then to consumer inflation after that. That was borrowed from a nearly identical 1995 proposal by President Bill Clinton. As Avik Roy points out, “the main difference between the Clinton proposal and the Republican one is that the Clinton proposal would have tied per-enrollee spending to growth in the gross domestic product. Historically, medical inflation has been higher than G.D.P. growth.”

2. Changes coverage for people with preexisting conditions

Context:

Before the Affordable Care Act, insurance companies could refuse to cover someone with a preexisting condition like cancer, heart disease, diabetes, etc.

Covering people who are going to need a lot of medical care or at least have the potential for needing a lot is expensive. So from an insurance company’s perspective, it made sense to refuse coverage to people with pre-existing conditions.

Before the ACA was passed, if you had cancer and needed to get health insurance, an insurance company could say “woah no way lady you’re going to be really expensive for us so sorry no insurance for you.”

The ACA made it illegal for insurance companies to do that.

Details for the nerds: This is called “community rating”. The ACA’s regulation meant that insurers had to charge everyone the same price for the same coverage (except smokers and some adjustment based on age).

This part of the Republican plan lets states opt out of that ACA requirement. In the House bill (the AHCA), if a state went that route it would allow insurance companies to deny coverage or increase the cost of coverage to someone with a preexisting conditions who goes longer than 63 days without insurance.

The Senate bill (the BCRA) uses this thing called Section 1332 waivers, something that already exists under the ACA. 1332 waivers let states waive certain provisions of the law as long as they:

  1. Provide insurance to a comparable number of residents
  2. Ensure coverage is at least as comprehensive as the essential benefits package (more on this later)
  3. The waiver programs meet out-of-pocket spending requirements

The Senate bill eliminates those 3 requirements.

The takeaway is if you live in a state that waives these requirements, insurers in your state could design policies that affect people with preexisting conditions. WaPo breaks this scenario down well:

3. Changes how much insurance companies can charge based on age

Under the ACA, insurance companies can’t charge older people more than 3x what they charge younger people (aka a 3 to 1 ratio). The Republican plan changes that to 5 to 1, allowing insurers to charge older enrollees more and younger less.

4. It gets rid of $900 billion in taxes imposed by the ACA on higher-income taxpayers, health care providers, and insurers.

Both House and Senate bills repeal the taxes imposed by the ACA, but do so on different schedules.

5. Cuts subsidies for people on the individual market.

The ACA helps low-middle income Americans purchase health coverage on the individual market with subsidies. We’re talking about people who earn less than 400% of the federal poverty line (($47,550 for an individual or $97,200 for a family of four).

Vox has a good example of how this works:

The Senate bill makes it so that fewer people are eligible for help, changing it so that subsidies are only given to people who earn less than 350% of the federal poverty line ($41,580 for individuals and $85,050 for a family of four).

It also changes the definition of what counts as “affordable” health insurance. Under the ACA, health insurance is “affordable” if it costs less than 9.7% of your annual income (it’s lower for poorer individuals). Under the Senate bill, health insurance is “affordable” if it costs less than 16.2% of your income.

11. Imposes a penalty on individuals who do not maintain continuous coverage.

The ACA imposed what’s called the individual mandate. It mandated, by law, that everyone has to have health insurance. If you don’t, then you have to pay a tax penalty. The reason for this is so that you don’t just have sick, older people buying health insurance because those patients are much more costly to cover for insurance companies which means premiums would be much higher. If you have a bunch of healthy, young people in the mix who are cheaper to cover, it lowers premiums. So the individual mandate was supposed to help ensure that happened.

The Republican plan eliminates the individual mandate. Instead, it penalizes people who don’t maintain continuous health insurance coverage.

So if you go longer than 63 days without health insurance under the Republican plan, you have to wait 6 months to enroll in another health coverage plan. The idea is it should nudge health people into purchasing coverage because they’d be afraid to be locked out of the market for 6 months down the road if they really needed it.

Further reading:

PM @ The Infatuation, Cofounder of Purple