Republicans have a plan to replace Obamacare, and its costs are unclear

Posted on June 24, 2016

THE WASHINGTON POST
By Mike DeBonis
June 22

House Republicans on Wednesday unveiled their plan to replace President Obama’s signature health-care-reform law — the first such proposal in the six years since the Affordable Care Act’s passage to carry the endorsement of House GOP leadership.

The Republican plan discards the mandates and penalties that have made “Obamacare” a perennial target for GOP lawmakers, but it comes with uncertain costs and an unknown effect on the number of insured Americans. It is the most anticipated piece of the six-part policy agenda now being rolled out by House Speaker Paul D. Ryan (R-Wis.) as GOP lawmakers move to establish a platform apart from presumptive Republican presidential nominee Donald Trump.

Uniting around a health-care alternative has proven tricky. While various Republican lawmakers and conservative thinkers have proposed pieces of an Obamacare replacement, the GOP-controlled House has had more success rallying around the “repeal” part than the “replace.”

Republicans have vigorously attacked Obamacare since its passage, citing its costs, its effects on the health insurance market and its toll on the economy. Their opposition culminated in the two-week federal government shutdown in 2013, and repealing and replacing Obamacare remains at the center of GOP campaigns across the geographic and ideological spectrum.

“Obamacare simply does not work,” the new proposal reads, according to a copy distributed to reporters ahead of Wednesday’s launch. “It cannot be amended or fixed through incremental changes. Obamacare must be repealed so that Congress can move forward with the kinds of reforms that will give Americans the care they deserve.”

Developing a comprehensive alternative requires engaging in difficult trade-offs to balance the Republican goals of decreasing costs and deregulating the insurance market against a potential decline in coverage rates and the demise of popular Obamacare provisions such as ending insurer denials for “preexisting conditions.” It would also require submitting any proposals for a nonpartisan cost estimate from the Congressional Budget Office, potentially exposing significant long-term costs.

The new plan does not include any price tags but rather resurfaces ideas that have long been discussed in Republican policy circles.

A senior House GOP leadership aide who briefed reporters on the proposal Tuesday compared the document to the “white paper” issued by then-Sen. Max Baucus (D-Mont.) days after Obama won the 2008 election that formed the blueprint for what became the Affordable Care Act — calling it a “framework” to be filled out later by congressional committees.

Ryan, speaking to reporters Wednesday ahead of the formal unveiling of the plan, played down the lack of detail.

“What you’re seeing today is a consensus by House Republicans on the best way to replace Obamacare, and that is a very important achievement in and of itself,” he said. “The goal of this is not to show that we can send a bill and watch it get vetoed by the president. The goal of this is to show the country a better way on the big issues of the day that can get into law in 2017 with a Republican president.”

White House spokeswoman Katie Hill on Wednesday called the GOP health-care proposal “nothing more than vague and recycled ideas to take health insurance away from millions and increase costs for seniors and hardworking families.”

“We hope that congressional Republicans stop trying to destroy a law that’s helping so many people and instead accept the President’s offer to work together to strengthen the Affordable Care Act in a bipartisan way to further improve Americans’ health care and the economy,” she said.

The Republican plan discards the central elements of Obamacare: the mandate for individuals to secure coverage and employers to provide it; the tax subsidies for low-income Americans to help pay for coverage; the expansion of Medicaid; national coverage standards for health plans; and the federal health insurance exchange.

In its place, the GOP plan floats a variety of proposals:

• A refundable tax credit for Americans who don’t have employer-provided insurance. This is somewhat similar to the Obamacare subsidies, but individuals would not be subject to income limits, would not be required to purchase insurance through an exchange and could purchase a wider variety of plans, including low-cost, low-benefit “mini-med” plans that have largely been phased out under Obamacare.

• Expanding the use of private health savings accounts, or HSAs. Many Obamacare alternatives look to expand the use of high-deductible health plans paired with tax-free health savings accounts. That model, the GOP plan says, “helps patients understand the true cost of care, allows them to decide how much to spend, and provides them with the freedom to seek treatment at a place of their choosing.”

• Allow insurance companies to charge young people less and older people more. Obamacare permits insurers to charge older subscribers no more than three times what they charge younger ones for the same plan in the same state. Republicans call that 3-to-1 ratio “unrealistic” and propose allowing a 5-to-1 ratio to better align premiums with costs.

• Funnel the costliest patients to subsidized “high-risk pools.” Obamacare’s mandates are meant to drive broad participation in the insurance market, so the premiums paid by a broad number of relatively healthy subscribers essentially subsidize care for the sickest. Without the mandates, many healthy Americans won’t buy insurance, forcing insurance companies to either deny coverage to sick customers or hike premiums to unsustainable levels. The GOP plan would solve that problem by establishing state-based “high-risk pools” for the sickest and directing $25 billion in federal support to them over 10 years.

• Restructuring Medicaid and Medicare. The plan includes Medicaid and Medicare reform proposals that have been circulating for years — most prominently, in the federal budgets Ryan proposed as House Budget Committee chairman. Medicaid funds would be handed to the states either as block grants or as per-capita allotments. Medicare, meanwhile, would move toward a “premium support” model where seniors would choose a private health plan, and Medicare would pay at least a portion of the premium. The plan does not describe cuts in coverage, but these proposals have been previously floated in the context of long-term federal spending reductions.

Under the GOP plan, consumers would have access to more insurance options. What is less certain is the kind of coverage they would receive and the affordability of that coverage. Without Obamacare’s minimum coverage standards, consumers could choose low-cost plans with benefit limits that could leave them in severe financial distress should they suffer a catastrophic injury or illness.

The Republican plan says the prohibition on denials of coverage for preexisting conditions would continue, as would the ban on “recissions,” where insurance companies drop coverage after healthy people suffer serious injuries. It describes a managed transition from Obamacare where insurers would not initially be able to adjust premiums based on health history, and that would remain the case as long as a person remained insured.

But a sick person seeking coverage after that initial “open enrollment” period — or one who comes back to an insurer after losing coverage — could find themselves priced out of the individual market. The GOP plan would rely on a combination of tax credits and assistance from a state high-risk pool to make that coverage affordable. High-risk pools, however, have a spotty record of ensuring affordable care.

The most significant omission from the Republican health-care plan, though, is to what degree it will maintain — or, more likely, reduce — insurance coverage for Americans. The Obama administration estimates 20 million have gained coverage under the Affordable Care Act, and a rollback of Medicaid expansion and the end of the individual mandate could reverse that trend.

Asked about the plan’s effect on coverage, a Republican leadership aide said Monday, “You’re getting to the dynamic effect of the plan, and we can’t answer that until the committees start to legislate.”

But there is a significant clue in the GOP plan that it expects a surge in the ranks of the uninsured. Before the Affordable Care Act, one of the federal government’s primary mechanisms for compensating health-care providers for delivering care to the uninsured was through “disproportionate share hospital” payments, or DSH, which are allocated to facilities that treated large numbers of the uninsured.

Under Obamacare, DSH payments were set to be phased out because coverage rates were expected to increase dramatically. Because exchange enrollment has been slower than expected and because many states have opted out of Medicaid expansion, those cuts have been delayed.

The Republican plan repeals those cuts entirely and, come 2021, would replace DSH with “one combined national pool of uncompensated care (UCC) funds” — expecting that, in five years, the downward trend in the uninsured rate is unlikely to continue.