Will you be better or worse off if Republicans pass their version of health care reform? That’s the burning question for most Americans as they watch the arm wrestling going on in Washington, D.C. As with the health care debate itself, there are no easy answers.
The bill being debated right now, the American Health Care Act working its way through the House of Representatives, offers strong hints about what health insurance will look like when designed by Republicans. In general, young, successful, healthy people will pay less, but many other groups will pay more — or not have health insurance at all.
The Congressional Budget Office chimed in on Monday with a much-anticipated report saying the Republican plan would lead to 14 million fewer Americans having insurance than under Obamacare in 2018. Other estimates have pegged the number at 10 million (S&P Global Ratings) to 15 million (Brookings). The CBO also noted premiums may be 10% lower by 2026 than under Obamacare.
Before we get into the details, some perspective is necessary. While Obamacare did have provisions that dealt with the overall health insurance market, it was mainly aimed at the uninsured, and most of its provisions dealt with the mechanisms needed to get those Americans coverage. Much of the Republican plan deals with changing that market.
In total, about 22 million consumers are insured by what most folks call Obamacare – some 8 million via state exchanges, and another 14 million through expansion of traditional Medicaid, according to The Heritage Foundation. Nearly all of them enjoy some kind of government subsidy.
The Obamacare exchanges, which tend to dominate headlines, are in reality a small portion of the health care insurance market. Many Americans get insurance through their employers. There are another 10 million or so who directly buy their own insurance in the private market, outside the Obamacare exchanges. And 15 million get coverage through small-employer plans, according to Heritage.
Because the health insurance market has these very distinct elements, discussion about health care coverage can be confusing. Take the individual mandate and its associated tax penalty for those who don’t get insurance, which is incredibly unpopular with conservatives. It obviously doesn’t directly impact those who already get insurance at work. Also, the large premium increases that Obamacare exchange consumers experienced last year, which were indeed painful, only directly impacted the consumers getting Obamacare subsidies.
On the other hand, anything that happens to one end of the health insurance market is bound to have impacts on the rest of the market. Those who purchased individual plans directly — not on the exchanges — saw increases that were in line with Obamacare increases, leading to a lot of sticker shock.
Other popular Obamacare provisions, like a list of minimum coverage requirements or the elimination of pre-existing condition rejections, naturally led to increased health insurance premiums for all. Bottomline: Even if you aren’t using Obamacare exchange insurance, any changes to health care coverage will impact you. (If you’re looking for an Obamacare refresher, we’ve got one here.)
What’s in the Current Republican Health Care Plan?
Here are some elements that might directly affect your wallet.
1. Mandates Gone, But Not Really
Mandates, which conservatives impulsively dislike, are gone. Individuals will not face a tax penalty if they fail to get insurance, as they do under Obamacare. The House GOP plan does have a similar provision, however. Consumers who let their insurance lapse but then decide to get it later will pay a 30% surcharge. So while Americans are free to forgo insurance, that becomes a lifetime commitment — at least in order to avoid something that’s an awful lot like the old Obamacare penalty.
Employer mandates are gone, too. Under Obamacare, firms with more than 50 full-time employees must offer insurance. That requirement would be removed by the Republican plan. Depending on your perspective, that will either lower costs for business owners or hurt small business workers who might lose coverage they receive at work.
2. Subsidies Gone, But Not Really
Some say Obamacare helped middle-class and poor insurance shoppers afford high premiums with monthly subsidies. The subsidies, which could cover most of the monthly payment, were determined by a complex calculation involving income and regional costs. (Health care is more expensive in states like Alaska.)
The income cap for getting aid is about $48,000. With the Republican plan, subsidies are being “replaced” by tax credits and would be far more widely available. Families with incomes up to $150,000 would be eligible for as much as $4,000 toward health care costs. The tax credit amount, which will not be adjusted for geography, will likely be less than the Obamacare subsidy in most cases. The new tax credit would be $1,700 less on average than under Obamacare, according to the Kaiser Family Foundation.
A word about the Republican tax credit. It will be “advanceable,” meaning consumers can use the money as they pay their premiums, rather than wait until the end of the year when the money might be returned as a tax refund. If that sounds a lot like the way Obamacare’s subsidies work, that’s because they are essentially the same thing.
Health Savings Accounts
Republicans have long liked the idea of Health Savings Accounts, so the GOP proposals dramatically increases their limits. Consumers with high-deductible plans can twin these with health savings accounts, which are a little bit like 401(k) plans. HSAs let consumers put aside their own pre-tax income, invest it and use it for any health care cost. Supporters think HSAs support consumer choice; opponents are worried about health care funds being placed at risk in the stock market.
Right now, HSAs are capped at around $3,400 for individuals. The GOP plan would increase that limit. It would also lower penalties for the health care equivalent of early withdrawal – spending the money on non-health care costs. HSAs act a bit like a second IRA, because the money can ultimately be used for retirement, so this is a very good thing for workers who already max out other retirement plan options. It doesn’t help other groups who aren’t that lucky, however.
We explained how HSAs work earlier this year.
How Older Americans Lose
Older Obamacare consumers will almost certainly see their premiums rise under the GOP plan. Obamacare allows insurers to charge older consumers up to three times more than younger consumers. With the GOP health care bill, that jumps to a factor of five. This would likely lower costs for young buyers and raise it for older buyers.
Taxes May Be Lower, But Who Will Pay?
The other politically attractive element of Obamacare is that it allows Republicans to say they’ve repealed most of the new taxes associated with it, not just the individual mandate penalty but other taxes that are unpopular with businesses, like a medical device tax. The tanning salon tax would disappear, too.
That raises an obvious question, however: Who pays? Either a whole bunch of people have to lose coverage, or money to pay for it has to be found somewhere. There simply is no way to repeal taxes but keep giving consumers coverage without exploding the deficit.
The Big Picture
It’s important to note that, Paul Ryan’s protestations aside, the American Health Care Act really is just a first offer in a negotiation that is sure to take many twists and turns. That means none of the specifics in this story are carved in stone. Still, when Republicans in the Senate have their say, you can expect these same concepts to come up over and over again — mandate elimination, tax credits, swelling the ranks of the uninsured.
Will your wallet win or lose when the final version is signed? Time will tell.
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