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REPUBLICANS PROPOSE ALTERNATIVE TO OBAMACARE

On March 6, 2017, Republicans finally presented their alternative to ObamaCare, which would repeal and replace the prior law.  The American Health Care Act is a major piece of legislation which is a bit of a compromise measure to address the difficulties of ObamaCare.  Some conservative Republicans feel that it does not go far enough, and continues to involve the government too much in providing health care.  Many Democrats, on the other hand, argue that it will cause too many people to lose health care coverage.  While a majority of the press reports talk about the effect on private health care plans, equally important changes are proposed in the government's Medicaid program, a program meant for poor persons not yet eligible for Medicare.

Let us first look at some of the features of ObamaCare that are retained in the new law.  The plan retains a defined list of "essential benefits" that all insurers must offer.  The popular provisions covering children up to age 26 and prohibiting insurers from denying policies for pre-existing conditions or capping benefits in a year or a lifetime are retained.  Thus, for most participants in employers' plans, the changes to employees would not be significant.

The proposed legislation eliminates the individual mandate requiring people to pay a penalty if they do not have insurance, and eliminates the employer mandate, which required employers to provide affordable insurance to their employees or face tax penalties.  The danger asserted by Democrats on these measures is that it encourages "sicker" individuals to purchase health care rather than everyone.  The Republican plan does provide incentives for broad participation by requiring insurance companies to charge a 30% higher premium for consumers who go sixty-three (63) days or more continuously without coverage when they do buy a plan.  The changes also would allow insurers to charge older customers at a higher level than currently allowed.

Various taxes under ObamaCare are eliminated including the 3.8% Medicare payroll tax on investment income, the 0.9% tax on high-income earners, and the medical device tax.  Further, premium subsidies under ObamaCare are changed to provide funding by tax credits for individuals earning less than $75,000 and married couples earning less than $150,000.  The credit would be as much as $2,000 for a person under 30 years old, and double that for a person over 60 years old.  The Republican plan would allow people to put substantially more money into their health savings accounts with a basic limit being at least $6,550 for an individual and $13,100 for a family beginning in 2018.

One of the principal issues likely to be debated is the amount of the tax credits.  Some say that several million people would drop out of the individual insurance market, particularly those in their 50's and early 60's that are still too young to qualify for Medicare, because of higher costs.  On the other hand, some younger adults would probably be encouraged to participate because of additional flexibility for insurers to offer them less expensive policies, including those with less generous coverage.  The President favors giving persons the ability to buy insurance across state lines and lowering drug prices.

In general, the tax credits are not high enough to replace the healthcare subsidies which ObamaCare offers for older and low-income persons.  On the other hand, those with higher wages and younger consumers would probably do better financially under the new proposals.  Rural areas tend to have higher insurance premiums and may be more adversely affected than urban areas.

The proposal continues the ObamaCare's "Cadillac" tax on high-cost health plans, but delays it until 2025.  This proposal continues deductibility of health care expenses for employers, a benefit that individuals not working do not have in purchasing health care.

Some consider the proposed changes to Medicaid more important than those pertaining to other health care policies.  ObamaCare expanded the program to cover 11 million more Americans in 31 states in which the expanded program was accepted.  The Republican bill would end this expansion in 2020, although those in the program would be allowed to stay on.  Medicaid covers people with incomes up to 138% of the federal policy level (about $34,000 for a family of four).  The bill would for the first time apply a per-person limit on how much the federal government spends on Medicaid, and convert the formula from an open-ended entitlement into block grants to the states.  The amount would be determined by per capita enrollment and grow with medical inflation.  The States would thus have an incentive to set priorities and retarget Medicaid on the truly needy.  This flexibility would be accompanied by new $1 billion "stability fund" to use in the transition.

Many of the changes in the proposal would not come into effect until 2018.  The stakes are quite high, as the bill in the House of Representatives is currently the only major Republican alternative to ObamaCare being advanced in Congress.  There is certainly the possibility that conservative Republicans will join Democrats to defeat the measure, and the result will likely be to preserve ObamaCare as it currently exists.

In a recent development, on March 13, 2017 the Congressional Budget Office released a report estimating that about 24 million more people would be uninsured under the Republican plan to replace ObamaCare.  The main reason for the reduction is because the plan repeals the mandatory requirement that Americans pay a penalty for not having insurance.  On the other hand, the proposal would also reduce the federal deficit by more than $300 billion.  Further, in a decade, premiums are estimated to be 10% lower than they would have been under ObamaCare. 

Editor's Note – America has never repealed a federal entitlement law, and this is one of the reasons that there is so much negative press on the Republican plan.  Major trade-offs are necessary when the plan reduces government spending, cuts taxes, increases patient choice, reduces total healthcare premiums, and ends a federal mandate requiring health insurance.  The main trade-off is that more people will make individual decisions not to buy healthcare coverage because it is no longer federally mandated by tax penalties.  A further trade-off is that healthcare costs will be relatively more expensive for older Americans, compared to those under ObamaCare. 


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