Obamacare Repeal Will Test the Definition of ‘Insurance’
The Obamacare Challenge

Obamacare Repeal Will Test the Definition of ‘Insurance’


Congressional Republicans, determined to repeal the Affordable Care Act and replace it with an as-yet undefined alternative, are likely to find themselves wandering through a minefield of difficult policy problems when they return to Washington for the next Congress. These range from the fundamental question of what actually constitutes “health insurance coverage” to thorny questions about whether refundable tax credits would actually create the necessary incentive to encourage the uninsured to purchase coverage.

While the Republican plan to replace the ACA isn’t fully-formed yet, it seems safe to assume that it will abolish the individual mandate that requires all individuals to have health insurance, repeal the expansion of Medicaid, slash minimum coverage requirements for plans sold in the non-group market, and allow insurers to sell policies across state lines.

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Democrats have been warning for years that the impact of this combination of policies could be disastrous for the health insurance market. The individual mandate creates a risk pool that is much healthier -- and therefore cheaper to insure -- than a market where those least likely to need health care are free to opt out.

Cutting minimum coverage requirements will inspire health insurers to offer bare-bones policies that do little to insulate consumers from financial risk related to major health problems but provide just enough coverage to qualify for the refundable tax credit covering the premiums. Removing state-level regulation of health insurance, experts warn, could accelerate that race to the bottom.

In late December, the Congressional Budget Office issued a warning to Republicans in the form of a post to the agency’s blog. In it, authors Susan Yeh Beyer and Jared Maeda noted that the various proposals currently floating around Capitol Hill would be judged by both CBO and the Joint Committee on Taxation, which score legislation for lawmakers as greatly reducing the number of Americans with health insurance.

This includes the Empowering Patients First Act, put forward by Georgia Congressman Tom Price, a physician himself and President-elect Donald Trump’s nominee to run the Department of Health and Human Services.

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CBO, which scores legislation for lawmakers to estimate costs and benefits, would not count someone as “insured” unless they had significant protection against major financial risk, they wrote. The proposals being aired by the GOP, by making it possible for companies to issue low-coverage policies, would likely leave many people outside that category.

“If there were no clear definition of what type of insurance product people could use their tax credit to purchase,” they wrote, “some of those insurance products would probably not provide enough financial protection against high medical costs to meet the broad definition of coverage that CBO and JCT have typically used in the past—that is, a comprehensive major medical policy that, at a minimum, covers high-cost medical events and various services, including those provided by physicians and hospitals.”

Bottom line, they said, “CBO and JCT would not count those people with limited health benefits as having coverage.”

Some Obamacare policies are also on shaky ground in terms of consumers having adequate insurance coverage without exposing them to major financial risk. Insurance premiums are rising an average 25 percent this year and deductibles for silver plans will average $3,572 for individuals, while families will have to cover $7,474 before insurance pays a dime. The cheapest Bronze plans will cost individuals an average $6,000, while families will shell out $12,393 before insurance kicks in.

While this may seem trivial, a finding from CBO and JCT that an Obamacare replacement plan would result in fewer Americans having health insurance would be a political problem for Republicans, from Trump on down, who have promised that their new plan would cover the same number of people, but for less money.

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But whether or not particular policies that qualify for a tax refund are actually insurance in the real sense of the word is only one of the questions that would have to be answered under an ACA repeal program. Another is whether refundable tax credits would induce consumers to purchase health coverage in the first place.

In a blistering editorial this month, the editors of the New England Journal of Medicine argued that, at least in the context of Price’s Empowering Patients First Act, they would not.

The plan proposes eliminating the ACA’s expansion of Medicaid and replacing it with tax credits based on age. For example, people aged 18-to-35 would receive a credit of $1,200 per year, while people 50 and over would receive $3,000. The proposal, according to NJEM’s editors, would leave younger consumers paying more than $2,500 out of pocket for the most basic plan, while the bill for older consumers would approach $6,000. What’s more, the tax credits are not scaled to recipients’ income, meaning that low-earning consumers would pay a much larger share of their disposable income in health insurance costs than high-earners.

The Price tax credits, NJEM argues, are far too meager to encourage mass participation in the individual health insurance market.

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“To put the plan’s subsidies into perspective, consider that in 1992 when per capita health expenditures were just one-third of what they are today, President Bush and HHS Secretary Sullivan proposed a slightly larger individual tax credit ($1,250) for the purchase of insurance than Price proposes today. Even in 1992, analysts reported that the credit would be insufficient to induce most people to buy coverage.”

The editorial’s criticism of the Price plan was not limited to the tax credit. It blasted the plan as a giveaway to doctors at the cost of reducing consumer protections.

“In sum,” they wrote, “Price’s replacement proposal would make it much more difficult for low-income Americans to afford health insurance. It would divert federal tax dollars to people who can already buy individual coverage without subsidies and substantially reduce protections for those with preexisting conditions. The end result would be a shaky market dominated by health plans that offer limited coverage and high-cost sharing.”

Republican lawmakers have floated the idea of a lengthy phase-in period for their replacement plan, allowing them to symbolically “repeal” Obamacare while effectively leaving it in place for an indefinite period. They may need all the time they can get.