How are Republicans actually going to replace Obamacare?

Overview

Republicans have been talking about repealing and replacing the Affordable Care Act since pretty much the day it was passed.

With the election of President Trump and control of both the House and the Senate, now they have a chance to finally do it.

And yet not that much is known about how they’re planning to repeal Obamacare, how they want to make our health care system work better, and how it’s all going to play out over the next few months.

But we’ve got some answers for you — read on to find out the real ideas Republicans have.

Throughout, you’ll see references to House Republicans’ “Better Way” proposal, a framework that includes a number of answers for how to replace Obamacare, which looks to be the current most likely replacement plan.

Not everyone feels that plan is perfect, though, and it doesn’t have answers to everything, so you’ll also see references to different Obamacare replacement ideas, from think tanks, health care experts, and other Republican legislators.

  • Premiums are skyrocketing.

    There’s no question: Obamacare pushed up health insurance premiums dramatically. Check out this map, from conservative health care expert Avik Roy, of how much premiums rose in the year the law was passed:

    Screen Shot 2017-02-23 at 12.12.23 PM

    Then, going into 2017, insurers raised their prices dramatically again — as much as 100 percent or more in some places. Check out this map:

    160824_Premium-Increases_v31

    Obamacare defenders argue that Americans are shielded from these increases by subsidies, but about half of Obamacare enrollees get nothing in subsidies and, besides, someone’s paying for those subsidies.

    (Hint: It rhymes with “sax players.”)

  • Millions of Americans can’t buy the kind of plans they want.

    Obamacare introduced new rules about insurance that require all health insurance plans to cover a comprehensive set of benefits — everything from coverage of particular brand-name drugs to maternity and pediatric care.

    Many Americans want to be able to buy plans that cover the costs they’re likely to face, not a comprehensive plan. Many don’t want a comprehensive plan at all — they want something less expensive, and yet it’s really hard to find that under Obamacare. “Catastrophic plans,” for instance, that only cover big medical expenses are only available to people under 30 years old. All other plans have to fit into Obamacare’s restrictive framework.

  • Obamacare has expanded coverage, but millions of Americans remain uninsured.

    There’s no question that Obamacare has expanded coverage. The share of Americans without insurance has dropped to historic lows.

    More than 80 percent of that decrease was caused by the law’s Medicaid expansion, which encouraged states to expand the program, intended mostly for low-income mothers and Americans with disabilities, to millions more Americans, many of them able-bodied, single adults. And while we’re at it: Medicaid offers terrible access to actual doctors.

    And yet there still remain millions of uninsured Americans who, for instance, make too much for Medicaid or don’t find the coverage useful.

    Any Obamacare replacement effort will have to make some effort at preserving insurance options for Americans currently getting coverage through the law. It wasn’t fair when Obamacare abruptly canceled millions of Americans’ insurance plans, and it won’t be fair if a replacement did the same.

    But repealing and replacing Obamacare could aim at making some kind of insurance affordable to all Americans — more on that later.

  • American health care costs are out of control.

    It’s pretty simple: If we don’t find a way to slow the growth in health care costs, they’re going to eat the entire federal budget.

    The federal government already spends more on health care than on any other single function: more than defense spending, Social Security, interest on the debt, or all non-health-care domestic spending put together.

    And the situation is getting steadily worse. Check out this chart from the Committee for a Responsible Federal Budget:

    health-care-eating-budget

    Here’s how they explain the situation, which Obamacare has done almost nothing to fix:

    Two main drivers can explain the entire increase in federal health spending as a share of GDP. First, an aging population – due to the retirement of baby boomers, low birth rates, and rising life expectancy – is increasing enrollment in Medicare (generally available only for those age 65 and over) and in Medicaid’s long-term care benefits. Older Medicare and Medicaid enrollees also tend to be more expensive. Second, per-person health care spending has historically grown faster than the economy, and this “excess cost growth” is projected to continue.

  • Offer a portable, refundable tax credit for health insurance.

    There’s no doubt that, even with Obamacare repealed, buying insurance on the individual market is expensive. Unlike insurance you get through your employer, there’s no provision in the tax code to help you afford it.

    So Republicans agree that we ought to help people purchase health insurance. But the way Obamacare does it is through a tax credit based on your income (so you get less of it if you make more money, and might see it disappear altogether), that is worth more if you buy a more expensive plan (encouraging people to buy wasteful coverage), and that is only applicable to plans sold through the Obamacare exchanges. This is complicated, unfair and bad for the economy.

    Republicans largely agree that everyone should get a tax credit for health insurance if they don’t get it from their employer — it’s in the “Better Way” proposal endorsed by House Republicans — but they generally think it shouldn’t be tied to your income, and that if you spend less on insurance than the tax credit offered, you should be able to keep the difference in a health savings account. Older Americans’ insurance costs more than younger Americans, so Better Way and similar Republican proposals would offer more generous credits to older people.

    There are lots of advantages to this simple system, but some worry that many people won’t be able to afford insurance under it, which is why some Republicans still favor keeping income-tested credits.

  • Help keep insurers in the market.

    When you hear about insurers fleeing the Obamacare exchanges, it represents a problem that’s bigger than the law itself. People who buy insurance on their own (because, for example, their job doesn’t provide or they work for themselves) shouldn’t be forced to buy from a monopolistic or near-monopolistic insurer.

    Insurers are leaving the exchanges because they’re losing money. The main reason they’re losing money is there are too many sick, expensive enrollees and not enough cheap, healthy enrollees to balance them out.

    President Trump’s new Health and Human Services Secretary, Tom Price, has already taken action to try to address this: He’s proposed clarifications of existing regulations that make it harder for people to game the system by buying insurance when they’re sick and dropping it when they’re healthy.

    One other reason that insurers are worried about the Obamacare market is that they’re required to provide billions of dollars in subsidies to low-income enrollees, but Obamacare itself didn’t specifically appropriate funds to pay insurers back for it. President Obama just tried to pay them with unrelated funds, which isn’t legal. An Obamacare replacement will straighten this out, but for now, Congress may need to appropriate funds to make sure insurers aren’t taking huge losses on those subsidy payments.

  • Get people real insurance under Medicaid.

    Medicaid is simply not a good government program: It provides very low quality of care and poor access to doctors (one gold-standard study found it didn’t improve physical health at all), and yet its costs are still spiraling out of control.

    medicaid-heritage-spending

    There are a couple ways to solve both problems.

    One is, as the Better Way proposal suggests, is to fix the amount of money the federal government gives states to run their Medicaid programs, adjusted for the number of people in the state who are eligible for the program. If that’s done alongside paring back federal rules about how Medicaid has to be run (which, for instance, basically prevent patients from being charged any co-pays or deductibles), states could find ways to cut the cost of running Medicaid while also providing better coverage.

    The other idea would be to recognize that Medicaid is essentially two programs: a health insurance program for the poor and disabled and a long-term-care program that helps pay for low-income elderly people to stay in nursing homes and get other care. The latter program could be tweaked in a number of ways, while the former could be simply junked, and replaced with a system of tax credits for people to buy private insurance. Tax credits for insurance, if they’re generous enough, will allow the private sector to find savings while giving Medicaid enrollees better access to doctors than they’ve had in the past. Read more about one way to take this approach here.

  • Aim for even broader coverage than Obamacare.

    Obamacare expanded insurance coverage at great cost, but has not achieved universal or near-universal coverage: Tens of millions of Americans remain without health insurance.

    It's possible to do better than this. One Obamacare alternative, proposed by conservative health expert Avik Roy, has been projected to cover millions more Americans than Obamacare, and at a far lower cost. Another, written for the American Enterprise Institute by some of America’s top conservative health economists, would do the same.

    One way they do this is by aiming not for comprehensive coverage for most Americans, but some level of coverage for everyone — after all, that’s the idea of health insurance. That may sound like it’ll take a lot of government spending, but both plans would aim to spend significantly less than Obamacare in the decades to come, by harnessing market forces to provide coverage not just for middle-aged individuals but also for those on Medicaid and Medicare. Other ideas include allowing multi-year insurance contracts (protecting people from premium increases when they get sick).

    Even programs that don't aim for universal coverage, however, can still compete with Obamacare: The 2017 Project proposal to replace Obamacare, by former HHS official Jeffrey Anderson, was found by an independent set of experts to result in slightly more insurance coverage than Obamacare in the year it would be implemented, and only slightly less after 10 years.

  • Expand health savings accounts.

    One of the key ways to bring down health care costs is for people to have control over their own health care spending, rather than signing it over to an insurance company or their employer. Doing the latter may seem like a free lunch, but it’s not: those costs get passed on to us in higher taxes, higher insurance premiums and lower wages.

    That’s why conservatives want to expand the use of health savings accounts (“HSAs”), which allow people to take untaxed money and spend it on their own health expenses. The tax preference creates big savings for users of HSAs, which will give them the power to find providers and doctors they like at a reasonable price, meaning lower health insurance premiums for everybody. Further, plans like Better Way and the American Enterprise Institute's Agenda for Reform would incentivize the adoption of HSAs by providing a one-time federal contribution to new accounts.

    With American health care costs in general spiraling out of control, Americans spending through HSAs will impose market discipline on overpriced services and drugs. (No more $20 Tylenols!)

  • Cut back the big tax benefit people get if they have insurance through their employer.

    Most working Americans get health insurance through their employer (or their spouse’s employer). That’s not a bad system, since companies typically employ a mix of people who are young and old, healthy and sick, so they can balance the risks of providing insurance.

    But another reason it’s done that way is that it’s helps avoid paying taxes on that insurance. In fact, people getting insurance through their employers save about $250 billion on their taxes through that system every year!

    Nobody likes paying taxes, but there is no good reason for why every dollar of health insurance you get from your employer should be tax-free while people who buy insurance on their own have to pay for theirs with post-tax dollars. In fact, it encourages your employers to make your health insurance more generous instead of just giving you a raise.

    Obamacare tried to fix this by putting a huge tax (40 percent!) on health plans that are worth more than a certain amount.

    But that’s not fair: If you’re, say, a Teamster making $50,000 a year, you shouldn’t see a 40 percent tax on your health plan while a computer programmer making $150,000 a year pays the same tax, if anything at all.

    That’s why most Obamacare replacements propose just capping the size of the health plan that you can receive tax-free. It won’t cost any one individual very much money, will help make the system more equal, and comes with several other big benefits:

    1. It’s a major step toward closing the deficit, as it’ll raise hundreds of billions of dollars in tax revenue over the years.
    2. It won’t cost lower-income Americans very much (since they will pay very little in taxes on their insurance), drawing most of its revenue from the rich (who will pay closer to a 40 percent tax rate on their insurance). In the Teamster-vs.-programmer example, the Teamster will pay a little bit in taxes (since he has a generous health plan), but the programmer will pay significantly more.
    3. It will end an implicit subsidy to health insurance, helping to curtail health care costs overall.

    Another, slightly more complicated solution would be to get rid of the tax exemption for health insurance entirely, and replace it with a tax credit — for, say, 25 percent of the value of health insurance. Wealthier Americans would pay more in taxes, while less wealthy Americans would pay less. Read more about that option here.

  • Deregulate insurance so people can get the plans they want.

    As we’ve covered already, Obamacare placed strict limits on what kind of plans insurers can sell and the premiums they can charge. This makes it impossible for there to be a true market in insurance.

    Republican replacement plans broadly agree on getting rid of these regulations, and there’s also a lot that Secretary Tom Price can do to undo them as well, since Obamacare left so much up to the discretion of the secretary.

  • Grandfather in existing Obamacare plans.

    Not all Republican Obamacare plans ensure that people aren’t going to see their plans canceled and subsidies cut in short order. And yet it would not be extraordinarily expensive to keep the promise that President Obama broke to millions of Americans.

    Keeping people on plans, including heavily subsidized Obamacare exchange plans and the Medicaid expansion, would be expensive over an extended period. But health insurance markets have so much “churn” that people will cycle out eventually. They get old enough to be eligible for Medicare, for instance, or they get a job that pays for better, cheaper insurance. (One estimate has that the average Medicaid enrollee only stays on the plan for nine months at a time.)

    Here's how conservative health expert James Capretta puts it:

    Low-income households that are now enrolled in ACA-subsidized coverage or in Medicaid due the ACA’s expansion of that program should be allowed to stay in the coverage they now have indefinitely, with continuation of their existing subsidies. Over time, these households will naturally cycle off of this coverage and into whatever structure is put in place by the replacement plan.

    Another way to safeguard some existing Obamacare enrollees is to let states keep the law, with some small tweaks, if they want, while letting other states choose a more free-market path to reform. That’s the approach suggested by U.S. Senators Susan Collins (R-Maine) and Bill Cassidy (R-La.).

  • Cover especially sick people via generous tax credits, high-risk pools, or other state programs.

    The reason Obamacare tightly regulates insurance is partly because if anyone can buy the plan he or she wants, prices for comprehensive plans will skyrocket, since only sick people will buy them.

    Most people see two ways to fix this: One, which several Republicans propose, is to set up “high risk pools” available only to especially expensive customers (like those with cancer or chronic diseases). Enrollees admitted into the high risk pools would have somewhat higher premiums, but see the rest of their costs covered by government subsidies.

    The other idea is to let insurers basically charge people what it costs to cover them, and then provide subsidies so that no one has to pay an exorbitant slice of their income. That’s the approach contemplated by alternatives, such as Avik Roy’s “Transcending Obamacare.”

    House Republicans’ Better Way proposal cleverly allows states to basically choose from these options, or come up with their own proposals. One concern, though, is that both ideas are expensive to implement, and that the Republicans’ proposal doesn’t propose adequate funds to get the job done.

  • Tom Price
    Doctor, HHS Secretary

    Rep. Tom Price, R-Ga., center, flanked by Rep. Mike Kelly, R-Pa., left, and Rep. Mark Meadows, R-N.C., speaks during a news conference on Capitol Hill in Washington, Friday, Aug. 2, 2013, speaks about his bill, the "Keep the IRS Off Your Health Care Act," which the House passed today and targets President Barack Obama's health care overhaul. The bill aims to prevent the Internal Revenue Service from implementing any part of the health care law. It is the 40th time the Republican-controlled House has tried to block the Affordable Care Act, popularly known as Obamacare.  (AP Photo/J. Scott Applewhite)

    “Our health care system is losing focus on the number one priority — the individual patient.”

    Why They Matter

    Tom Price is an accomplished orthopedic surgeon, former congressman, former state legislator, and now the new Secretary of Health and Human Services. He’s been rolling out alternatives to Obamacare since before Obamacare was even passed, and he’ll be the point man on undoing Obamacare regulations and running the transition to a better health care plan.

    Read more about him here.

    Read More
  • Avik Roy
    Health care wonk

    Avik Roy

    “Public policy is Avik Roy’s fourth career, but clearly his favorite one.”

    Why They Matter

    Avik Roy left his work in biotech investing to dive into the Obamacare debate full-time in 2009, and ever since, has been churning out critiques of liberal health care ideas and alternatives for achieving coverage for more Americans than Obamacare through market-based mechanisms. He served as a health-care adviser to Mitt Romney in 2012 and now runs the Foundation for Research on Equal Opportunity (FREOPP).

    Read his plan for “Transcending Obamacare” here.

    Read More
  • Bill Cassidy
    Doctor, senator

    Sen. Bill Cassidy, R-La. speaks during a news conference on Capitol Hill in Washington, Monday, Jan. 23, 2017, to announce the Patient Freedom Act of 2017, a possible GOP replacement bill for the Affordable Care Act. President Donald Trump's congressional agenda has made a priority of repealing and replacing President Barack Obama's health care law. (AP Photo/J. Scott Applewhite)

    “My real love is liver disease.” (Yes, that's a real thing he said.)

    Why They Matter

    Like Tom Price, Bill Cassidy is an accomplished physician and legislator, who now represents Louisiana in the U.S. Senate. Along with Senator Susan Collins (R-Maine), he’s introduced an Obamacare replacement that would let states choose free-market options that work for them. Cassidy knows tricky health care challenges firsthand: As a physician, he specializes in treating low-income patients with chronic liver disease.

    Read more about that work here.

    Read More
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    Insurers have significantly limited access to networks of doctors and hospitals as a result of Obamacare, a McKinsey & Co. analysis recently found. After sifting through the regulatory filings for 18 states and the District of Columbia, the research firm discovered that just one quarter of all offerings on Obamacare …

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  • Industry Experts Say Obamacare is Falling Apart

      Health care industry insiders are now publicly signaling that Obamacare is collapsing under its own weight, citing insurers fleeing the law’s exchanges due to diminishing profits caused by covering more sickly patients and fewer healthy ones. The Guardian reports that academics and analysts are pointing to a confluence of …

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    Obamacare’s hemorrhaging of private insurers will have no program-saving tourniquet in the coming year. A recent report from the Kaiser Family Foundation predicts a record number of insurers will leave the Affordable Care Act exchanges in 2017, with many additional insurers scaling back coverage. At least 23 companies plan to …

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