Healthcare, Part One

With the advent of an actual legislative effort to append (but not really repeal and replace) the PPACA (AKA “Obamacare”) it is worth examining the pros and cons of the ACA and the proposed legislation.

The intent of the PPACA was to make healthcare more affordable overall and ensure more people are covered, including those with preexisting conditions. In a broad sense the ACA has been a success. Since its establishment the ACA has slowed the overall rate of healthcare costs increases, and has decreased to number of people without coverage. The ACA did away with annual and lifetime coverage limits, allows children to stay on parents’ insurance longer, and mandates a broader range of coverage. Exchanges, either managed by states or by the federal government, made access easier (though there were technical issues up front). There were a broad range of tax credits for premium costs based on income, and the Congressional Budget Office projected the ACA would yield a deficit reduction of $143 billion by 2022.

On the other hand, while overall costs grew at a lower rate, premiums for many went up at a faster rate than normal. The mandated levels of coverage meant that some people no longer could get lower-cost plans that did not include types of care that they did not need. (Insurance companies could have kept some of these plans available under the ACA, but most chose not to.) Some employers opted to pay penalty taxes rather than provide insurance to employees, leaving many to look for coverage on their own. Income taxes increased for individuals making over $200k and families making over $250k to support the ACA. There was an excise tax on certain device manufacturers and on tanning services. Additional fees on pharmaceutical companies were likely passed on to consumers, and the threshold for deduction of medical expenses was increased from 7.5% of income to 10%. So while ACA is meeting its intent in a broad sense, many are finding that they pay more in terms of premiums and deductibles – largely because expenses to insurance and medical companies meant to incentivize or dis-incentivize certain actions were largely passed to consumers.

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Nevertheless, with more people covered and the overall increases to costs of healthcare slowing the majority of Americans support the ACA. There are many principles within the ACA that are appealing, such as covering people with preexisting conditions and letting children stay on longer. The challenge is to get a handle on premium and deductible costs and to find a way to prevent taxes and fees from dis-incentivizing company growth or company provision of healthcare. So has the new proposed legislation found a way to thread that needle?

It doesn’t look like it.

One thing it does is attempt to defund Planned Parenthood and like entities of federal monies, with a section prohibiting Medicare reimbursements to organizations that provide abortion services. (Section 103.) This is unnecessary, as the 1977 Hyde Amendment already prohibits federal Medicaid funding for abortions (except in cases of rape, incest, or risk of death to the mother). Hyde prevents Medicaid funds from going to the specific services related to abortion; the new legislation prohibits Medicaid funding for any services if the organization offers abortion services for any reason other than rape, incest, and risk to the mother’s life. This particular provision guarantees that the bill will receive no Democratic support. It doesn’t address any of the issues with the ACA, so it was not a well-thought-out inclusion if the Republicans want this bill to pass.

The new bill removes the individual mandate – the tax penalty for not having insurance – and replaces the incentive by allowing insurers to apply a surcharge for gaps in coverage. This is clearly a boon to those who do not wish to maintain coverage, and to insurers who may charge more to people who have had a gap in coverage. It is not useful for the less affluent who find themselves unable to avoid a gap in coverage, and serves as a dis-incentive for them to attempt to reacquire coverage. The individual mandate was also critical to effective implementation of the ACA. Removal of the mandate could trigger a significant exodus of younger individuals, which could in turn lead to increases in premiums for the higher-risk categories still in the program. Some of these could be priced out, leaving more uninsured to potentially cause an increase in overall medical costs through overuse of emergency medical care and inability to pay for services later.

This legislation proposes to remove a $500k deduction limit on executive compensation for insurers, effectively allowing insurance companies to deduct the entirety of an executive’s salary. This is great news for CEOs and shareholders. It is unlikely to result in any decreases in premiums. The last four decades have demonstrated that savings on taxes at the top do not translate into higher wages for workers down the ladder or into lower prices for consumers. This change will simply allow the people making the most in these companies to make more, with no incentives for them to reduce their profit margins.

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There are anticipated conflicts within the Republican Party over tax credits included in the proposed legislation and potential loss of coverage. Disparate views between moderate and conservative Republicans, coupled with the near certainty that no Democrats will lend their support leads me to believe this has little chance of getting to the President’s desk for signature. Legislators are going to be reticent to commit to any proposal that potentially leaves people uninsured, especially any whose seats might be up for reelection in 2018.

This is far from a comprehensive look at the new proposals; however, it should at least highlight a couple of potential issues and shortfalls in terms of covering the gaps the ACA and a new plan. The ACA is far from perfect, but the new proposal is unlikely to keep sufficient numbers covered and will certainly not drive costs down. (Medical costs, including insurance premiums, routinely went up prior to ACA, and there is no logical reason to think insurance companies will roll prices back under a new plan.) So if this plan isn’t adequate, what would a better plan look like?

We’ll look at some suggestions in the next installment. In the meantime, feel free to share ideas or suggestions in the comments.

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