President Trump in a Tuesday tweet embraced the new House plan to repeal and replace much of ObamaCare as his own.
In doing so, Trump has launched what is likely to be a tumultuous phase of his presidency that threatens to sidetrack the rest of his economic agenda.
“Our wonderful new Healthcare Bill is now out for review and negotiation. ObamaCare is a complete and total disaster — is imploding fast!”
While Trump may overstate just how fragile the ObamaCare exchanges are, there’s little question that the GOP has to act fast to avoid an exodus by insurers waiting for clarity about the rules for 2018 ahead of a June deadline to set premiums. Humana (HUM) has already said it will exit the exchanges in 2018, while Aetna (AET) and Dow component UnitedHealth (UNH) have one foot out the door, and Anthem (ANTM) and Molina (MOH) won’t commit to sticking around.
Trump promised throughout his campaign that he would “take care of everybody.” Speaking before Congress last week, he vowed that his plan would “bring cost way down and provide far better care.”
“Everything that is broken in our country can be fixed. Every problem can be solved. And every hurting family can find healing, and hope.”
Yet the gap between those promises and the American Health Care Act legislation unveiled by House Republicans on Monday appears to be massive. A better read on the consequences of the bill will be available when the Congressional Budget Office weighs in, but analysts on the center-left and right are estimating that TrumpCare would reduce the ranks of the insured by 15 million to 20 million.
The coverage losses would result from dramatically shrinking the subsidies available for older adults and lower-income Americans to buy coverage, phasing out ObamaCare’s Medicaid expansion starting in 2020 and repealing ObamaCare’s individual and employer mandates.
So far, the Republican plan has managed to unite the left, center and right in opposition, though for disparate reasons.
Young Adults, Middle Class Wins With TrumpCare
Some people who don’t get a very good deal from the exchanges today would be better off under TrumpCare, which replaces ObamaCare’s income-based subsidies with tax credits that vary only based on age. According to the Kaiser Family Foundation, a 27-year-old earning $40,000 would get a $100 subsidy from ObamaCare but a $2,000 subsidy from TrumpCare in 2020.
Young adults with moderate incomes, many of whom have shunned ObamaCare plans despite the individual mandate penalty, also would benefit from the GOP’s lifting of restrictions on how much insurers can charge older adults. Now, insurers on the exchange can only charge a 64-year-old three times as much as a 21-year-old, but Republicans would lift that restriction, raising premiums for older adults and lowering them for young adults.
Some in the middle class who don’t get any subsidies would be better off too. A 40-year-old earning $75,000 would get nothing from ObamaCare, but a $3,000 subsidy from TrumpCare.
Yet the gains in coverage for those who get a better deal would likely be swamped by coverage losses, a range of analysts across the ideological spectrum have concluded. One reason is the replacement, with a relatively minor late-enrollment penalty, of ObamaCare’s penalty for not buying coverage. People who let their coverage lapse would have to pay insurers a one-time penalty equal to 30% of annual premiums in the year they renew coverage, even if they go without coverage for a decade or more.
Older Americans Pay More
Another reason for the expected rise in the uninsured is that many people might not be able to afford to take advantage of the subsidies under TrumpCare. Here’s why, using the stark example of a 64-year-old couple earning 150% of the poverty level, or about $25,500 in 2020:
For this older couple, a silver-level ObamaCare plan would cost roughly $1,150, with maximum out-of-pocket costs likely limited to about $2,000 to $3,000, an IBD analysis finds. Under TrumpCare, the same plan would likely cost the couple between $15,000 and $20,000 in premiums, after subsidies. The increase reflects much smaller subsidies and a roughly 16% increase in premiums due to TrumpCare’s age-rating change. The wide range also reflects uncertainty over how states would deploy the extra “stability” funds in the Republican plan, with the low end of the range assuming that the entire sum would go to help low-income insurance shoppers attain more comprehensive coverage.
Likely the only way that most low-income shoppers would be able use their tax subsidy would be to buy low-value insurance that isn’t available under ObamaCare and won’t protect them from a real health emergency. Such coverage is likely to be offered because the House bill would end the federal mandate for policies to include a list of essential benefits starting in 2020. Yet the CBO has said that it won’t count anything but major medical coverage in figuring how many people are insured under an ObamaCare replacement. That means it’s possible the GOP bill will cost a lot yet still not do much for insurance coverage.
IBD’S TAKE: The parts of President Trump’s economic agenda that investors are most excited about, tax cuts and infrastructure spending, are stuck in line behind ObamaCare.
One likely red flag for a couple of GOP senators is that TrumpCare’s subsidies don’t vary according to geography, even though health insurance costs can vary widely by state and county. For example, the lowest-cost ObamaCare bronze premium this year averages $272 per month in the biggest metropolitan area of each state using the HealthCare.gov platform. But the lowest bronze plan in Alaska costs $626 before subsidies, while the cheapest plan in West Virginia costs $332.
Not surprisingly, perhaps, Republicans Sens. Lisa Murkowski of Alaska and Shelley Moore Capito of West Virginia are seen as among the most likely to vote against repeal. Both senators, along with Rob Portman of Ohio and Cory Gardner of Colorado, warned in a letter to Majority Leader Mitch McConnell on Monday that they won’t support a bill that “does not meet the test of stability for individuals currently enrolled” in ObamaCare’s Medicaid expansion.
It’s not clear if they’ll be won over by the House provision that would grandfather people who enroll in the Medicaid expansion through the end of 2019. After that, the GOP would stop covering 90% of costs for new enrollees, so states would likely change the parameters of the program, shifting newcomers to the federal tax credits under TrumpCare.
One negative fallout of that grandfathering provision is that people may be even more determined to hang onto their Medicaid coverage, or else they’ll face an extremely hard time affording coverage in the individual market. Ironically, these are the kind of work disincentives that have led the GOP to oppose ObamaCare’s income-based subsidies in the first place.
Legislative prospects would look somewhat better for TrumpCare if it were only centrist Republicans on the fence, but conservative groups are coming out in opposition too, such the Heritage Foundation and the Club for Growth. The Club for Growth warned on Tuesday, “If this warmed-over substitute for government-run health care remains unchanged, the Club for Growth will key vote against it.”
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