The American Healthcare Act:  The Bad, the Good, and the Flawed Criticism

Fortunately, the Republican establishment failed in their attempt to pass their “repeal” and replace legislation – The American Healthcare Act (AHCA). Without a doubt, true healthcare reform is desperately needed, but the AHCA falls short.

After six years of Republicans railing against ObamaCare and proclaimed intent to repeal it, the AHCA retains many of the most harmful ObamaCare provisions including the federal government power to define and impose healthcare insurance essential benefits. In doing so, the alleged party of smaller government gives its endorsement to and effectively makes this federal control permanent.

The AHCA further fails to repeal the 2 most damaging coverage provisions: “guaranteed issue” meaning that insurers must sell to all regardless of their health history, and “community rating” meaning those who will likely have higher healthcare expenditures can’t be charged higher premiums.  Objection to these 2 provisions does not mean that the problem of pre-existing conditions should be ignored but rather is a recognition that there are better and less costly ways to help those with expensive medical conditions, and that imposing the cost of pre-existing medical condition coverage on the younger and healthier destabilizes the insurance market.

A few words are in order regarding the number of people with pre-existing conditions. Approximately 160 million persons get insurance through their employers, another 72 million through Medicaid, and 55 million through Medicare.  None of these programs discriminate or charge higher premiums for those with expensive medical conditions. The problem is in the individual market which is roughly 11 million persons in which there is an estimated 500,000 having expensive medical conditions. No doubt a problem for these individuals but in the big picture they constitute only .2% of American, and there are better policy options for helping these persons than the ObamaCare “solutions”.

Insurers know that they will lose money on ObamaCare exchange patients with expensive conditions, so they construct their policies to attract the healthy and to repel the sick.  Those with cancer, MS, infertility, and other expensive conditions find that the best providers are not in the network, more preauthorizations are required for treatment, higher cost sharing for their medications, etc.  Many patient advocacy groups have recognized this ObamaCare generated insurer “race to the bottom” and have expressed their dismay to CMS.

As predicted, the guaranteed issue and community rating provisions have led to more persons with expensive medical conditions joining the ObamaCare exchange insurance pool, pushing up premiums and in turn pushing out healthier and younger persons, leaving behind in the insured pool higher expenditure individuals, further driving up premiums, and thus perpetuating this cycle.

As a further consequence of this sicker insured pool, insurers lost an estimated $2.5 billion dollars in their 2015 exchange business. In 2016 and 2017, losses are anticipated to be greater yet.  Not surprisingly, insurers have decreased their participation in ObamaCare exchanges, and the country’s largest insurer, United Healthcare, has pulled out all together. In 2017, just the 3rd year of the exchanges, premiums increased on average by 25% nationwide, and nearly all markets have fewer policy options. If Republican reform retains the ObamaCare guaranteed issue and community rating mandates, premiums will continue to rise, market instability will persist, and the Republicans will own that bad news.

So what’s good in the AHCA?  First and foremost, the repeal of the individual mandate rights a great wrong perpetrated on individual freedom.  Some have argued that compelling persons to buy health insurance is no different than compelling automobile drivers to buy auto insurance.  Following that line of reasoning: If the prerequisite for compulsory auto insurance is driving a car, then the prerequisite for compulsory health insurance is breathing.

The AHCA also repeals many of ObamaCare’s harmful taxes including those on companies that discourages having more than 50 employees, and incentivizes limiting hours worked to less than 30 hours/week; the medical device tax hampering new product development; the Medicare supplemental capital gains tax that discourages investment; and the tax on tanning salons which decimated that business. (How do these “intellectuals” come up with this stuff?)

The proposed refundable tax credit to purchase healthcare insurance has the potential to fix 2 significant problems in our healthcare system: employer provision of healthcare benefit, and forcing the poor into a substandard healthcare system – Medicaid.  If individuals can obtain tax favored insurance on their own rather than through their employers, then they can choose and buy coverage that better fits their needs, and employers can redirect those resources to growing their businesses, which in turn grows the economy and employment. That tax credit also will allow the poor to purchase the same quality private healthcare insurance that the rest of us enjoy.

Though fiscal conservatives fret that the tax credit program creates a new entitlement, in fact, it could and should be revenue neutral. The lost tax revenues from employer provided insurance would instead go to fund the tax credit, and taxpayer funds wastefully spent in the Medicaid system would be repurposed for the poor to get good insurance.

The AHCA’s Medicaid reforms are good and welcome.  They not only put Medicaid on a more sustainable financial footing by moving toward defined contribution funding, but also give states the ability to innovate and improve this wasteful and poor quality government run healthcare program.

Finally, I must respond to the progressive hysteria that ObamaCare repeal will lead to millions losing their healthcare insurance, and in turn, causing millions of preventable deaths.

The CBO estimated that if the AHCA passes, 24 million fewer persons will have healthcare insurance by 2026.  It breaks down as follows: 14 million in 2018 will no longer have insurance, not because it was taken away from them, but rather with the repeal of the individual mandate, many will elect not to buy insurance.  Interestingly, the CBO estimates that this group includes 5 million who qualify but won’t sign up for Medicaid, even though that program is free, which says a lot regarding what many think of Medicaid’s quality and service.  The additional 10 million fewer with insurance by 2026 will result from Medicaid eligibility changes.  Those working poor who have most benefited from the ObamaCare exchange subsidies will not lose their coverage as the AHCA tax credit program will continue to fund their premiums.

What about all those deaths resulting from fewer having healthcare insurance? As it turns out, studies showing better health outcomes for those with insurance looked at individuals having private insurance. On the other hand, multiple studies, including one recently done in Oregon assessing the effect of the Medicaid expansion, found no improvement in health outcomes for those on Medicaid.  In fact, other investigations have found worse outcomes for those with Medicaid as compared to those with no insurance at all.

Since the implementation of ObamaCare, there were 80,000 more deaths in 2015 than would have been expected if mortality continued decline at the rate measured during the period of 2000-2013.  Comparing states who participated in the ObamaCare expansion to those who begged off, mortality was higher in expansion states.  Extrapolating from this data, the number of increased deaths to be expected from repealing ObamaCare and instituting the AHCA – 0.

While the AHCA improves ObamaCare, our country should expect better.  Republicans should keep their promise to fully repeal ObamaCare, including federal control of essential benefits, and the guaranteed issue and community rating mandates.  Replacement including a tax credit program to promote individual purchased and owned health insurance, reforming Medicaid, and using savings generated from repeal to fund state high risk pools as well as other strategies for helping those with pre-existing conditions would be a significant move towards desperately needed healthcare reform.

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One Response to The American Healthcare Act:  The Bad, the Good, and the Flawed Criticism

  1. Brian Michael MD says:

    As usual Nick, a logical and thoughtful analysis of the issue from a free market perspective. The guaranteed issue and community rating problems could be addressed for existing individuals with high cost conditions through the use of high risk pools for now. Those in good health now could “pre-pay” their eventual high cost condition on an actuarial basis with an actuarially determined pre existing condition premium. Models for this have been published by Dr Cochrane at the University of Chicago, and look quite reasonable. As the population ages, and people pay into the systemm this approach would obviate the need for high risk pools down the road.

    After all, as physicians, it is not rocket science to determine that if an individual does not die a sudden death, and lives long enough, we all will develop a chronic disease of some type at some point, and this can be budgeted for over the entire insured populace.

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