By James Misak MD (photo right), Cleveland, OH
With efforts underway to “repeal and replace” the Patient Protection and Affordable Care Act of 2010 (ACA) with the proposed American Health Care Act of 2017 (AHCA), understanding what is at stake can be challenging. It is my hope that this essay will bring some clarity to this issue.
- The US Health Insurance System Prior To The ACA: A Brief Review
The United States is currently the only high-income country without nearly universal health-care coverage. As a result, an estimated 44.6 million Americans (representing 16.7% of the US population under age 65) were uninsured in 2013, the year before the ACA went into effect.1
Most Americans under the age of 65 receive health insurance as a benefit from their employer, but this percentage has been steadily decreasing over time, from 67% of nonelderly Americans in 1999 to 56% in 2013, or approximately 148 million people. Additionally, people in families with lower incomes were less likely to receive health insurance through an employer, and these families lost employer-sponsored insurance at a faster rate than the population as a whole.2
Most Americans age 65 and older receive health insurance through Medicare. Medicare is the federal health insurance program created in 1965 for people 65 years of age and older, regardless of income, medical history, or health status. The program was expanded in 1972 to cover people under age 65 with permanent disabilities. Medicare provides health insurance to approximately 57 million beneficiaries. In 2014, half of all Medicare beneficiaries had incomes below $24,150 per person. Though an important source of both health care and financial security for its enrollees, Medicare does not cover services such as long-term services and supports, dental services, eyeglasses, or hearing aids3.
Medicaid, the nation’s public health insurance program for low income Americans, is the country’s single largest insurer. A federal-state program, Medicaid covered 55 million people in 2013, including many with complex and costly needs for care4. The vast majority of Medicaid enrollees lack access to other affordable health insurance. Medicaid covers a broad array of health services and limits enrollee out-of-pocket costs. The program is also the principal source of long-term care coverage for Americans. The costs of Medicaid are shared by the federal government and the states, with the federal share of costs (the federal “match”) varying by state from 50 to 74%. Enrollment in Medicaid is subject to both income and categorical exclusions, with the result that few poor childless adults qualified for the program prior to 2014.
Military veterans (and some non-veterans) meeting certain qualifications can receive health care through the Veterans Health Administration. In 2013, 6.48 million people used these services5. Other federally-funded programs include Tricare, for active duty military personnel and their families, and the Indian Health Service, the federal health program for American Indians and Alaska Natives.
Those who do not obtain health insurance via any of the above programs may attempt to purchase health insurance in the individual (non-group) market. In 2013, 10.6 million people had such insurance6. Obtaining this insurance could be both costly and difficult. At any given time, an estimated 27% of non-elderly adults have health conditions that would make them ineligible for coverage under usual non-group insurance underwriting standards that existed prior to the ACA7.
- Health Insurance Changes Under The ACA
Beginning in 2014, the ACA initiated substantial changes in who could receive health insurance and how it was financed via two major mechanisms: an expansion of private individual insurance coverage, and an expansion of Medicaid. The major policy changes are described below.
A) Expansion of private insurance coverage via the following:
- The provision of federal subsidies, in the form of refundable tax credits and cost-sharing subsidies, to aid uninsured individuals and families in the purchase of required private health insurance coverage through health insurance exchanges. Subsidies are provided to individuals and families on a sliding scale based on both family income and on the cost of health insurance in a particular market. Subsidies are provided to families with incomes below 400% of the federal poverty level.
- An individual mandate requiring that all residents and documented immigrants have health insurance coverage. Under most circumstances, failure to have coverage results in a financial penalty, applied to a person’s annual federal income tax.
- The establishment of health insurance exchanges selling private insurance policies. Individual states can either establish their own exchanges or use an exchange maintained by the federal government.
- A requirement that all exchanges must offer benefit packages that cover 10 essential health benefits and that cover at least 60% of the cost of covered benefits.
- A requirement that private insurers selling insurance through the exchanges cannot reject an applicant due to health status, or charge more to those with pre-existing medical conditions than to other applicants. Premiums can vary based on age (up to a variation of 3:1), smoking status and geographical location.
- A requirement that no annual or lifetime limits can be placed on the value of insurance coverage.
- A requirement that insurers must either return 80% of premiums in the form of health benefits or provide policy-holders with rebates.
B) Medicaid expansion
As drafted, the ACA required that Medicaid coverage be expanded to everyone with an income below 138% of the federal poverty level, without categorical exclusions. The federal government would pay 100% of the associated costs for the “Medicaid expansion” population for the first three years, gradually decreasing to 90% as of 2020. However, as a result of a 2012 Supreme Court ruling, expansion of Medicaid eligibility was made optional at the state level. 31 states and the District of Columbia have expanded Medicaid.
C) Employer-sponsored insurance
As drafted, the ACA required large employers to either offer health insurance – by 2015 if they had at least 100 employees and by 2016 if they had 50–99 employees – or face a penalty. Smaller employers do not have to provide health insurance, but their employees are still subject to the individual mandate. Some small employers receive tax credits if they offer such coverage.
D) Funding sources
The ACA is partially funded through a variety of tax measures, whose overall effect is to significantly increase average taxes on families in the top one percent of income, cut taxes on families in the bottom quintiles, and modestly increase taxes on the rest of families8.
- Health Insurance Expansion Under The ACA
While estimates of the number of people who gained health insurance under the ACA vary depending on study methodology, the National Center for Health Statistics reports that in the first 9 months of 2016, 28.2 million people were uninsured at the time of interview, representing 8.8% of the US population. This represents a decrease of 20.4 million people when compared to 2010, when 48.6 million people, or 16.0% of the population, were uninsured9. This also represents the lowest uninsured rate ever recorded in the United States.
Other assessments show similar results. As of June 2016, national enrollment in Medicaid and a related program, the Children’s Health Insurance Program, had grown by over 15 million people since October 2013 (before the ACA Medicaid expansion), a 27% increase in monthly Medicaid enrollment. In addition, as of March 2016, over 11 million individuals were enrolled in an individual private insurance plan obtained on the exchanges, with the vast majority (85%) receiving premium subsidies. While uninsured rates decreased across all income groups from 2013 to 2016, they declined most sharply for the poor and near-poor, and for those living in states that expanded Medicaid10.
- Other Economic Impacts of the ACA
A report released by the Commonwealth Fund in February 2016 stated: “Although it is impossible to state with absolute certainty the full extent to which the ACA’s reforms have contributed to the nation’s recovery from one of the worst economic crises of recent decades, the news has been, on balance, positive. To date, there is no evidence that the ACA has had a negative impact on economic growth or jobs or that its reforms have undermined full-time employment—effects that the law’s opponents had warned about. To the contrary, evidence indicates that the ACA has likely acted as an economic stimulus, in part by freeing up private and public resources for investment in jobs and production capacity. Moreover, the law’s payment and other cost-related reforms appear to have contributed to the marked slowdown in health spending growth seen in recent years11.”
- “Repeal and Replace”: The American Health Care Act of 2017 (AHCA)
On March 8 of 2017, the AHCA was introduced in the US House of Representatives as a partial replacement of the ACA. The bill’s sponsors intend to use a “budget reconciliation” rule to pass the bill with a simple majority in the US Senate. As such, only components of the law with federal budget implications can be changed through this process.
As of this writing, the AHCA would make the following changes to the ACA:
- Repeal the tax penalty for not having minimum essential coverage effective January 1, 2016.
- Impose a one-year late enrollment penalty (30% of otherwise applicable premium) for individuals buying non-group coverage who have not maintained continuous coverage as of the 2019 plan year.
- Replace ACA income-based and market-based tax credits with flat tax credits adjusted for age as of 2020, starting at $2,000 for individuals up to age 29 and maximizing at $4,000 for individuals age 60 and older. Tax credit amounts are indexed annually to the Consumer Price Index plus 1 percentage point.
- Eliminate the 90% enhanced federal match for Medicaid expansion as of January 1, 2020, except for those enrolled as of December 31, 2019 who do not have a break in eligibility of more than 1 month.
- Convert federal Medicaid funding to a per capita allotment beginning in 2020, and limit annual per-capita growth in spending to the Medical Consumer Price Index.
- Establish the State Innovation Grants and Stability Program with federal funding of $100 billion over 9 years. States may use funds to provide financial help to high-risk individuals, promote access to preventive services, provide cost sharing subsidies, and for other purposes.
- Prohibit federal Medicaid funding for Planned Parenthood clinics for one year, effective upon date of enactment.
- Repeal all ACA taxes as of January 1, 2018.
- Retain private insurance market rules, including the requirement to guarantee issue coverage, the prohibition on pre-existing condition exclusions, and the requirement to extend dependent coverage to age 26. Modify age rating limit to permit variation of 5:1, unless states adopt different ratios, effective 2018.
- Remove the requirement, beginning in 2020, that insurers who offer plans in the individual market generally must offer plans that cover at least 60 percent of the cost of covered benefits.
- AHCA Impact: Congressional Budget Office Analysis
On March 13, 2017, the Congressional Budget Office (CBO) issued its analysis of the AHCA12 and concluded that, from 2017 to 2026, the AHCA would:
- Reduce federal spending on Medicaid by $880 billion.
- Replace the $673 billion in ACA subsidies with $361 billion in flat tax credits.
- Reduce federal revenues by $592 billion as a result of provisions that would repeal many of the ACA taxes.
- Increase the number of uninsured by 14 million in 2018, rising to an increase of 24 million by 2026. Of the 24 million newly uninsured in 2026, 14 million would lose Medicaid coverage, and 10 million would lose private insurance. This would lead to an estimated 52 million people who would be uninsured in 2026, compared with 28 million who would lack insurance in 2026 under the ACA.
- Increase average private individual insurance premiums prior to 2020, then lower average private insurance premiums afterward. However, premiums would differ significantly for people of different ages because of a change in the age-rating rule, substantially reducing premiums for young adults and substantially raising premiums for older people.
- Keep the private health insurance market stable, mostly by lowering average premiums enough to attract a sufficient number of relatively healthy people to stabilize the market.
- AHCA Impact: A Closer Look
- A) Medicaid
The AHCA’s proposed elimination of the enhanced 90% federal match for Medicaid expansion enrollees in 2020 will effectively end the Medicaid expansion. Many Medicaid expansion enrollees “cycle” on and off of Medicaid coverage due to changes in income from month to month. Starting in 2020, people whose incomes even temporarily tick above the eligibility threshold (about $16,400 for an individual) would no longer be eligible for the enhanced federal match under the Medicaid expansion, and would not be able regain coverage under the Medicaid expansion even if their income dropped back below that threshold. A recent study showed that 7.6 million people lost Medicaid coverage nationwide in 201613. At this rate, the Medicaid expansion would effectively end shortly after 2020.
Furthermore, the current AHCA proposal to convert the federal portion of Medicaid funding from its present status as a guaranteed match to a per-capita allotment further shifts the cost of Medicaid from the federal government to the states. A recent study estimates this cost to be $116 billion over 10 years. Combined with an estimated $253 billion loss of federal revenue from ending the enhanced federal match for the Medicaid expansion, the AHCA will shift an estimated $370 billion in Medicaid costs from the federal government to the states over the next 10 years. Given the reality that very few states (if any) will be able to fully cover these shifted costs, states will inevitably resort to restricting Medicaid eligibility, reducing the services Medicaid covers, cutting Medicaid payments to hospitals and other providers, or, most likely, a combination of all three approaches to rationing care14.
Finally, federal per capita Medicaid funding shifts significant risks to states. Because states would receive no federal matching funds for any costs above their per-capita allotment, they would have to bear 100 percent of the costs that result from situations such as a public health emergency, a costly new prescription drug, or changing demographics that are not accounted for in the per capita funding formula. Because of this, the overall effect of federal Medicaid funding cuts under a per capita formula would be deepest precisely when the needs of a state’s population, and the corresponding demands on state resources, are at their greatest15.
B) Private Insurance
As the prevalence of most illnesses increases with increasing age, the need for health care services and health insurance, and the cost of that insurance, increases with age as well. Additionally, lower income people are less likely to be able to afford private health insurance. The ACA accounts for this by tying current private insurance subsidies to income and to local insurance market costs, and by limiting age-related premium increases. While the AHCA-proposed tax credits for private insurance increase with age, the credits do not fully cover the increasing cost of insurance with age, especially for individuals with lower incomes.
The Congressional Budget Office report anticipates that the total out-of-pocket costs for many in the individual private insurance market will increase under the AHCA starting in 2020, and that these cost increases will disproportionately affect older and lower-income individuals. The CBO estimates that, in 2026, a single 64 year old with an annual income of $26,500 (175% of federal poverty level) would see a net private insurance premium increase from $1700 under the ACA to $14,600 under the AHCA. Because older and poorer people would be the most likely to find individual market coverage unaffordable, the CBO concludes that a larger share of enrollees in the individual market would be younger and higher income people, and a smaller share would be older and lower income people16.
The CBO estimates that the AHCA’s proposed repeal of ACA taxes, combined with other changes, would eliminate $592 billion in taxes from 2017 to 202617. The benefits of these tax cuts would heavily favor the wealthy, with one study estimating that 57% of the net benefit would accrue to millionaires in 202518.
D) Jobs and the Economy
Because of health care’s prominent role in the US economy, major changes in health care will have impacts across the economy. One study estimated that a complete repeal of the ACA’s individual premium tax credits and Medicaid expansion would cause the loss of about 2.6 million jobs in 2019, rising to nearly 3 million by 2021. A third of these lost jobs would be in health care, but the majority would be in other industries such as construction, real estate, retail trade, and finance. Nearly all would be private-sector jobs19.
The increase in the number of uninsured individuals under the AHCA would also increase the cost of uncompensated care to hospitals, posing a threat to their financial viability and causing at least some to close.
The health insurance coverage expansions under the ACA have resulted in the lowest number of uninsured Americans ever recorded. An estimated 20 million people gained insurance coverage under the ACA, with the largest rates of increase among the poor and near-poor, and for those living in states that expanded Medicaid. As currently written, the AHCA would cause an estimated 24 million individuals to lose health insurance by 2026, nearly doubling the overall number of uninsured individuals nationwide, with insurance losses borne disproportionately by the poor and the near-elderly. The AHCA would also have an adverse impact on state budgets and state and local economies, while providing tax cuts that would disproportionately benefit the wealthy. The AHCA, if enacted, would place the goal of fairly-funded, universal health care for all Americans even further in the distance.
- Centers for Disease Control and Prevention, National Center for Health Statistics, Office of Analysis and Epidemiology, http://www.cdc.gov/nchs/hus/healthinsurance.htm
- Long, et.al., Trends in Employer-Sponsored Insurance Offer and Coverage Rates, 1999-2014 (Kaiser Family Foundation, March 21, 2016), http://kff.org/private-insurance/issue-brief/trends-in-employer-sponsored-insurance-offer-and-coverage-rates-1999-2014/
- An Overview of Medicare (Kaiser Family Foundation, April 1, 2016),
- Snyder, et.al., Medicaid Enrollment: June 2013 Data Snapshot (Kaiser Family Foundation, January 29, 2014), http://kff.org/report-section/medicaid-enrollment-june-2013-data-snapshot-overview/
- Bagalman, The Number of Veterans That Use VA Health Care Services: A Fact Sheet (Congressional Research Service, June 3, 2014), https://fas.org/sgp/crs/misc/R43579.pdf
- Levitt, et, al., Data Note: How Has the Individual Insurance Market Grown Under the Affordable Care Act? (Kaiser Family Foundation, May 12, 2015), http://kff.org/health-reform/issue-brief/data-note-how-has-the-individual-insurance-market-grown-under-the-affordable-care-act/
- Claxton, et.al., Pre-ACA Market Practices Provide Lessons for ACA Replacement Approaches (Kaiser Family Foundation, February 16, 2017), http://kff.org/health-costs/issue-brief/pre-aca-market-practices-provide-lessons-for-aca-replacement-approaches/
- “What tax changes did the Affordable Care Act make?”, Tax Policy Center Briefing Book (Urban Institute and Brookings Institution Tax Policy Center), http://www.taxpolicycenter.org/briefing-book/what-tax-changes-did-affordable-care-act-make
- Martinez, et.al., Health Insurance Coverage: Early Release of Estimates From the National Health Interview Survey, January-September 2016 (Centers for Disease Control and Prevention, National Center for Health Statistics, National Health Interview Survey, February 14, 2017), https://www.cdc.gov/nchs/data/nhis/earlyrelease/insur201702.pdf
- Garfield, et.al., The Uninsured: A Primer – Key Facts about Health Insurance and the Uninsured in the Wake of National Health Reform (Kaiser Family Foundation, November 1, 2016), http://kff.org/report-section/the-uninsured-a-primer-key-facts-about-health-insurance-and-the-uninsured-in-the-wake-of-national-health-reform-how-has-health-insurance-coverage-changed-under-the-aca/
- Schoen, The Affordable Care Act and the U.S. Economy: A Five-Year Perspective (Commonwealth Fund, February 2, 2016), http://www.commonwealthfund.org/publications/fund-reports/2016/feb/aca-economy-five-year-perspective
- American Healthcare Act Cost Estimate (Congressional Budget Office, March 13, 2017), https://www.cbo.gov/publication/52486
- Collins et.al., Why Millions Would Lose Coverage Under the Medicaid Expansion Changes in the House Affordable Care Act Repeal Bill (The Commonwealth Fund, March 7, 2017), http://www.commonwealthfund.org/publications/blog/2017/mar/why-millions-would-lose-coverage-under-affordable-care-act-repeal-bill
- Park, et.al., House Republican Health Plan Shifts $370 Billion in Medicaid Costs to States (The Center on Budget and Policy Priorities, March 8, 2017,) http://www.cbpp.org/research/health/house-republican-health-plan-shifts-370-billion-in-medicaid-costs-to-states
- American Healthcare Act Cost Estimate (Congressional Budget Office, March 13, 2017), https://www.cbo.gov/publication/52486
- Huang, House Republicans’ ACA Repeal Plan Would Mean Big Tax Cuts for Wealthy, Insurers, Drug Companies (The Center on Budget and Policy Priorities, March 8, 2017,) http://www.cbpp.org/research/federal-tax/house-republicans-aca-repeal-plan-would-mean-big-tax-cuts-for-wealthy-insurers
- Ku, et.al., Repealing Federal Health Reform: Economic and Employment Consequences for States (The Commonwealth Fund, January 2017), http://www.commonwealthfund.org/Publications/Issue-Briefs/2017/Jan/Repealing-Federal-Health-Reform