What's The Plan to Replace 'Obamacare'?
When President-elect Trump takes office, repealing and replacing the Affordable Care Act ("Obamacare") is likely to be an early agenda item. While he put forward elements of a health care plan during the campaign, health care reform is probably more likely to be based on the more comprehensive framework released by House Republicans' Better Way blueprint.
Broadly, the blueprint would repeal most of the Affordable Care Act's tax and coverage provisions and replace them with a mixture of tax credits, (generally looser) regulations, high risk pools, state flexibility, and other provisions to promote low-cost health insurance coverage. The blueprint would also take steps to reform Medicare and Medicaid to slow spending overall growth (though it would repeal some cost-control measures in the Affordable Care Act).
Though the House Republicans' blueprint offers a general framework for reform, it does not provide enough details to estimate the impact on coverage, economic growth, or the budget. Likely, the plan would result in less coverage than current law but more than before the Affordable Care Act. It would also likely encourage economic growth to a small degree. It is not clear without more details whether the plan would add to or reduce the deficit.
Below, we discuss the details of the blueprint and how they differ from Trump's campaign proposals (which we explain here).
The Better Way blueprint would repeal most of the Affordable Care Act's (ACA) coverage provisions and replace them with alternatives. Specifically, it would:
- Replace the ACA's income-based premium subsidies with a flat refundable, advanceable tax credit that varies based only on age and is available to anyone who purchases insurance in the individual market.
- Repeal the ACA's essential minimum benefits standard, which specifies benefits that insurance plans must cover to qualify for the exchanges, leaving regulation of insurance plans to states.
- Allow people to purchase health insurance across state lines.
- Expand and encourage the use of Health Savings Accounts (HSAs) and Health Reimbursement Accounts (HRAs) in order to encourage more consumer-driven health care.
- Allow states who have opted to expand Medicaid to continue to cover the expansion population if they choose, but gradually reduce their per-person match to equal their general Medicaid matching rate.
- Spend $25 billion on State Innovation Grants to encourage states to work toward reducing costs and expanding coverage.
- Continue to allow children to stay on their parents' insurance plans until age 26 as under the ACA.
- Continue the requirement that insurers offer coverage to everyone regardless of pre-existing conditions.
- Continue to limit "age rating" but loosen the limitation by allowing insurers to charge as much as 5 times more for oldest enrollees than the youngest enrollees, instead of 3 times more under the ACA.
- Replace the individual mandate with provision allowing insurers to charge more for higher-risk customers who don't maintain continuous coverage.
- Repeal the employer mandate and small business insurance credits.
- Establish a $25 billion high risk pool for expensive enrollees.
This plan has some elements in common with Trump's campaign plan -- including repealing most ACA regulations and mandates, expanding HSAs, allowing purchase of insurance across state lines, and establishing new high risk pools. In place of a broadly-available flat-dollar tax credit to purchase individual insurance, however, Trump's plan would simply expand the tax preference available for employer-provided health insurance by making all health insurance premiums tax-deductible.
The Better Way blueprint would repeal virtually of all the $660 billion of taxes imposed by the Affordable Care Act, including the 3.8% Net Investment Income Tax on passive income of high earners, the 0.9% Hospital Insurance surtax on income above $200,000 (on top of the base rate of 2.9%), as well as taxes on medical device companies, health insurance providers, drug manufacturers, and tanning services, among other things.
The blueprint would also replace the ACA’s Cadillac tax – a 40 percent excise tax on high-cost insurance plans which is scheduled to begin in 2020 (delayed from 2018) and would grow slower than health care costs and thus tax an increasing number of plans over time and raise substantial revenue over the long term. The purpose of the tax is to offset the existing tax-exclusion for employer-provided health insurance, which most economists and health experts believe drives up health care cost growth, in order to slow the growth of private health care costs.
In its place, the blueprint proposes a direct cap on the exclusion for employer-provided health insurance which would -- at least at the beginning -- impact only the most generous health insurance plans. Depending on where the cap is set and how it is indexed, it could raise more or less revenue than the Cadillac tax. It is very unlikely the cap would be stringent enough to replace all the revenue lost from repealing ACA taxes.
Similar to the Better Way blueprint, Trump's campaign plan would repeal all of the taxes in the ACA. However, the plan includes no proposal to limit or reform the exclusion for employer-provided insurance.
The Better Way blueprint appears to retain most of the $940 billion of Medicare reductions passed under the Affordable Care Act. However, it would repeal the Center for Medicare and Medicaid Innovation (CMMI) and the Independent Payment Advisory Board (IPAB) – two provisions in the ACA designed to help Medicare to experiment with and implement cost control measures without new legislation. The blueprint would also reverse some or all of the roughly $300 billion Medicare Advantage reductions enacted under the ACA.
The Better Way blueprint would also enact new Medicare changes designed to reform the program and slow its cost growth. Among these changes, the plan would:
- Modernize Medicare's cost-sharing rules by combining various deductible and co-pays in Medicare Parts A and B into a single unified deductible with 20 percent coinsurance on additional costs up to an out-of-pocket cap to limit cost-sharing in a given year.
- Limit private Medigap plans from covering more than half of Medicare's cost-sharing after the deductible.
- Allow Medicare Advantage plans to better reward value in their benefit packages.
- Raise the Medicare eligibility age from 65 to 67.
- Enact medical malpractice reform that includes caps on non-economic damages from medical liability.
Over the long term, the blueprint also proposes to transition Medicare to a premium support system in 2024, where new Medicare enrollees would choose between private plans and traditional Medicare fee-for-service with the government's share of the premium set by a competitive bidding process (and adjusted for health status and income).
Trump's campaign plan does not share much in common with the Better Way blueprint and instead includes a number of changes designed to reduce prescription drug costs. His transition website states that he would, "modernize Medicare, so that it will be ready for the challenges with the coming retirement of the Baby Boom generation – and beyond."
The key Medicaid reform in the plan is a transition away from the current federal matching system to a per-capita state allotment based on four categories (elderly, disabled, children, and able-bodied adults), with states able to set their own standard for benefits, eligibility levels, and provider payments. The increased matching rates for states that accepted the Medicaid expansion in the ACA would begin to phase out after 2019 when the allotments are implemented. The proposal doesn’t specify the growth rates for the per-capita allotment or the phase down of the enhanced federal contribution, although the authors say the federal payment would be fixed and would grow at a rate slower than current law. States could also choose to receive a block grant, which would be based on a state's total spending rather than per-person spending by category, in lieu of the allotments.
In addition, the plan would replace Disproportionate Share Hospital (DSH) payments with a national pool of funds for uncompensated care.
President-elect Trump has said that he would repeal the Medicaid expansion in the ACA and block grant non-expansion Medicaid, though details about the growth rate and how the allotments would be calculated were not provided. We estimate that if the block grant grew at the rate of inflation, costs would rise at a significantly slower rate than is expected under current law and would save about $500 billion over ten years.
Coverage and Budgetary Effects of the Better Way Plan
Without more details, particularly on the size of the individual insurance subsidies and the limit on the employer insurance exclusion, it is difficult to say for certain what the plan's effect would be on insurance coverage and the federal budget. The Center for Health and Economy conducted an analysis based on making a number of assumptions (including that subsidies would be $900 to $3,000, the exclusion would be capped at the 90th percentile of premiums and grow at 3 percent, and the Medicaid allotments would grow with inflation). They found the coverage, Cadillac tax, and Medicaid changes in the proposal would save about $500 billion -- suggesting the total budgetary impact would be roughly neutral when the tax repeals are included. They also found the plan would reduce insurance coverage by about 4 million people (compared to 22 million for repealing the ACA), though many would have less generous coverage than today.
By comparison, we've estimated Trump's health care plans would also be roughly budget-neutral but would reduce insurance coverage by about 21 million people.
Again, without further detail and an official score from CBO, it is difficult for certain what the effects of the plan would be.
Ideally, the final healthcare bill will provide for low-cost insurance coverage for individuals and the government while reducing the deficit and, perhaps most importantly, further slowing the growth of private and public health care spending over the long term.