Republicans’ Obamacare Replacement Plan: The American Health Care Act

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Republicans’ Obamacare Replacement Plan: The American Health Care Act

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Republicans’ Obamacare Replacement Plan: The American Health Care Act

On May 4, 2017, House Republicans passed a bill called the American Health Care Act (AHCA). The law is designed to repeal and replace the Affordable Care Act (ACA), also known as Obamacare. The bill will now move on to the Senate for consideration. Only if the Senate passes the bill will it become U.S. law.

Here are some important things to know about how the current version of the AHCA would work.

The tax penalty for going without health insurance would disappear, but you’ll pay more if you let your coverage drop. The AHCA does away with Obamacare’s controversial “individual mandate,” which requires most Americans to get health insurance or pay a penalty. Instead, you would be required to maintain “continuous coverage.” If your health insurance lapses for more than 63 days, insurers can add a 30% surcharge when you next seek coverage. The boosted price would stay in effect for a full year before dropping to the standard rate.

New tax credits for buying health insurance would mean less help for low-income Americans and more help for those who earn more. Under the American Health Care Act, the concept of using tax credits to buy individual health insurance will change dramatically. Rather than basing tax credits strictly on income and tying the subsidies to the cost of insurance plans, the Republican plan offers $2,000 to $4,000 per year in tax credits, depending primarily on age. Tax credits can't be used for insurance plans that cover abortion.

Credits phase out for those earning more than $75,000 per year ($150,000 for families). Under Obamacare, credits disappear at about $48,300 annual income for an individual.

This system of tax credits will reduce the amount of federal help available to those with low incomes. Whereas Obamacare tied subsidy amounts to monthly insurance premiums, the AHCA's flat, age-determined sum will leave consumers to pay the difference between that sum and the full cost of an insurance plan. Many lower-income people will be hit hard by this change.

Cost sharing subsidies would be repealed as of January 1, 2020. This would eliminate the help with out-of-pocket health care costs currently received by individuals earning less than about $30,000 per year. More than half the people now enrolled in ACA plans receive these cost-sharing subsidies.

Older folks would probably have to pay more for insurance coverage. Currently, Obamacare allows insurers to charge the oldest people who buy health insurance three times more than the youngest. Under the new law, insurers can charge older people as much as five times more. The Congressional Budget Office says this change will raise premiums for older Americans while reducing them for younger adults. And the tax credits for older people won’t make up for the premium increases they are likely to face.

States could opt out of the requirement that insurance policies cover essential health benefits. For example, insurers could drop mental health care, maternity care, or emergency services.

States could allow insurers to charge higher premiums for people with pre-existing conditions. This would be allowed only if (1) the state had a way -- like a high-risk pool -- to help provide coverage for people with serious medical conditions and (2) the person seeking insurance had let their coverage lapse.

Planned Parenthood would be defunded. The AHCA includes a provision to defund Planned Parenthood, the largest provider of women’s health care in America. Planned Parenthood currently relies on federal funds for 40% of its operating budget (about $500 million), none of which can be used for abortion services under the existing law. 

Medicaid cuts would total $880 billion over ten years. Obamacare expanded Medicaid to cover millions of low-income individuals and families. It did so by allowing states to extend the program to anyone earning less than 138% of the federal poverty level. The American Health Care Act would give states a fixed amount of money for Medicaid enrollees, shifting the primary burden for the program from the federal government to the states. The Congressional Budget Office has projected that the AHCA would cut federal Medicaid spending by 25% by 2026. Because states don't have the money to make up the difference, they will have to cut coverage over time.

Metal-tier designations and requirements would go away. Also in 2020, the ACA's metal-tier levels – bronze, silver, gold, and platinum – will disappear, making it more challenging to compare plans.

States would get money to help stabilize the insurance market. The current version of the American Health Care Act provides $138 billion over a period of ten years for a new “Patient and State Stability Fund.” States would have flexibility in deciding how to use the funds. For example, a state might decide to provide financial assistance to individuals with expensive health conditions, supplement the federal tax credits, or promote access to preventive services.

Rich people would get tax cuts. The taxes of high-income people will drop by nearly $300 million over ten years because of the repeal of a payroll tax increase and a special tax on investment income that helped to fund the Affordable Care Act. ACA taxes on insurers and drug makers will also disappear.

We still don’t know how much the AHCA would cost the federal government or how many people the proposed plan would cover. 

To pass, the law faces high hurdles on both sides of the aisle in the Senate.


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