The New American Healthcare Act: A Review

The New American Healthcare Act: A Review

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Robert Petrosyan, Senior Fiscal Policy Editor

About two months after the initial attempt to repeal and replace Obamacare failed due to a lack of support from the Freedom Caucus, it was thought that the Trump administration would move towards tax reform, and leave healthcare on the backburner. While the GOP has released a new tax policy, they have also released an improved healthcare plan for Congress to consider, one that barely passed the House 217 to 213, and will now be heading to the Senate. This week, I will analyze this plan, and see the ways in which it changes the healthcare system in this country. 

First, this proposal will repeal most of Obamacare. Both the individual mandate and the employer mandate will be repealed, thus eliminating the main enforcement mechanism of the Affordable Care Act. Accordingly, this would also eliminate the tax penalties that would be placed on Americans who chose to ignore the individual mandate. The main impact of this change would be an increase in the number of uninsured, as many Americans who were forced by law to buy health insurance would no longer be required to, and many of them may choose not to purchase health insurance and remain uninsured. Especially with millennials, buying health insurance is not always the most profitable decision, since younger Americans are typically healthier and less likely to use health insurance. For that reason, Obamacare was marketed heavily towards the millennial generation, as their participation was necessary to subsidize prices for older Americans. With this mandate gone, there remains a need to subsidize the insurance payments of older Americans, and the replacement bill, the American Healthcare Act, addresses this concern.

The AHCA revised the subsidy system for Obamacare. The ACA’s subsidies were based upon the income of applicants as opposed to age. However, to take into account the much more expensive healthcare costs for older Americans, the Republican healthcare law established a subsidy system based on age of the applicant as opposed to the income level. The subsidies will range from $2000 to $4000 depending on bracket. In the first draft of the AHCA, this proposal was criticized as being a handout to the rich, however, this improved version of the AHCA begins to phase out subsidies for individuals that make more than $75,000 a year and households making $150,000, thus retaining the use of these subsidies where they are most needed. On another generational note, the new AHCA modified a code from the ACA that requires health insurance companies to charge seniors no more than three times higher premiums than they do to young people, and adjusted it to allow for a fivefold increase instead. This makes sense given the more expensive nature of care for seniors, and prevents arbitrary increases in the cost of healthcare for millennials in order to comply with this requirement.

Most of the taxes from the Affordable Care Act will also be repealed in this new proposal. The oft-criticized tax on medical devices will be repealed, as well as the tax on prescription drugs, and health insurance premiums. Additionally, other taxes, such as the 3.8 percent tax hike on investment income and the 0.9 percent tax increase on the rich will be eliminated. Surprisingly, the Cadillac tax on higher-end insurance plans was not eliminated, but will instead be delayed until 2025, fifteen years after its initial passage in 2010. President Trump has been vocal about cutting taxes during his presidential campaign, and was especially in support of eliminating the medical devices tax, which he suspended upon entering office. 

The AHCA does retain some of the more popular aspects of Obamacare. For example, parents are permitted to keep their children on their family healthcare plan up to the age of 26, and pre-existing conditions remain covered in the new AHCA. Though those provisions are popular, it is important to first note that many private healthcare plans already offer such family plans that allow those up to 26 to stay on those plans. Additionally, as Ben Shapiro often notes, allowing the pre-existing conditions provision to remain will lead to a further spike in healthcare prices, especially when taking into account the lack of funding that the individual mandate would bring. However, the new version of the GOP replacement does allow insurance companies to charge higher fees for those with such conditions, to compensate for the greater likelihood of use for healthcare services. 

Arguably one of the most notable changes that would emerge from this bill would be its impact on Medicare. Medicare expansion would cease to be funded in 2020, and the program as a whole would be transformed from an entitlement to a grant, either a direct one to recipients or a block grant to states. Additionally, able-bodied Medicare recipients would be required to work, participate in job training, or engage in community service. This change would arguably be the biggest move to downsize a federal entitlement since President Clinton’s welfare reform that passed in 1996. According to the CBO, this proposal would lower Medicare spending by 25% over the next ten years, which would be a major coup for fiscal conservatives who want to see the budget deficit addressed.

A final provision in the new American Health Care Act that would unite both fiscal and social conservatives in its support is the bill’s proposal to defund Planned Parenthood. We have explored earlier the fiscal benefits of defunding Planned Parenthood, and it makes sense for the GOP to make this cut here to meet a long term ideological objective. 

Overall, this is an improvement upon the first attempt at Republican healthcare reform. It addressed most of the problems of the previous bill, though unfortunately the 30% surcharge in the case of coverage lapses still remains. It is fiscally sound, and puts an end to the many inefficiencies that have emerged from Obamacare, and puts healthcare decisions back into the hands of the consumer. 

Unlike the first version, which failed to pass, this second version passed the House, with only twenty Republicans dissenting. It remains to be seen whether it can pass the Senate, and whether supporters of this bill could rally both dissenting members of the Freedom Caucus and red-state Democrats to pass this bill.

There is still more to be done on healthcare on the part of Congress and President Trump. Mainly, the Republicans need to act upon President Trump’s popular stance of opening up health insurance competition across state lines. Also, there were problems with the health insurance market before Obamacare that led to it becoming a popular issue in the 2008 election, and its important for the GOP to address these problems in the long term in order to avert calls for single-payer healthcare that will come from the political left. The GOP has a unique opportunity to fix healthcare in America, and I believe this current version of the American Health Care Act is a good place to start.

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