Let's Fix This Country

Obamacare: Repeal and Replace, But Replace with What?

Fulfilling the long held wishes of Republicans of all stripes and the more than half of Americans who dislike the program, President-elect Donald Trump will introduce legislation that "Fully repeals Obamacare and replaces it with Health Savings Accounts, the ability to purchase health insurance across state lines, and let states manage Medicaid funds", according to his "100-day action plan".

The complexities of what was hoped to be a solution to America's abysmal healthcare system were so great as to require an Affordable Care Act that ran to 906 page. Yet six years after passage of that act, the Republican healthcare replacement plan amounts to little more in detail than the outtake you just read in the first paragraph.

House Speaker Paul Ryan, who doubles as the that body's economics guru, issued what is putatively the official Republican take on the subject in June. There would of course be no mandate requiring individuals to buy insurance or pay a penalty. All insurance plans would be offered within states, rather than the current federal exchange. Federal subsidies would be no more; in their place, a tax credit to help pay for insurance. Ryan didn't mention the amount of the credit. Even if substantial, a tax credit is of no use to the over 40% of households whose income is so low they don't owe income taxes from which to deduct the credit. When The Washington Post asked questions, they were told that the " the proposal is just a starting point for discussion", proving our point that six years on, Republicans are so ill-prepared to replace the Affordable Care Act that no detail has been worked out.

The same inapplicability to those with low incomes applies to the health savings accounts, which allow setting aside money tax free for the exclusive use of paying medical bills. The current law requires an individual or family to have a high-deductible insurance plan in parallel. The result is that a household pays twice: once for insurance and again into the health savings account, if there's money enough, to try to fill in for their deductible. Except for a bit of tax saving, how is this even a plan when it is of use only to people with large enough incomes to allow setting aside money and paying the steep costs of health insurance entirely on their own? (Congress, with its generous health plans paid for, is unfamiliar with the problems of typical Americans).

For the sick, the Ryan plan would pay into high-risk insurance pools, but only those who maintain uninterrupted coverage would be eligible. But in a post-election "60 Minutes" interview, Donald Trump has said he wants to continue the Affordable Care Act's rule requiring insurance companies to accept applicants with pre-existing conditions, and also would allow families to continue keeping their children on their insurance plans up to age 26. No mention of retaining Obamacare's forbidding insurers from dropping the sick from their plans, a widespread tactic before the ACA became law.

Obamacare requires everyone (with exceptions) above a given income threshold to buy insurance or pay a penalty. That feeds money to insurers to pay for the costly ill, but the mandate falls away with Ryan's plan, leaving it to taxpayers to pay for the massive support that would be needed for his high-risk pools.

In the week before the election, Mike Pence gave a speech largely about how Republicans would replace healthcare. Trump has put him in charge. Most of his talk was taken up criticizing the Affordable Care Act and its mounting premium costs. He added to what Ryan had said that Medicaid would be replaced by block grants to the states so they "can innovate and reform and design programs that meet the unique needs of their citizens". It is always the Republican goal to return power to the states and shrink the federal role no matter the topic. But splitting a centralized program into 50 pieces will bring on problems beyond the money wasted on administrative duplication, not least of which is the difficulty of federal oversight 50 times over of how the distributed taxpayer funds are actually used, whether they are diverted to other than healthcare, and whether graft and outright larceny will become the norm when state agencies lay hands on all that money.

Fact is, this sketchy "plan" won't work. The Affordable Care Act had a carefully worked out set of feedbacks — the individual mandate to play or pay, the subsidies, the "risk corridor" to help successful insurers help those who guessed wrong until experience brought adjustments. Each pillar was designed to prop up the other. That this construct is in trouble should tell you that the Trump plan is totally lacking for having no overall architecture. The high-risk pool will simply be a taxpayer expense by other means than the mandate. The plan solves nothing. Just watch.

Congress may recycle the repeal bill that passed both House and Senate and went to Obama, who vetoed it. To avoid a crash landing, as presently written it takes effect the end of 2017 to afford "a transition period for those receiving subsidies to ensure that Americans don’t face disruption or hardship in their coverage”, as Pence said. So that would seem to give Republicans a full year to come up with a winning replacement — except it doesn't. If Congress and the new president passes the GOP’s “repeal” with “replace” not yet decided, it will cause instant collapse as insurance companies abandon coverage during the transition.

On "60 Minutes" the Sunday after the election, Trump contradicted this. When Leslie Stahl said, "There's going to be a period if you repeal it and before you replace it when millions of people...". Trump interrupted with "We're going to do it simultaneously...we're not going to have like a two-year period when there's nothing. It will be repealed and replaced and we'll know and it'll be great healthcare for much less money. Not a bad combination". Nothing in the plan supports that.

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4 Comments for “Obamacare: Repeal and Replace, But Replace with What?”

  1. David Barnett, Ph.D.

    The healthcare mess has been sixty or seventy years in the making, so do not expect to fix it over night.

    Here are some of the problems that must be addressed:

    1. The medical profession is not paid directly by the patient, so there is no incentive for the patient to prioritise, and (given the litigious environment), every incentive for doctors to practice theatrical defensive medicine (even when it may be detrimental to the patient).

    2. The law makes it impossible for doctors to transfer some of the risk to patients by contract, pushing up malpractice insurance premiums, and increasing the number of purely defensive procedures.

    3. The FDA approvals process is so costly that it drug companies can barely make a profit on drugs other than those for chronic conditions. In other words: innovation for one-off cures, and preventative strategies is suppressed.

    4. Daft rules (and litigation defensive procedures) require many things to be doctor supervised when lesser qualified or more narrowly trained personnel could be used.

    5. Medicare and Medicaid severely distort the medical and medical insurance market. For example, it is virtually impossible for someone of pension age to get private medical insurance in the USA.

    In the context of problem 1, high deductible catastrophe insurance policies, with premiums and routine medical bills payable from tax free funds, make sense. The fact that this does not help the poor directly does not detract from it.

    Helping the poor is best done on two ways. Firstly, tackling the 5 problems above would result in lower medical costs over time. Secondly, one cannot avoid the some form of charitable subsidy. This is best done by private charity at a very local level. Government systems are just too cumbersome, and bureaucratic and backward looking.

    • Editors

      Thank you for your valued comments, mostly on healthcare itself in the U.S., a broader subject than the article, which focused on healthcare insurance. One wonders whether righting the healthcare system according to all your five points will ever occur. We do, however, entirely disagree with your final point: abandoning the least of American’s people to the uncertainty of private charity. To the contrary, we would say that is where government should step in.

      • Healthcare cannot function equitably (deliver service to match need) as a market led, business model because demand for the product is entirely inelastic.
        Even assuming that a patient has access to appropriate data and that the patient has the time and skill set required to make an informed choice over which procedure/doctor to pursue, the choice to seek medical assistance (i.e. remain alive and functional) is not (and should not be) a viable option.

    • Al Rodbell

      Several comments/questions
      # 2. The law makes it impossible for doctors to transfer some of the risk to patients by contract……In CA many MDs require malpractice to be resolved by arbitration, are these not enforceable. Currently M.P. Reform is mostly for pain and suffering, while lost earnings are unlimited. Yet, MDs can not charge more for those earning in seven figures. This ironically is never included in this reform legislation.

      3. The FDA approvals process is so costly that it drug companies can barely make a profit on drugs other than those for chronic conditions. In other words: innovation for one-off cures, and preventative strategies is suppressed.

      This is why anti-biotics for resistant disease is no longer made. Of course we need govt. subsidies for this. But we still have examples of price gouging, and gaming of the patent system by minor changes. Could it be that the power of industries and their contributions to politicos, explain some of this.

      Price gouging during national emergencies are legal and common. When you are dying for need of medication, this is an emergency – and the law of supply and demand doesn’t operate.

      ACA should never have been pushed by a single party and passed by reconciliation. We needed then and we need now a non-partisan replacement for Obamacare, how about we call it AmericaCare, and rather than destroy, build on what we have started. What is being discussed about this bill is the tip of the iceberg as it is part of what should have been a bi-partisan decades long effort.

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