Welcome to Health Reform Watch, Sarah Kliff’s regular look at how the Affordable Care Act is changing the American health-care system — and being changed by it. You can reach Sarah with questions, comments and suggestions here. Check back every Monday, Wednesday and Friday afternoon for the latest edition or sign up here to receive it straight from your inbox. Read previous columns here.
1. Republican Sens. Richard Burr (R-N.C.), Tom Coburn (R-Okla.) and Orrin Hatch (R-Utah) released Thursday what is arguably the most complete Obamacare replacement plan offered by their party to date. It is a piece of legislation that, like the Affordable Care Act, aims to increase access to health care and drive down costs.
2. The replacement plan has structural similarities to Obamacare. It relies on a concept that health economist Jon Gruber describes as a 'three-legged stool' of health reform.
One leg is expanding access to coverage. Obamacare does this by ending medical underwriting -- the part of the individual market where, prior to 2014, health plans used individuals' pre-existing conditions to set the price of the premium they pay. Under Obamacare, insurance companies cannot use medical histories to set prices.
The Republican proposal would do this in a more limited way: It would end pre-existing conditions limitations for those who remain continuously insured. That means if you lost your job and health insurance, and immediately purchased a plan on the individual market, your insurance company could not use your medical history to set prices. If your coverage did lapse, however, there would be the possibility of facing underwriting fees when purchasing an individual plan.
The second leg is a policy to encourage people to get coverage -- if you don't have that, only sick people will sign up. Obamacare obviously has the requirement to purchase insurance on this front. The replacement plan has an arguably less punitive policy that's described above: If Americans let their health coverage lapse -- decide, for example, that they're pretty healthy and want to make a go of being uninsured -- they could be charged for their pre-existing conditions when they come back into the individual market to buy coverage.
The third leg is about making insurance affordable. Both Obamacare and the replacement plan include tax subsidies for low- to middle-income Americans, although they're structured a bit differently. The Republican replacement plan would let Americans use tax credits to purchase insurance coverage if they earned less than 300 percent of the poverty line (about $36,000 for an individual). Subsidies in Obamacare go up to 400 percent of the poverty line. The Republican plan envisions anyone below 300 percent of the poverty line qualifying for these subsidies, whereas Obamacare has those who earn less than 133 percent of the poverty line (about $15,000) become eligible for Medicaid.
4. There are, of course, some differences between the two. There are no exchanges in the Republican plan, nor is there a mandated set of benefits that insurance plans must cover. Obamacare limits the amount that insurers can charge their oldest enrollees to three times the amount they charge their youngest enrollee. Republicans would widen that age band, allowing insurers to charge older subscribers five times as much -- lowering premiums for younger people in the process.
The Republican plan puts less emphasis on expanding Medicaid; Obamacare relies on that public program for half of the entire insurance expansion. The replacement plan would limit any Medicaid expansion to pregnant women and children living below the poverty line, and give states the option to decide whether to participate. And even then, those people would have more of a choice: They could decide whether to participate on Medicaid, or use a tax credit to buy private insurance. Under Obamacare, there isn't that option.
5. We don't know how many people this plan would cover since it's not formal legislation yet and has not been scored by the Congressional Budget Office. The subsidies are less generous than Obamacare, which could mean it would cover fewer people. But the penalty of being underwritten for not buying coverage could prove even more onerous than the individual mandate's relatively weak fines for not carrying insurance coverage.
6. The biggest, most significant difference between Obamacare and the replacement plan is about financing -- how you pay for all those insurance subsidies. The replacement plan repeals a whole slew of industry taxes that had the insurance companies, hospitals and medical device makers all helping to foot the bill. Those are gone. In their place is a limit on the the tax exclusion for employer-sponsored insurance.
Right now, the federal government does not tax health insurance when it is provided to an employee by an employer. The Republican plan would limit the tax exclusion to 65 percent of the average health insurance plan. Any amount of a premium beyond that amount would need to be paid with post-tax dollars. There's no estimate on how many people this would effect and how much more they would pay for premiums, but Republican Senate aides do say it's true that people who receive more robust policies from their employers would pay more for premiums.
7. Economists across the political spectrum tend to love the idea of limiting -- or, ideally, eliminating -- tax preferences for health insurance. It creates an uneven playing field and is regressive, making it a lot easier for an employer to buy insurance than an individual. It drives up the demand for really robust health insurance packages that may be well beyond what workers need -- but since health insurance is tax-preferenced, it's a cheaper way to pay employees. The federal government loses over $100 billion in revenue each year by not taxing health plans.
8. People -- especially the 56 percent of Americans under 65 who get their insurance through their employer -- tend to hate the idea of ending this health insurance tax exclusion because it means the same exact health benefit package they get right now could get a whole lot more expensive. No matter how much economists like the idea of ending the employer tax exclusion, politicians tend to get brutalized for proposing it (see: John McCain in 2008).
9. One other notable feature of this plan: Obamacare has become the starting point for negotiations. This wasn't really true a few years ago, or even a few months ago, before the health-care law's insurance expansion started. It's interesting that this proposal takes some of the contours of Obamacare and works around them, such as ending pre-existing conditions and continuing dependent coverage up to age 26. The health-care law's $700 million in Medicare cuts stick around, too. Even though it's a replacement plan, it also acknowledges that Obamacare isn't totally going to disappear.
KLIFF NOTES: Top health policy reads from around the Web.
How will Obama handle Obamacare in the State of the Union? "This time, President Barack Obama is going to have to actually talk about Obamacare in his State of the Union address. No more touch-the-base-and-keep-running treatments, the way he’s handled it the past couple of years. This time, he’ll be expected to linger on base a bit, at least long enough to acknowledge the launch of the biggest domestic achievement of his presidency — and do it in the least awkward way possible." David Nather in Politico.
Economists see little Obamacare impact on hiring. "About 75 percent of those surveyed said the Affordable Care Act hasn’t influenced their planning or expectations for 2014, according to data from theNational Association for Business Economics. Twenty-one percent of 64 respondents said that the law would have a negative impact on business conditions and 5 percent said it will be positive." Carlos Torres in Bloomberg.