Repealing Obamacare is hard. President Obama’s health care overhaul, more formally known as the Affordable Care Act, is a tangled web of interrelated mandates, regulations and taxes. Tinkering with any one of them can have a domino effect with unpredictable consequences. President Trump and Republicans want to keep parts of it that are popular, like the guarantee that people with pre-existing conditions can still get coverage. But, that’s not as simple as it seems.
1) Keeping Everyone Covered
Repealing Obamacare while keeping its guarantee that those with pre-existing conditions will be covered is one big reason repealing Obamacare is difficult. Health insurers are reluctant to cover people with a history of major health problems because the costs of their care are likely to vastly outstrip the premiums they pay in. If there are too many sick people relative to healthy people in an insurance risk pool, there’s not enough money to pay for everyone’s care.
Obamacare sought to solve this by mandating that everyone buy health health insurance and by providing a subsidy for poorer people to help pay for it. It was hoped that this would mean more young, healthy people less likely to get sick paid premiums leaving enough money left over to provide care for all the people with pre-existing conditions. It didn’t quite go as planned.
Premiums have soared, rising 25% on average this year. There are a number of reasons for this, but two big ones are that not enough healthy people bought plans and the ones that did were more expensive to care for than expected. Insurers were forced to hike premiums to fill the gap.
Just 28% of people enrolled in Obamacare exchanges in the cheaper to care for 18-34 age range, far below the estimated 40% level needed.
The GOP Obamacare repeal plan takes a different approach. It would do away with the mandate to buy coverage and replace Obamacare’s subsidy with a tax credit that offsets the cost of buying insurance.
Unlike a tax deduction, which reduces the income on which a person is taxed, a tax credit directly reduces a person’s tax bill directly.
Unlike the Obamacare subsidy, the tax credit proposed by Republicans would vary from $2,000 to $4,000 based on age, rather than income. The richest tax credits would be reserved for people 60+ years of age who face the largest premiums.
The GOP hopes that this tax credit, when combined with reductions in costly regulatory red tape, more flexibility, and other reforms will encourage more people to get coverage and reduce overall health care costs.
2) Medicaid Expansion
Obamacare offered states the option to expand Medicaid, with the federal government picking up much of the tab. If that money goes away, the thirty-one states took the feds up on the offer would either have to deny coverage to people who gained coverage under the expansion or cough up enough money to pay for it themselves. So, lawmakers from expansion states want to see this part of Obamacare stay in place. Lawmakers from states that didn’t expand don’t think they shouldn’t have to foot the bill for the states that did.
The Republicans’ plan would end Medicaid expansion in 2020, after which the program would undergo dramatic changes. Currently, Medicaid is administered by states under rules set by the Federal government, sharing the costs between them. After 2020, states would get a fixed lump of cash from Washington based on how many people they have enrolled. States could then use that money with few strings attached, allowing states to design their own Medicaid plans that best fit their population. The plan will also establish a $100 billion fund to help with the transition.
3) Paying for It
Obamacare imposed a variety of big tax increases on everything from rich people to tanning salons. The Republican bill repeals most of these taxes, but punted on the thorny question of how to replace the lost revenue. For example, the largest of these, a $158 billion tax on wealthy Americans and investors, would stay in place through 2018. Fiscal conservatives are worried that this could result in a massive explosion in the deficit.
With roughly $575 billion in taxes set to get the ax, this is not an insignificant problem that must be worked out eventually.
4) The Politics are Complicated
If Republicans all stick together, there are enough votes to put this bill on President Trump’s desk. But, that’s a big if. The bill obviously faces universal oppositions from Democrats and from both wings of the Republican caucus. Some conservatives are deriding it as “Obamacare Lite,” a reshuffling of the Obamacare deck chairs disguised as repeal. Yet, more moderate members (mostly those from states that did not expand Obamacare) aren’t unified in support either because they may lose Medicaid dollars.
Stitching all these competing interests together will require someone with extraordinary dealmaking skills. America elected just such a person the 45th President of the United States, Donald Trump. Whether Trump can put pull it off will be the first real test of whether they made the right call.
Follow Taylor Griffin on Twitter: @tgriffinNC
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