The long-awaited Republican proposal to repeal and replace the Affordable Care Act, commonly known as Obamacare, has arrived. This replacement, the American Health Care Act, still has a long way to go to become a law, but that doesn’t mean you should be caught unaware.
Here are some of the main points of the new bill.
- Repeal Obamacare’s individual and employer mandates.
- Decrease and modify premium tax credits by 2020.
- Keep some of Obamacare’s more popular reforms such as protections for enrollees with pre-existing conditions and the requirement that adult children can stay on their parents’ plans until age 26.
- Increase the ratio that insurance companies can charge older enrollees for premiums compared to younger enrollees. This is called “age band rating.”
- Establish a Patient and State Stability Fund.
- Repeal funding for the Prevention and Public Health Fund by the end of 2018.
- Encourage people to use health savings accounts (HSAs).
- Restructure Medicaid funding.
- Repeal many of Obamacare’s taxes.
- Prohibit federal funding for Planned Parenthood clinics, and prevent premium tax credits from being applied to any insurance plans that provide coverage for abortions, with certain exceptions.
Read on to find out more on some of these bullet points.
The Individual Mandate and the Employer Mandate
The individual mandate, which requires that Americans have health insurance or else they have to pay a penalty, is one of the most controversial parts of Obamacare. Many of its supporters argue that it is necessary because it incentivizes younger, healthier people to get insurance, which protects them in case of an emergency. Furthermore, by having an insurance pool with lots of healthy people, the pool will have enough money to provide for the medical expenses of some of the older or sicker people. The individual mandate’s opponents think that the mandate restricts Americans’ freedom by forcing them to spend money.
The American Health Care Act would remove the individual mandate and its penalty. However, the AHCA still wants to require that insurance companies provide plans for people pre-existing conditions, and it still wants to incentivize a high insurance rate, even among healthy people. It would institute a late enrollment penalty — 30% of the premium cost — for people who apply for individual health insurance if they did not have insurance before.
The AHCA would also remove the employer mandate, which requires that employers with 50 or more full-time equivalent employees have to provide health benefits or pay a fine.
Premium Tax Credit Reform
The American Health Care Act would drastically change the amount many individuals would have to pay for their health insurance.
For 2018-2019, young adults with incomes above 150 percent of the Federal Poverty Level would see an increase in their subsidy. Adults older than 50 at the same income level would see a decrease in their subsidy. This doesn’t mean that their premiums would be cheaper though, because the overall price of the premium would be determined by many other factors.
Starting in 2020, the amount of an individual’s annual premium tax credits will be determined by their age.
- $2,000 per person (up to age 29)
- $2,500 per individual (age 30-39)
- $3,000 per individual (age 40-49)
- $3,500 per individual (age 50-59)
- $4,000 per individual (age 60 and older)
Tax credits would be given on a per person basis, but families can’t claim credits for more than 5 people. A family’s tax credits for health insurance would be capped at $14,000 a year.
Higher income individuals and couples are not eligible for these tax credits.
The Age Band Rating
Obamacare capped the age band rating of insurance premiums. The age band rating is a ratio that establishes how much more an insurance plan can charge older customers compared to younger customers. Obamacare capped this ratio at 3:1. The American Health Care Act would increase the ratio to 5:1; however, states would be able to decide their own ratio. Supporters say this would help insurance companies stay in business and help make sure everyone’s premiums are manageable. Opponents believe that this would put an extremely heavy burden on the older members of an insurance pool.
The Patient and State Stability Fund
Funded by the federal government, the Patient and State Stability Fund will receive $100 billion over 9 years to grant to state governments. The states can use this money to help pay for a variety of health care concerns such as funding high-risk insurance pools for enrollees with pre-existing conditions, stabilizing insurance premiums, and promoting access to preventive services.
Repealing the Prevention and Public Health Fund
The Prevention and Public Health Fund was a provision of Obamacare that provided nearly $1 billion each year to the Centers for Disease Control and Prevention. It seeks to strengthen public health to help prevent outbreaks of disease. The fund sends money to state and local governments to help them with immunization. The fund also provides money for research, screenings, and the promotion of healthy behavior and disease prevention.
Health Savings Accounts
Health savings accounts, or HSAs, are medical savings accounts. The difference between HSAs and regular savings accounts is that HSAs, before age 65, can only be used for qualified medical expenses. If you take out any of the money for anything else, you will have to pay penalties and income taxes.
The money that you put into an HSA can be invested and grown tax-free. You can contribute pre-taxed money into your HSA. Contributions to your HSA are tax-deductible. In this way, HSAs act as a very effective tax shelter, especially if you have some extra cash and are healthy. Once you’re 65, you can take money out of your HSA without incurring penalties, but you will still have to pay income taxes on that money.
HSAs are currently only available to people with high deductible health plans (HDHPs). Because people on HDHPs are sometimes pressed for money, the American Health Care Act wants to incentivize their HSA use. The AHCA would increase the maximum annual contribution amount. It would also lower the penalty for non-qualified expenses from 20 percent to 10 percent.
The American Health Care Act is trying to slow down Medicaid spending in the next few years. It will attempt this through a series of measures:
- Eliminating the option to give Medicaid eligibility to adults who earn more than 133 percent of the Federal Poverty Level by 2020.
- Eliminating the option to give Medicaid eligibility to children between 6-18 and 19 year olds whose households earn under 138 percent of the Federal Poverty Level. The minimum eligibility level will go back to 100% of the FPL.
- Eliminating the Obamacare expansion of Medicaid by 2020, but people who were continuously enrolled due to Medicaid expansion can keep their Medicaid after that point.
- Instituting a per capita cap for how much federal spending for Medicaid is given to the states. This “per capita cap” would divide Medicaid enrollees into five groups (the elderly, the blind and disabled, children, adults who receive Medicaid from Obamacare’s Medicaid expansion, and other adults). The federal government would calculate a per capita amount to give out to each of those groups for Medicaid spending. This would mean that states would be given a set amount of funds each year for Medicaid.
- Recalculating if a state spends more on medical assistance than it was given, by subtracting the extra amount from the state’s payments for the next year.
- Setting aside $10 billion for 5 years (2018 to 2022) for states that did not expand Medicaid under Obamacare. This money would pay for medical costs in those states for people who have trouble affording those costs.
- Capping federal Medicaid funding also.
The American Health Care Act also includes many reforms of Obamacare’s various taxes. Some of the taxes/revenue collection measures that would be removed include:
- The individual and employer mandate tax penalties
- Taxes on tanning beds
- Taxes on health insurance companies and pharmaceutical manufacturers
- The excise tax on medical devices
- The increase to the Medicare payroll tax for high-wage individuals
So Where Do We Go from Here?
The American Health Care Act is expected to go to the floor of the House soon for a vote. It still remains to be seen if it will pass either the House or the Senate, much less both. The bill is currently undergoing a markup by the House, so some of the things touched on here may change.