Well, I promised a deeper dive into the Republican Senate health care bill (the Better Care Reconciliation Act of 2017, or just BCRA), and here it is. I was frustrated by other analysis I found on the web because they generally don’t say WHEN various changes kick in, and that is of course pretty important to some of us. Consequently, I took special care to look at the dates that different parts of the law would go into effect, and I’ve organized my discussion appropriately. I’m mostly focusing on the big changes that will directly impact most people, so details like the repeal of the tanning salon tax didn’t get much attention. I’ve also glossed over details of Medicaid cuts because there is a LOT of detail there… the largest part of the bill is dedicated to it… and this is meant to be more of a summary. Suffice it to say that the bill takes an ax to Medicaid, which will mean a lot of people losing health coverage. That said, here is all the other stuff the BCRA would do and the timeline of when it does it:
People making more than $200,000 per year will receive a capital gains tax cut of 3.8%. This is actually the largest tax cut in the bill, and it initially slipped past my notice because it was tucked up under the repeal of the tanning tax that I skimmed past. This drops the capital gains tax rate from 23.8 down to 20% for the wealthiest Americans, and it takes effect retroactively, including any capital gains this year.
The individual insurance mandate is immediately repealed as soon as the law is passed, as is the employer mandate. For healthy people who don’t really feel like they need insurance, this will be greeted as a good thing. People who got insurance mostly to avoid a fine will probably drop their insurance. The down side of that for everyone else is that it shifts the balance of the insurance pool more toward unhealthy people, which will increase our premiums. The repeal of the employer mandate will be appreciated by some business owners, but the downside is that millions of people who get covered through work are going to lose their insurance.
Side Rant: I’m not actually a big fan of the employer mandate. If the ACA was more generous and better at keeping individual premiums low, I would be fine with everyone getting insurance through the exchanges instead of depending on their employer. It would definitely make changing jobs less disruptive. In the context of the BCRA, however, killing the employer mandate will suck for a bunch of people.
Moving on. For several months now, the Trump administration has been threatening to cancel the Cost Sharing Reduction payments that help make insurance affordable for lower income people. That uncertainty has lead multiple insurers to leave the exchanges or raise their premiums. Obamacare would be far more stable if not for this sabotage. Interestingly, the BCRA explicitly funds the CSR payments through 2019, bringing some temporary stability to markets for a couple of years. I expect this is intended to push off the worst pain until after the midterms. That is a theme we will see repeated.
It immediately eliminates the Prevention and Public Health Fund, a part of the ACA that attempts to bring down medical costs by investing in preventative measures. Early reports are that the fund was effective in reducing health care inflation, so this will likely contribute to premium increases (though how much is unclear).
STARTING IN 2018
Beginning in 2018, insurance companies could begin to exclude people based on pre-existing conditions again. The BCRA doesn’t say this explicitly, but that is the effect of changes made to the ACA’s 1332 waiver system. A 1332 waiver lets a state set up their own health care system or different insurance rules as long as it still covers people just as well as Obamacare. The Republican health care bill changes the waiver requirements to basically anything the states want as long as it doesn’t increase the deficit. This in effect rolls things back to before the ACA was passed. States can set their own minimum insurance requirements. Some states will no doubt choose to keep ACA-like rules (i.e. RomneyCare), but many will bend to insurance company lobbying. Insurance companies will be free to deny specific benefits, raise rates based on your health, and do other things that the ACA banned.
Also in 2018, new rules regarding Medical Savings Accounts take effect. This basically allows you to save money in a special account and get a tax advantage for doing it. It isn’t insurance, but it can be helpful in paying co-pays and other out of pocket medical bills. I’m actually OK with this change. An MSA is actually a handy thing to pair with a higher deductible insurance plan.
The bill also establishes new rules for Small Business Risk Pools. This takes effect one year after the bill is enacted, so I’m listing this as in 2018. I don’t see any real problems with these rules. Most people will not be directly impacted by them.
The BCRA allocates 2 billion dollars for Opioid Crisis Grants, but only for 2018 and not any years after that. This is a rather poor trade-off for the cuts to addiction treatment that result from other cuts in the bill. This looks like something that was added mostly to provide a nice talking point.
STARTING IN 2019
In 2019, insurance companies can start charging older people five times more than younger people. In the ACA, the ratio is 3 to 1, so this, combined with subsidy reductions and a sicker risk pool will drive up premiums substantially as you age. Note that this was delayed until after the 2018 midterms.
Also in 2019, the BCRA repeals rules restricting the Medical Loss Ratio of insurance companies. These rules currently require insurance companies to spend at least 85 percent of the premiums they collect on actual health care. The Republican bill eliminates that rule, allowing price gouging in markets with insufficient competition. This is another thing that will drive up premiums.
STARTING IN 2020
2020 is when the biggest cuts to health care begin kicking in. The Cost Sharing Reduction payments are terminated, and the subsidies provided for insurance purchased on the exchanges are cut. The actuarial value of the base line policy on the exchange is slashed from 70% to 58%, which is just a fancy way of saying your out of pocket expenses will shoot up in the typical insurance plan.
Also in 2020, the Medicaid expansion begins to phase out, paying only 90% to the states the first year, followed by 85% the next, then 80%, and finally 75% before being eliminated completely. The law does make provision for people below the poverty line to buy subsidized insurance (something the ACA did not do), but because of high out of pocket costs in these plans, they will be of little use to most low income people.
The law makes quite a lot of changes to Medicaid, some starting right away and others deferred until years later, but the largest changes kick in at this point in 2020, including an option for states to receive Medicaid funds as a block grant rather than on a subscriber basis. There are also substantial cuts to the amount of money allocated to states. This is largely how they managed to pay for the massive tax cuts described in the next section.
STARTING IN 2023
This is when the BCRA gives a massive tax cut to the wealthiest people. The ACA got most of its funding from a 0.9% tax on income over $200,000. The Republican health care bill rolls that back, giving more than $600,000,000,000 to the top 2% of taxpayers. Paying for that massive cut is why they needed to slash so much from Medicaid and ACA subsidies, otherwise the bill could not be passed under Senate reconciliation rules.
So that’s it. After reading through the bill over the last few days, it is clear they tried to front-load the most popular parts and defer the time bombs until after the midterm elections. I find it interesting, however, that they did not shove some of the worst stuff off until after the 2020 Presidential election. I presume they just couldn’t make that work with the budget limitations of reconciliation. This means that even if they manage to minimize their losses during the midterms, they could be setting themselves up for an ugly situation in the next Presidential race.
Comments, corrections, and questions welcome. I’ve got a copy of the draft BCRA open on my laptop.