On the Republican Response to Obamacare

On social media this afternoon I saw someone write, "Oh, but it keeps coverage for pre-existing conditions and lets children stay on their parents' plan until they're 26, so that's good." Well, yes and no. It's good that it keeps those things, but the way the new bill is structured, it doesn't really matter. For me to explain why, it's helpful if we had a brief primer on Obamacare. As with everything I write, I'm not going to cite phonebooks worth in the foot notes, just trust me, this is the way it works.

In short, Obamacare is a number of different policies that are all cobbled together to provide coverage for tens of millions of people. This obviously isn't every detail of 2,200 pages of legislation, rather think of this as the very abbreviated summary. Some basic pieces:

1. Medicaid Expansion - It expands Medicaid coverage for folks well over the poverty line. Unfortunately, it left it up to state governments themselves to decide if they wanted to take the federal medicaid funds, and thus whether their residents were covered. There's now a lot of evidence that states that embraced the law are doing far better on premium increases than states that didn't.
2. Coverage for kids until they're 26 - One of the most popular provisions, it allows parents to cover their children on their employer's insurance until they're 26.
3. Coverage for Pre-existing conditions - Possibly the most popular part of the bill. Anyone who's ever been pregnant, had cancer, or needed surgery for something and then later could never get insurance knows what this is about.
4. Individual Exchanges and Subsidies - The core of Obamacare as most people know it. The key here is that people making under $45,000 a year get subsidies to buy into insurance. The amount subsidized is based on income and age. If you're older and make just above the medicaid cutoff, you might get a hefty subsidy and only be spending a small amount per month for pretty good care (my mom is paying $1/month for her Silver Kaiser plan). This is completely changed in the Republican plan, and not in a good way (I have some examples below).
5. No Lifetime Caps - Again, those of us who've had cancer or major health issues will understand this. The old caps were often measured in the millions, but if you had a major issue, you can reach that number very quickly.

All of the above is fairly popular, and in the case of the mandate to cover regardless of pre-existing conditions, more popular than puppy dogs or apple pie. There's only one problem: it all has to be paid for. Obamacare does this is two major ways:

1. Free Preventive Care - You might wonder why I mention this as paying for the above, "Doesn't paying for preventive care cost money?" you may ask. Well, yes and no. Imagine a situation where I sprain my toe. I have health insurance so I go into the doctor and he looks at me and gives me a boot to wear. I lose one morning of work and it costs me $25 in co-pays and my insurance pays a couple hundred for the visit and the boot. Now, let's say that in all similar situations we know that people with this injury when they go untreated have a 7.67% chance of causing a severe foot injury, and in those 7.67% of cases they end up in the hospital for half a day and it costs $15,000. Does the couple hundred dollars sound like much to the insurance company if they know there's a 1/14 chance it could costs a lot more? For an individual it might seem expensive to spend a couple hundred bucks, but for the insurer, and the system in general, it's much cheaper overall to pay for the prevention when it might not be needed every time, than to wait and let things get much more expensive later.
2. Individual Mandate - The least popular part of the bill, and the provision that pays for a lot of the bill. This one makes people mad, and has libertarians fuming, even though the idea itself came from conservatives.

Many have written in the last few days on all the problems with the Republican plan, how Republicans hate it, how dysfunctional it is, how liberals hate it, and how it won't work. Some of these objections are political, some are policy-wonk-type objections, but I think all need to be distilled down to one main point:

The unpopular parts of the bill (the mandate) help pay for all the popular parts. You can't have one without the other.

In slightly more detail, the ACA is a massive construct of policy, and all the pieces and parts fit together in complex ways, but it all comes down to a basic concept, that has at its core an ethical idea: We're all in this together. The markets work because they have both (a few) sick people, and (lots and lots of) healthy people in the same pool. If we remove that penalty, it could lead to a death spiral in many insurance markets around the country. I could explain how in lots of details, but this cartoon will actually explain a lot better than I can.

As we see, the Republican plan could easily lead to a faster increase in insurance costs as healthy people leave the system because they don't see the benefit, and don't ever come back until they're really sick, at which point they may the pool higher risk/cost for everyone. Obamacare has a number of provisions and counter-balances built in place to handle increased costs like this, while the Republican plan seems to rely on deregulation to unleash the power of the marketplace, which will somehow figure it all out. Let's take two people as examples. Again, think of this for the concept, I'm not basing this on anyone I know, just trying to make a point:

• Rachel is 45 and makes $31,000 a year. Her Obamacare premiums are $860 a month (she picked a silver plan), but because of her age and income, her subsidy covers 85% of the cost, so she pays $129/month. The subsidy adjusts with her income and age to try to minimize her costs until she makes over $45,000/year. Under the Republican plan she gets a credit of $4500/year, and competition in the market leads to insurers coming out with high deductible plans that are only $591/month. "Great!" you may exclaim, "the marketplace has solved the problem!" Well, not really, because if you take her yearly premiums of $7100 and subtract her $4500 you get $217/month. Basically Rachel is now paying almost 100% more for worse coverage. Next year, when the premiums increase, she will still be getting the same $4,500 to offset costs, while under Obamacare her subsidy was covering 85% of whatever the increase was.
• Steve is 31 and makes $70,000 a year. His Obamacare premium is $550 a month (he picked a bronze plan). He makes too much to get a subsidy under Obamacare, so he pays 100% of his premiums. Yes, he makes more than double what Rachel makes, but he also pays over 4X in his monthly premium. Under the Republican plan he'll get a credit of $2750/year to apply to premiums, which will also be cheaper due to competition, a higher deductible plan is $415/month for him, of which $229 is offset by his subsidy. Next year when premiums increase though, he'll be in the same boat as Rachel, with the same $2750 tax rebate, no matter how large the increase.

So we have a system that penalizes the poorer person to the tune of a 100% increase, and gives the middle class guy a cut in his costs. This is why it doesn't really matter that the Republican plan still covers pre-existing conditions: If your subsidy just dropped by thousands of dollars and the only plan you can afford costs you twice as much for less coverage, unless you're really sick, why stay in the system at all? We can easily see any number of scenarios where either Steve or Rachel drop their plans altogether, and only come back in when they get really sick.

Here are a few ideas that I've heard mentioned that could improve the Republican plan dramatically, and if it fails to pass, could even improve Obamacare (and health care generally) as well:

1. Auto-Enrollment - It was thought this might be in the Republican plan, but they opted for the 30% fee as a replacement to the individual mandate. The basic idea is that every person gets automatically enrolled by the system. Employers would have a standardized way to inform the government when you have employer coverage, and if they don't provide it for you, they'd have a standard way to enroll you. Everything happens automatically, and you can't opt out unless you can prove that you have coverage in some other way (maybe through your spouse's employer coverage). Premiums come directly out of your paycheck, in the same way that payroll taxes come directly out of your paycheck. Everything is automated.
2. Competition across state/county lines - Similar to what the Republicans have, but at every level and more transparent. Also, when combined with transparent pricing, this could allow for competition among providers, not just among insurance companies.
3. Transparency on Pricing - Let's say you're a doctor, a surgeon, a hospital, whatever. If you provide health services, you're required to publish your pricing to a centralized database that's run publicly, but that can be accessed by any insurance company, patient, or researcher at will. If you're a lab that charges $126 for a certain blood test, but the lab right down the street charges $48, we'll all see it, and so will insurers. Insurers will be able to immediately negotiate lower prices and pass the savings on to the whole system.
4. Children Cover their Parents through Employer Plans - This seems like a no brainer to me. If you have a parent that doesn't have coverage through their employer, and they don't want to join the medicaid rolls (who does?) you can sign them up on your plan. This is a significant burden to add for employers, so it could likely only apply to large employers, and everyone else would have to be auto-enrolled through the individual marketplace.

In short, you can't have your Obamacare dessert (coverage for kids to 26, coverage for pre-existing conditions) without your Obamacare vegetables (individual mandate or automatic enrollment for everyone). One pays for the other, and if we try to have one without the other...well...go look at that cartoon again.