Comparing the Republican ObamaCare Replacement Plans – Part III


ObamaCare Replacement-cartoon

Republicans are working hard to find the perfect ObamaCare replacement plan. This is the third in a series comparing known plans that have been proposed as replacement plans. Part I reviewed the Patient Care Act. Part II reviewed the 2017 Project’s Alternative to ObamaCare plan. Today we will review the plan from The American Enterprise Institute. Much of this work comes from Duke economist Chris Conover, writing in Forbes.

Improving Health and Health Care Plan

The American Enterprise Institute is a conservative think tank of scholars that have developed an ObamaCare replacement plan they call Improving Health and Health Care Plan. It differs from the two plans we previously reviewed in significant ways.

Key Features

This plan only partially repeals ObamaCare. It has the following three features:

  • Private Health Insurance Reform. This would consist of 4 parts:
    • Age-Adjusted Tax Credits. Obamacare’s income-related subsidies are replaced with less expensive advanceable and refundable tax credits that vary only by age (0-17, 18 to 34, 35 to 49, and 50 and over).
    • Automatic Enrollment. Any household that does not take the tax credit they receive and purchase insurance of their choice will automatically be enrolled in a catastrophic plan equal to the value of the credit for which that household is eligible. States have the option to decline to implement default enrollment.
    • Capped Tax Exclusion. The long-standing tax exclusion for employer-provided health insurance coverage is retained, but the ACA’s Cadillac tax is replaced by a functionally-equivalent cap on the amount of the exclusion ($8,000 for single and $20,000 for family coverage).
    • Expanded Use of Health Savings Accounts. All households become eligible to open an HSA account regardless of enrolled health plan. Those that open an HSA can make tax preferred contributions of up to $2,000 for individuals and $4,000 for families. Beneficiaries enrolled in HDHPs would be allowed to make contributions up to the allowable amounts under current law in addition to the $2,000/$4,000 contributions allowed for all. As well, a one-time HSA credit for up to $1,000 for those that are enrolled in an HSA-compatible plan in 2017.


  • Medicaid Reform. Medicaid is reformed in three important ways:
    • Standardize Eligibility at 119% of Poverty. Instead of repealing the entire Medicaid expansion, eligibility levels for Medicaid are slowly adjusted to 119% of the federal poverty level (FPL) over the course of the first five years. Thus, states currently above the 119% percent level would see federal matching reduced while states below will see federal matching increase [2].
    • Capped Allotments per Beneficiary. Medicaid spending would be capped using a per-beneficiary allotment adjusted for inflation (a less stringent form of block-granting Medicaid insofar as it automatically adjusts for changes in the number of Medicaid eligibles [3]);
    • Integration with Private Insurance. Unlike Obamacare, tax credits would be available to those on Medicaid, allowing states to combine their Medicaid resources with federal tax credits to allow private insurance purchases by Medicaid eligibles.


  • Medicare Reform. The plan includes a number of Medicare reforms including:
    • Increase Eligibility Age to 67. Gradually increasing the eligibility age to 67 would mirror the age used to determine eligibility for full Social Security benefits.
    • Premium Support. Under premium support, all beneficiaries would receive a uniform subsidy to purchase insurance from competing health plans including traditional Medicare (similar to how federal employees and members of Congress have been provided health benefits for over a half century).
    • Modernize Medicare Benefits. These would include combining Medicare Parts A and B, simplifying cost-sharing and providing catastrophic protection.


While this plan repeals many of the onerous provisions of ObamaCare, it maintains many of the consumer protections granted by ObamaCare, including grandfathering of all Medicaid expansion enrollees. Specifically:

  • Previously covered households cannot be dropped from their current health plan, denied coverage through a new plan, or charged higher premiums on the basis of health status in the individual market.
  • Households with coverage through an employer can transition to the individual market with the same protections.
  • Anyone who signed up for Medicaid under ACA rules should be allowed to remain on the program indefinitely until they cycle off naturally.


Scoring the Plan

Once again, scoring was completed by the Center for Health and Economy (H & E). Their analysis reveals the following:

Impact on Non-group Premiums

Unlike the two earlier plans, the H & E scoring does not project the impact on non-group premiums. There is a large impact in coverage that logically should reduce premiums overall.

Coverage Impact

The plan is projected to lead to 16 million more insured persons by 2025 relative to current law (these increases start at 9 million more in 2017 and rise gradually thereafter). This 16 million decrease in the number of uninsured represents 5.6% of the under-65 population. The increase in coverage is the net effect of increased enrollment in the individual market and lower enrollment under Medicaid.

Provider Access

According to the H&E Provider Access Index, access will increase by 9 percent for the insured population by 2025, but this masks huge variations across types of coverage. For example, access is projected to increase by 44% in the non-group market by 2025.

Medical Productivity

The AEI plan is expected to lead to greater productivity than under current law. According to the H&E Medical Productivity Index, productivity is projected to increase by 12 percent by 2025 principally due to much larger gains (20%) in the non-group market.

Federal Budget Deficit

Compared to current law, the insurance coverage provisions of the plan will decrease the federal deficit by $350 billion between 2016 and 2025. The Medicare reform provisions would produce an additional $1.56 trillion in federal budgetary savings over the same period.

Comparison of Plans

The Improving Health and Health Care Plan has the obvious advantage of increasing total healthcare coverage compared to ObamaCare. This is a huge political advantage.

However, some conservatives almost certainly will argue vehemently whether the gains in coverage (and correspondingly lower amounts of federal budget savings) are worth the price of including more regulatory features such as automatic enrollment, expansion of Medicaid to 119% of poverty and grandfathering of those who obtain private or Medicaid coverage under the old Obamacare rules.

This battle will be made more interesting by the fact that this plan achieves greater gains in medical productivity than either the Patient CARE Act or Alternative To Obamacare (10% vs. 2% and 8% respectively in 2018) while falling between the two in terms of gains in provider access (10% vs. 4% and 13% respectively in 2018).

Congress will have to decide whether increasing coverage or lowering the federal deficit is more important. Conservatives will probably favor lowering the federal deficit while liberals will favor increasing coverage.

Conover makes two points in conclusion:

  • All three plans are superior to ObamaCare in terms of the trade-off between coverage and costs. He says, “Even though both the Patient CARE Actand Alternative To Obamacare would result in modest declines in coverage, the federal budget savings are so large that we implicitly would have to spend $19,000 or more for each year of added coverage per uninsured to avert them.”
  • There is no dominant alternative among the three plans although strong arguments can be made for the Improving Health and Health Care Plan. That plan increases coverage and lowers the federal deficit – although some may find the automatic enrollment into catastrophic coverage and the expansion of Medicaid to 119% of the Federal Poverty Level objectionable.


Compromise is necessary in politics if you want to get things done. Republicans will have to decide on what issues they can compromise with Democrats to achieve the greater good of passing an ObamaCare replacement plan.

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