Tweaking the ObamaCare Replacement

 

Today is the seventh anniversary of the passage of the Affordable Care Act (ObamaCare) on March 23, 2010. Symbolically, House Speaker Paul Ryan has chosen this day to call for a vote on a new bill, the American Health Care Act (AHCA) to repeal and replace ObamaCare.

Fixing a broken entitlement program is dirty work. Despite the obvious failures of ObamaCare, replacing it with something better is a stern test of the new Trump administration. No matter how bad ObamaCare gets for most people there are still some who benefitted and their voices are given greater weight by the liberal mainstream media.

Democrats are united in their opposition to the ObamaCare replacement because they sense a political opportunity. Even though this mess was created by the Democrats, most voters will likely blame Republicans if they fail to clean up the mess as promised.

Adding to the difficulties of this situation are Republicans who are demanding the replacement bill reflects their particular interests. Outspoken criticism within the Republican Party is doing more damage to the process than Democratic opposition.

Republican Progress

Fortunately, there are signs that Republicans are coming together with compromises that are uniting the Party. President Trump recently met with a group of 13 House Republicans who opposed the plan and announced concessions that have united this group. More compromises like these are needed, especially in the Senate. Senators Rand Paul, Ted Cruz, and Tom Cotton have all voiced opposition to the American Health Care Act (AHCA) as proposed.

Among their concerns are the tax credits of ObamaCare that have been modified, but not eliminated, and the transition from Medicaid to tax credits that leaves many low income older Americans with bigger financial burdens. Changes in these tax credits are being considered in the negotiations at this time.

Avik Roy, writing in Forbes, explains how these tax credits affect low income Americans now and how they can be improved. The graph below shows how low-income older Americans pay more (the area in gray) under the AHCA than they did under ObamaCare. Higher income patients pay less (green line below blue).

To fix this, Roy says two changes are needed:

  • Means tested, age-adjusted tax credits – The current tax credits are age-adjusted but not means tested. Means-tested tax credits, while harder to administer, are fairer to low-income patients. They smooth the transition from Medicaid to private insurance. The formula for this is actually contained in Section 202 of the AHCA.
  • Standard deduction for healthcare insurance – To level the playing field for tax treatment of health insurance for those purchasing individually, a standard deduction of $10,200 is proposed. This smooths out the transition for those making a little more than 400% of the FPL. It eliminates the steep cliff that those in this category will experience under the current AHCA .

 

The result of these two changes is reflected in the graph below:

Now the transition for low-income patients is gradual and adjusted by income and age. The dotted green line is a gradual change. The gray area (worse off under the AHCA than under ObamaCare) is very small and very slight. The dotted gray line shows how the standard deduction allows more help for those just beyond the income ceiling for the tax credits to smooth out the transition – and decrease the disincentive in earning more income.

These changes should make the AHCA more appealing to Republicans and Democrats alike. These numbers will be even better if the AHCA lowers premiums as expected. Working together we can have better healthcare.

 

(Note: Last minute changes in the bill have included increased value of the tax credits for older Americans as suggested in this post. Further changes are likely, especially if it passes the House and goes to the Senate. If the Senate bill differs from the House there will be a conference committee to reconcile those differences before a final vote.)

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