Two committees in the Republican-led House of Representatives have just revealed the long-awaited Republican proposal for replacing Obamacare. It eliminates the employer mandate requiring companies with 50 or more employees to offer health insurance. If it passes, that will be a welcome change for many small- and midsize-business owners.
The proposed law also eliminates the mandate that individuals have health insurance or pay a penalty--perhaps the most unpopular element of the Affordable Care Act. And it keeps many of the law's other provisions in place, including the requirement that insurers cover people with pre-existing conditions at the same price as everyone else.
It's facing very vocal opposition from Democrats because millions of low-income people stand to lose coverage, although perhaps not right away. It's also facing heavy opposition from conservatives because it does nothing to reduce costs for health care or insurance. In fact, premiums are likely to keep rising steeply, as they have done both before and since Obamacare, and they may rise particularly quickly for people over 50.
Given all this resistance, the law is far from a done deal. Even President Trump has yet to voice unqualified support, and without his firm backing, the new law's chances of passage may be slim. Still, this proposed law comes about as close as possible to fulfilling his campaign promise to swiftly repeal and replace Obamacare. Depending on where you live, whether you're an employer, your income, and your age, the proposed American Health Care Act might be better or worse than Obamacare for you.
Here are some of the details.
1. The employer mandate disappears.
If you own a small business and don't provide health insurance to all your employees, it's likely you are unhappy with the Obamacare employer mandate that requires businesses with 50 or more employees to provide health coverage or pay a penalty. If this law passes, that won't be a concern anymore.
2. The individual mandate changes to a penalty for gaps in insurance.
The individual mandate, which charges a penalty to anyone who doesn't have health insurance, is the most unpopular element of Obamacare. It goes away under the new Republican proposal.
The individual mandate was intended to encourage young healthy people to buy coverage since insurance companies say that many people wait until they have a health issue before getting insured. The Republican proposal makes it tougher for people to do that by allowing insurance companies to raise premiums by 30 percent for people with lapses in coverage. Coupled with lower pricing for the young, that may be enough to persuade some people who haven't had insurance so far to start. But it could also create a financial crisis for your employees who don't carry insurance and then fall ill.
3. Pre-existing conditions and dependent coverage remain unchanged.
Two of Obamacare's most popular features are the requirement to cover people with pre-existing conditions the same as everyone else, and the requirement to cover dependents up to age 26. Both remain unchanged in the Republican proposal. Because the Republicans are using a budgetary reconciliation bill to bypass Democratic opposition (a budgetary bill can pass with a simple majority in the Senate), they likely couldn't change these provisions even if they wanted to.
4. The Medicaid expansion is extended until 2020 for states already using it.
You've probably heard that repealing Obamacare might cause about 10 million people to lose their health insurance. The biggest reason for that concern is the Medicaid expansion included in the Affordable Care Act. Although some Republican-led states rejected the Medicaid expansion out of their loathing for Obamacare, 31 states agreed to expand their Medicaid programs and accepted federal funds to do so. In total, that change brought insurance to about 10 million people who hadn't had it before. The idea that all those people would lose their coverage in an Obamacare repeal has both politicians and ordinary citizens understandably concerned. It might be of particular concern to you if you have low-income employees (or have low income yourself, during the early stages of a startup, for example).
Republicans generally oppose the expansion of entitlement programs such as Medicaid, so there was little chance they would leave this provision unchanged. However, the proposed law grandfathers in federal funds for Medicaid until 2020 in states that accepted the expansion. Beginning in 2020, states would receive less funding for new Medicaid recipients and those who leave and return to the program. Also, under Obamacare, these federal contributions are open-ended. The Republican replacement would put a cap on federal funding per Medicaid enrollee, based on the state's spending in 2016.
5. There are age-based subsidies, but insurance costs older Americans much more.
Insurance companies calculate premiums based on age, but under Obamacare they were allowed to charge older customers no more than three times as much as they charged younger ones. Before Obamacare, some states allowed insurers to charge older people up to five times as much. (This isn't as unfair as it sounds since older people cost insurance companies on average almost five times as much as younger ones do.) The proposed Republican bill would allow for insurers to charge older people five times as much as younger ones, and for states to set their own limits, which could conceivably be even higher.
The proposal also changes how people receive subsidies to help them pay their premiums. Under Obamacare, subsidies (which are really tax credits) are available only if you buy your insurance through an exchange provided by the state--people who simply go out and buy insurance in the individual market aren't eligible. Under the Republican replacement, where you buy insurance doesn't matter: You're eligible for subsidies whether you buy from an exchange or directly from an insurer. With many insurance companies pulling plans out of the exchanges, this change could make a significant difference to many people who buy their own insurance.
Under Obamacare, the subsidies are based on your income (the lower your income, the higher the subsidy) and on where you live, since both insurance premiums and health care prices vary widely from place to place. Under the Republican proposal, if you make less than $75,000 a year as an individual, or $150,000 a year as a household, you'll get a tax credit based on your age: $2,000 if you're under 30, $3,000 if you're between 30 and 60, and $4,000 if you're over 60. Those subsidies are the same everywhere.
This is certainly much simpler than the current system, but it could leave both young people and older people with lower incomes struggling to afford health insurance. If the law is passed, a lot will depend on how insurance companies adjust their premiums, lower (one hopes) for younger people and probably higher for older ones. That could help younger people afford insurance, but it could also make it harder for older people with low incomes to get it.
It might make things especially difficult for people in expensive urban areas, where prices for everything, including insurance and health care, are higher. And it will likely get harder for people of all ages to afford insurance over time, since the subsidies will increase only in line with inflation plus 1 percent from year to year, whereas insurance premiums typically rise much faster than that.
Of course, that assumes the new Republican law will remain in place over the years. So far, Obamacare has lasted only three years. And what happens next is far from clear.