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Life Health > Health Insurance > Health Insurance

What the Senate Health Care Bill Would Change

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(Bloomberg View) — The nation has been waiting with bated breath for the Senate to unveil its version of the House health care bill. Okay, maybe not the nation.

(Related: Senate Republicans Unveil Health Care Plan)

But a whole lot of health care wonks have, and this morning, we finally got a look at the thing.

Here’s what the bill does:

  • Reduces the number of people eligible for subsidies. Currently, eligibility goes up to 400% of the federal poverty line, including households that earn just a hair under $100,000 a year for a family of four. The Senate bill reduced this threshold to 350% of the poverty line, or about $86,000

  • Reduces the values of the premium subsidies. The Senate bill’s formula lowers the benchmark plan (which determines the subsidy level) from the second-lowest cost “silver” plan — which should cover about 70% of anticipated health expenses — to one with an actuarial value of 58%. This will make the subsidies considerably less generous, and means people are apt to opt for plans with higher deductibles. In order to offset the severe effects this would have on elderly customers, the Senate bill rejiggers the subsidy formula somewhat to account for age.

  • Lowers the cap on total subsidy expenditure. Under Obamacare, subsidy growth was capped once total outlay on premium subsidies hit 0.504% of GDP. (No, I don’t know where they got that number either.) The Senate bill lowers this cap to 0.4% of GDP, which means that the program is more likely to hit the cap, and have to start cutting subsidies to some groups.

  • Eliminates the individual and employer mandates. This will score political points and will also probably destabilize the Obamacare exchanges and subsidies. But they’re already unstable.

  • Restricts coverage for abortion. This is getting outsize press, relative to its actual impact on program design, which is minimal.

  • Ends the cost-sharing reductions — but not before paying insurers back for the money they’ve already laid out. Obamacare included a provision that lowered out-of-pocket expenditures for people making less than 250% of the federal poverty line, a subsidy known as “cost sharing reductions.” This became a political hot potato because the bill didn’t actually provide funding for those subsidies — and when Republicans took over Congress, they refused to appropriate the money. The bill pays the insurers the money they’ve been owed, then ends the program, which will make Obamacare policies significantly less attractive for the one group that has shown interest in buying them: the folks whose policies are so heavily subsidized, for both premiums and deductibles, that their expenditure on them is negligible.

  • Give states a great deal more flexibility in the waiver program. The Senate bill expedites the process for getting a waiver, and allows states a lot more liberty to design the program without interference from federal regulators.

  • Gets rid of a lot of taxes. In order to fund all that new spending, Obamacare enacted a whole bunch of taxes on everything from tanning to high earners. The Senate bill repeals most of those taxes, and delays the “Cadillac tax” on pricey employer-sponsored insurance until 2026. From a revenue perspective, these all matter, but from a program perspective, only the last item is important, because it was a ham-fisted attempt to curtail our nation’s hog-wild tax subsidies for employer-sponsored insurance. When Obamacare passed, I predicted that this would prove too politically sensitive to actually allow it to go into effect, and so far, I’ve been right. Presumably, senators are keeping the tax in after 2025 to reduce the apparent cost of a full repeal. Also presumably, future senators will be no braver than the current crop about ending this absurd tax subsidy.

  • Market stabilization funds. The bill sets up a program to try to keep the dreaded “death spiral” from happening by dealing with the major problem driving costs on the exchanges: very sick people. The details on this are sketchy, because states are expected to design programs to meet the goal. But if it works, it has the potential to substantially improve the sustainability of the exchanges.

  • Winds down the Medicaid expansion funding … but not as fast as the House bill. However, it also makes people below the poverty threshold eligible to buy exchange policies with subsidies. This coverage is not as generous as Medicaid; it will probably involve substantial deductibles and copayments. But the premiums are capped at 2% of family income, which for a single person making exactly the federal poverty line would be about $20 a month.

  • Converts Medicaid to a per-capita allotment rather than an open-ended entitlement. It’s not quite fair to say that Medicaid allows states to spend whatever amount of money they want on the program. But it’s not quite unfair either. Like the House bill, the Senate bill changes the program to a per-beneficiary grant based on previous spending levels. It’s not the “block-granting” of supply-sider dreams, but it’s close. This will give states heavy incentives to keep program growth in check — incentives augmented by the fact that future payment growth will be indexed to general inflation, rather than medical inflation, which tends to be higher. States can also apply to switch to a block grant formula, or to implement a work requirement for Medicaid recipients.

There are a lot more fiddling details, but that’s the gist. So what do we see?

Well, you know, if you tilt your head to one side and squint a little, you can sort of see … Obamacare.

Eye (Photo: Thinkstock)

(Photo: Thinkstock)

I called the House health care bill “Obamacare Lite,” but compared to the Senate bill, the House was offering a radical new taste sensation. The Senate bill touches very little of the underlying architecture of Obamacare; all it does is eliminate the insurance mandates, cut spending and give states somewhat more autonomy in how those dollars are spent. Repeal Obamacare, you say? They’re barely even worrying it.

Probably this was necessary to negotiate the tricky Senate math; supporters need almost every Republican to vote for it. Keeping the moderates and the conservatives on board means no radical shifts, or angry hospital lobbyists calling Republican senators whose states participated in the Medicaid expansion.

But while there are a few things to like in this bill, overall, it’s a mess. All of the problems created by Obamacare’s architecture remain, and some of the problems will get worse, because lower subsidies, higher deductibles and no mandate penalty probably means that a lot of people will exit the exchanges. Those people are likely to be the folks we most need to stabilize those exchanges: healthy youngsters who don’t use much health care. Which means that the exchanges will be at further risk from the death spirals we’ve already seen in some states.

To be sure, the insurance mandate does not seem to be working very well — hence the death spirals we’ve already seen in some states — but the elimination of the mandate is probably even worse for the insurance market than a weak, toothless one has been. The stabilization funds the Senate has provided should help alleviate those problems, but it’s far from clear that this will be enough.

What this bill does very effectively is cut taxes, and set Republicans up for a major tax reform. But it seems likely that if something like this Senate bill becomes law, it will set Republicans up for some nasty electoral repercussions, particularly if the individual insurance exchanges resume the downward spiral we’ve seen over the last few years. And of course, it would set the rest of us up for continuing insecurity in the health care market. A lot like we’ve had under Obamacare.

— Read Actuary Sizes Up 2018 Individual Health Picture on ThinkAdvisor. 


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