DC Deciphered

[NOTE 5/24: This post was originally written back in March, about the GOP’s first attempt at a health care bill.  That bill never even came up for a vote in the House.  However, the analysis here still applies to the version of the bill which eventually passed the House as the AHCA on May 4.  Two changes: (1) The note at the end of this post, which discusses Essential Health Benefits (EHBs).  The note says that the GOP would like to get rid of the requirement for EHB’s in the next phase of their repeal plan, since they couldn’t do it in their bill.  However under the bill that actually ended up passing the House, they do get rid of EHBs, or at least they allow for that by waiver. (This was one of the carrots needed to get the Freedom Caucus to sign on). Under the AHCA, states can apply for a waiver to opt out of the EHB requirement. As a result, insurance plans would likely become very skimpy.  Please see the note about this at the end for more detail; (2) Because states would also be allowed to waive out of the protections for preexisting conditions, premiums for people who’d been benefiting from such protections could of course increase dramatically.]

Today, let’s get back to that endless treasure box of discussion topics: the GOP health care bill.  In a post last week, I talked about how the GOP preemptively tried to discredit the CBO, because they knew the agency’s impending report on their health care bill would be terrible. However, now that the report is finally out, Republicans are trying out a slightly new (but no less dubious) strategy:  they’re continuing to claim the CBO’s predictions can’t be trusted, while simultaneously touting the few aspects of the CBO’s report that look good for them.

But let’s set aside how obviously shady that strategy is, and let’s talk about the substance of the GOP claims.  Because even the part of the CBO report that the GOP is most happy to hype – that their bill will lead to lower premiums – is misleading.  While the GOP has been eagerly promoting this detail in interview  after interview and all over Twitter and anywhere else they can spread it, the truth is that when you look beyond the surface, this supposed selling point falls apart.

I talked about this a little bit in last week’s post, but after seeing how zealously the GOP is pushing this talking point in order to sell their bill, I wanted to dedicate an entire post to it and talk about it in more detail.  This post gets “into the weeds” a bit, but I think it’s important to be very specific in order to elucidate how deceptive the GOP is when talking about their bill, and about health insurance in general. (And just to be fair I should note the small handful of Republicans, mostly in the Senate, who are being more intellectually honest in their conversations about the bill, such as Tom Cotton, Susan Collins,and Bill Cassidy).

The fact that health insurance is so complex and requires a lot of patience for details in order to be fully understood is exactly what the GOP is taking advantage of when they tell us things that are blatantly untrue.  They’re counting on the fact that the American people won’t have the time, patience, or ability to figure out that they’re being lied to. That’s how much respect they have for us. But they shouldn’t underestimate their audience.  So let’s take the time to unpack it . . . (And okay, I know a lot of you really don’t have time for the details, so I tried to tell enough of the story with the section headings for you to at least get the gist).

There are several reasons why the “lower premiums” that the CBO says will eventually result from the GOP bill are not really as good as they sound at first blush:

1. The “10% lower” prediction is an average: most of the benefit will go to young people. Many people, especially older Americans, will actually see premium increases.

Premiums Will Increase Significantly for Those in Their 50s and 60s

The 10% decrease in premiums that the CBO predicts for the year 2026 under the GOP bill is an average.  What that means in reality is that some people – mostly those under age 35 – will actually see bigger decreases.  That is great news for young people.  But it’s not such great news for everybody else.  Some people won’t see much change at all, and still other people – particularly older Americans – will see very significant increases.  The particularly large increases for older customers come because of the change in “age rating” rules: under Obamacare insurers can only charge older customers 3 times as much as younger ones. Under the GOP bill they will be allowed charge 5 times as much.

Overall, the CBO estimates that by 2026, premiums will be 20-25 percent lower for a 21-year old, 8-10 percent lower for a 40-year old, and 20-25 percent higher for a 64 year old. (And don’t forget, these premium “decreases” aren’t expected to happen until 2026.  So even if you’re  young enough to benefit right now, will you still be in 2026? Or will you have moved on to the age group that gets hurt by them??  We’re all going to be one of those older people someday, if we’re lucky!)

 

It Gets Even Worse When You Factor in the Change in Subsidies/Tax Credits

Also, these numbers are all before you factor in the way the subsidies will change under the new bill.  The tax credits under the GOP bill are much less generous than the subsidies under Obamacare.  And unlike under Obamacare, they’re flat credits based on age (the oldest groups get twice as much as the youngest, not nearly enough to make up for the 5:1 age rating ratio), whereas Obamcare credits adjust based on need and cost. (See You Down With GOP? (Part 2), item #11 for more detail on how the credits will differ).  Because of this, insurance premiums will end up being even more expensive for many older Americans than those initial premium numbers indicate, and will also be more expensive for many lower income Americans and those who live in rural areas where insurance tend to be more expensive.

 

In some cases the additional expense will be quite significant, because the tax credits are done in such an inefficient manner under the GOP bill.  In one, now infamous, example from the CBO report, a 64-year old making $26,500 would be projected to pay around $1,700 a year for insurance in 2026 under Obamacare.  Under the GOP bill, in 2026 they’d be paying $14,600. That’s a 750% increase. (And that higher price is for a much lower quality plan, as you’ll see below.)

There are Now Rumblings About a Fix for the Older “Cohort”

On Fox News Sunday, Paul Ryan told Chris Wallace that Republicans are now looking at ways to try to remedy this aspect of the bill, to “add some additional assistance to people in those older cohorts.”  This detail of the bill has gotten a lot of attention, and there has been strong pushback from groups that represent patients and seniors in particular, such as the AARP.  And of course, people in their 50s and 60s, particularly working class people in those age groups, made up a disproportionate amount of the GOP base in 2016.  So there is a lot of pressure on Republicans to fix this.  So far, though, there’s no indication of how they might do that.  And the full House vote is scheduled for this Thursday (the 7th anniversary of the signing of the Affordable Care Act, a.k.a. Obamacare).

2. Many older people will be priced out of the market entirely, which is a big reason “average” premium prices will come down.

Next up, a big reason that average premium prices will be lower is a really unfortunate one: insurance will become so expensive for older Americans that many of them will be forced out of the market. That will leave a younger, healthier pool remaining that, on average, is cheaper to insure.  It would also leave millions of people who really need insurance without it.

Getting more young and healthy people in the insurance pool is a great thing.  That’s what we want, and it’s one of the things Obamacare hasn’t been able to do well enough (though the percentage of enrollees under age 35 is up to 36% for 2017, which is getting quite close to what the law’s designers originally hoped for).  But we don’t want to do this by forcing out the people who need insurance the most.  That defeats the whole purpose of bringing the young and healthies into the market, which is to balance out the risk pool and make the markets sustainable for everyone.

3. Plans will be skimpier, which means you’ll pay higher deductibles and other out-of-pocket costs. When you factor this in, insurance premiums will actually increase.

Plans Will Be Skimpier, Covering a Smaller Percentage of Your Medical Expenses

This one is possibly the most important reason that premiums will be lower under the GOP bill, and unfortunately it has not been much discussed. Under the GOP bill, deductibles and other out-of-pocket costs will be higher than under Obamacare.  Obamacare sets a minimum “actuarial value” for the insurance plans sold in the individual market.  “Actuarial value” just means the share of a person’s typical medical expenses the plan covers, on average (e.g. a plan with an actuarial value of 60% must cover, on average, 60% of the customer’s medical expenses).

Under Obamacare the minimum actuarial value allowed for a plan is 60%.  Insurers must also offer an option for plans at 70% and 80% in order to participate in the marketplace exchanges. The GOP bill gets rid of all of these requirements, so insurance companies will be able to sell skimpier plans that cover less – thus, lower premiums  This would of course mean that the customer would have higher out-of-pocket costs (deductibles, co-pays, etc) any time they actually needed to see a doctor or get any type of medical care. *

Premiums Actually Increase if You Compare Obamacare vs GOP Plans of Equal Value

So when the CBO looked at the expected premium costs for the GOP plans, it was looking at plans with a lower actuarial value (65%) than the Obamacare plans (70%) it compared them to.  No surprise that those plans will cost less.  Brookings Institution, a non-partisan think tank in D.C. did a study to adjust those plans and come up with prices for what the premiums would be if you compare plans of equal value under the GOP bill vs. Obamacare (i.e. both plans with an actuarial value of 70%).

When this adjustment is made, it turns out that under the GOP bill, premiums rise for everyone age 39 and older.  And there are only small decreases for the younger customers, vs. very large increases for those at the older end.  They also calculated average premiums as if older people don’t drop out of the market due to lack of affordability (see #2, above).  When they calculated average premiums this way, they found that average premiums would actually increase by 13%.

A study done for Vox by health policy experts found that when you calculate total costs (premiums, deductibles and other out-of-pocket expenses), the average current Obamacare customer would pay $1542 more per year under the GOP plan if it were to begin today (they’d pay $2,409 more in 2020 when the new plan is actually set to begin). The increase would be most severe for those in the 55-64 age range, with a cost increase of $5269 today ($6,971 in 2020).

Plus, It Will be Harder to Comparison Shop for Insurance Plans

Now for some people, the ability to buy a cheap plan that doesn’t cover as much is actually appealing.  They will be happy to have that option.  Many young people who think they are unlikely to ever get sick or hurt might want something that’s more along the lines of a catastrophic plan. So it’s not terrible to have that option out there.  (Note that under Obamacare, people under 30 already have the option to buy catastrophic plans). But the problem with what the GOP is doing is that it’s so duplicitous.  Insurance is confusing – really confusing.

As a lawyer, I’ve been trained for years to read complicated, obscure documents, and I still find it daunting to compare insurance plans. (If you’ve always gotten your insurance through work, where you aren’t really given options, you have no idea what you’re missing!).  And unlike Obamacare, which was purposely designed to try to make insurance less confusing and to make it easier to compare plans, the CBO says that the GOP bill will make it harder to shop and compare plans.**

So, because it will be harder to interpret the plans under the new system, many customers will be excited about the lower premium prices and may not realize that they’re getting skimpier plans that will leave them in a precarious position as soon as they actually need medical care.  They may not realize that their deductibles and co-pays will be even higher than they are now.  Or even if they do notice the higher deductibles, they may not be aware just how much that lowers the value of their insurance.

Plus, these “cheaper” plans will seem especially enticing because most people will be getting significantly less financial assistance under the GOP plan than they were under Obamacare, so these plans may be all that they can now afford. Or in some cases, they will trust what Republicans are telling them about giving them lower premiums and better plans, not realizing that what they’re really getting is a skimpy plan that’s going to make them less secure and cost them more money if they end up needing any medical care at all. (A recent Kaiser poll shows that only 41% of respondents think the GOP bill will cause deductibles to increase).

Worst of All, the GOP is Fraudulently Selling their Bill as a Cure for Obamacare’s High Deductibles, While Knowing Their Plan Only Makes the Problem More Severe

What really makes this such an underhanded play by the GOP is that, not only have they spent the last few years criticizing Obamacare for causing high deductibles (which it has in many cases, but the GOP bill will cause them to rise even higher), but they’ve gone into hyper overdrive with that particular criticism as a way of defending their own bill, ever since the CBO report came out.  This, of course, leaves people with the impression that their bill would solve this problem that they’re so critical of.

For example, Trump said this last week during a listening session with a group he called “victims of Obamacare:

A lot of Obamacare, you don’t really have insurance because the deductibles are so high that you really don’t have insurance, if you think about it.

And while on Morning Joe promoting the GOP bill the other day, Trump’s budget director, Mick Mulvaney told a tale about his own very high deductibles and expressed great concern that a person who makes one-fifth what he does would never be able to afford to go to a doctor because of these high deductibles under Obamacare. That was how he responded to questions about the GOP bill’s own shortcomings. He conveniently ignored the fact that under Obamacare, such a person would pay extremely low premiums because of the premium subsidies and would also get cost-sharing subsidies to bring their deductibles way down, as this Washington Post fact check points out.  This is unlike the GOP plan, where this hypothetical person would bear those costs all on their own.

And Sean Spicer responded to reporters’ questions about the GOP bill two days in a row last week by deflecting to criticisms of Obamacare’s high deductibles. Here’s just a little bit of what he said:

At the end of the day, if you have a card and you’re getting a subsidy but you’re not getting care, you have nothing . . . [I]f that doctor doesn’t take the card or the deductible is so high, then you really don’t have anything.

They all know that the CBO report specifically points out that their bill will cause deductibles and other out of pocket expenses to rise even higher than under Obamacare. Yet every time they’ve needed to respond to a criticism of their bill – such as, the huge number of people predicted to lose coverage – they respond by saying or implying that their bill will save Obamacare “victims” from the high deductibles.  They’ve identified a legitimate problem, but instead of fixing it, they’re responding to it with a bill that will make that problem significantly worse and create many new ones, all while they tell the American people they’re going to be their health care saviors.

4. Lower income Americans would get a double whammy on out-of-pocket expenses

In addition to the changes described in #3, the increase in out-of-pocket expenses will be made even worse by another change in the GOP bill for low income Americans.  Low income Americans who buy insurance under Obamacare get cost-sharing subsidies.  This is separate from and in addition to the subsidies that go toward reducing premium payments.  These subsidies are specifically for reducing cost-sharing, such as deductibles and co-pays.  Under the GOP bill, these subsidies would no longer exist.

So lower income Americans would be hit twice when it comes to out-of-pocket costs, because these costs would already be higher under the new skimpier insurance plans, and then these low income customers would lose the subsidies they had been receiving under Obamacare to assist them with these types of costs.

*****

Notes

*You’ve probably heard Paul Ryan or Donald Trump or Tom Price talk about their “3 phase plan” for repeal and replace. Well, the skimpy plans described here will become much, much skimpier if the GOP is able to go through with “Phase 2” of their plan for repealing and replacing Obamacare.  After they pass the bill being debated right now (Phase 1), they intend to make changes in Phase 2 by simply having Tom Price change/reverse some regulations.

One of these Phase 2 changes would be to get rid of the “essential health benefits” (EHB) requirement of Obamacare.  This provision requires insurance companies to cover a list of 10 basic benefits that the Obama administration considers essential, including: maternity care, mental health care & addiction treatment, hospitalization and prescription drugs (go here to see the entire list).

The GOP wants to get rid of this requirement and allow insurance companies to cover (or not cover) whichever of these services they like.  Once that happens, insurance companies would be able to sell very skimpy plans, plans that really cover almost nothing.  At that point, it’s possible someone could buy a low cost “insurance plan” and then, when it comes time to use it, discover that it’s barely insurance at all.

For now, as long as the “essential health benefits” provision remains in place, there’s still a pretty good amount of protection built in, even without the minimum requirement on actuarial value.  Experts think the value probably wouldn’t go much below 60% as long as the EHB requirement is in place.  But they also think insurance companies won’t sell anything much above that value either, once they’re no longer required to, as under the GOP bill.  And if the GOP really is able to remove the EHB provision in Phase 2, plans that are complete junk will return to the market.

** On the Obamacare marketplace exchanges, all the plans are divided up into “tiers” (Bronze, Silver, Gold, Platinum).  Each tier represents a different actuarial value.  Within a given tier, all of the plans cover approximately the same amount of a customer’s health care costs. So if a customer looks at Silver plans, all the plans in that category would cover about 70% of their costs. 

There are variations between the various Silver plans, for example: the way the costs are divided (e.g. the split between the premiums, deductibles and co-pays will vary slightly between the plans), or maybe the network of doctors they cover or the prescriptions included.  But the customer knows that any of the Silver plans will give them generally the same amount of coverage as any other: 70%.

The GOP bill not only gets rid of some of the basic minimum protections in the plans, but it also makes it much more confusing to shop for plans, as it will mean a return to shopping for plans without the organized marketplace. So it will be much harder figure out how one plan compares to another: if one plan has lower premiums but higher deductibles, is it better or worse than a different plan that has higher premiums and lower deductibles?  It will be very difficult for a customer to figure out on their own which of two plans will give them more coverage, or how much coverage any given plan will give them.