Politics aside, the primary question to be asked about the newly proposed American Health Care Act is this: Will it improve choice, cost, and outcomes for health care consumers?
by John Quelch, Dr. Gordon Moore, and Emily Boudreau
Yesterday, President Donald Trump endorsed the American Health Care Act (AHCA), a plan proposed by Republican United States lawmakers to replace the Affordable Care Act (ACA), more commonly known as “Obamacare.” Democrats rallied against the new plan, arguing that it was likely to reduce access to coverage and increase premiums. However, the new proposal actually looks far more similar to Obamacare than many anticipated–causing some conservative groups to speak out forcefully against it. Criticizing the plan, Republican Senator Rand Paul of Kentucky even called it “Obamacare Lite.”
Representative Kevin Brady, a Republican from Texas and the House Ways and Means chairman, stated “our legislation transfers power from Washington back to the American people. We dismantle Obamacare’s damaging taxes and mandates so states can deliver quality, affordable options based on what their patient populations need, and workers and families can have the freedom and flexibility to make their own health care choices.”
This statement speaks to a strong attachment to personal freedom and choice in American society—particularly within the Republican Party. Not everyone agrees that freedom of individual choice should always trump government intervention but, perhaps more so than in other developed countries, this sentiment enjoys widespread support in America. The government should not be able to mandate that I buy health insurance or impose a financial penalty if I do not; an employer should not be able to require that I have an annual checkup. Individual consumers should have the right to decide whether they need these services.
It is wrong to contend that fostering consumer choice in health care is entirely a far-right idea. Proposals from both the left and the right have created larger roles for consumers in the health care marketplace. Obamacare opened up a mass market of coverage sold directly to individuals. This was arguably the largest driver of a consumer revolution in health insurance. It expanded options for those with pre-existing conditions, who often had little choice before, and markedly reduced the uninsured rate. However, consumers in some states found that their new plans had narrower networks and their physicians weren’t always included. In 2016, some of the largest insurers pulled out of the state marketplaces after sustaining substantial financial losses. Consumers had fewer options to choose from and many of the remaining plans raised their premiums.
Therefore, politics aside, the question everyone should be asking is: Will this new plan improve choice, cost, and outcomes for health care consumers?
The AHCA maintains several popular provisions included under Obamacare; it prohibits health insurers from denying coverage to patients with pre-existing conditions, or charging them more money, and allows children to remain on their parents’ health plans until age 26. Maintaining these consumer protections is a boon for many people and their families.
The AHCA’s most significant departure from Obamacare is the elimination of the individual mandate, which required individuals to sign up for health insurance or face a penalty. Consumers will now have a choice: should I purchase health insurance or not? For those consumers who value individual freedom, having the ability to answer this question will be seen as a benefit. However, if too many people do indeed opt out of purchasing plans, the potential downside is that, collectively, costs may rise. Risk pools of older and sicker individuals will undoubtedly raise premiums. To incentivize people to sign up for plans, the AHCA proposes age-based tax credits for low- to middle-income individuals instead of a mandate, with older Americans receiving larger credits.
Under Obamacare, older enrollees who hadn’t yet reached Medicare-eligibility (those in the 50s and 60s) benefited because health insurers could only charge them three times more than younger enrollees. The AHCA proposes that this could increase to five times. Therefore, younger and healthier individuals may see their costs go down, while older people will face a larger cost burden.
Wealthier Americans also stand to benefit, largely due to the legislation’s proposed tax cuts. In addition, the plan also advocates for expanded use of Health Savings Accounts, tax-advantaged savings accounts for medical expenses, which are currently only offered to individuals with high-deductible health plans. While these accounts do allow for consumers to better plan for future medical expenses, there is justified concern that these accounts would be more likely to benefit the wealthy and educated, who have more income to put away.
Many of the plan’s most significant changes deal with Medicaid. Obamacare expanded Medicaid coverage for nearly all low-income individuals with incomes at or below 138 percent of the poverty line, and almost half of the previously uninsured individuals who gained coverage under Obamacare received it through Medicaid expansion. The AHCA would end enhanced federal Medicaid funding for new enrollees starting in 2020. States would receive a set amount of funding per enrollee each year, letting them administer Medicaid as each sees fit. However, states without the money to fund the difference would likely reduce eligibility or benefits.
In conclusion, it seems likely that some consumers, particularly younger and healthier ones, may see their level of choice and therefore competitive pricing improve under the AHCA, while older, sicker, and lower income consumers may find their options reduced.
Finally, the bill was released without a score from Congressional Budget Office, leaving the total cost of the proposal, as well as its projected effects on coverage, unknown. Suffice it to say that given the unknown costs and heated politics—both between the two parties and among factions of Republicans—the debate is far from over. Significant changes are likely before it passes in Congress.
About the Authors
John A. Quelch is the Charles Edward Wilson Professor of Business Administration at Harvard Business School. He also holds a joint appointment at Harvard T.H. Chan School of Public Health as Professor in Health Policy and Management. Dr. Gordon Moore is a Professor of Population Medicine at Harvard Medical School. Emily Boudreau is a Research Associate at Harvard Business School.