March 7, 2017

Seth Chandler's Reaction to House Republicans' Health Care Plan

Seth J. Chandler

Visiting Scholar

The reason the elimination of essential health benefits in the American Health Care Act (AHCA) is a big deal is that it permits sales of very thin and cheap insurance. I'll let others debate whether that freedom is a good thing. BUT ... the key problem is that the AHCA lets cruddy coverage count as continuous coverage starting in 2020. Therefore, the way you escape the 30% premium surcharge in a following year for not having insurance in the preceding year is to buy cruddy coverage. (And, yes, you can bet there will be a market for it.) This lets people game the system and leaves the AHCA vulnerable to an adverse selection death spiral. States, I think, could protect against this, but would they?

The AHCA backs off two major ideas that were present in the draft leaked a few weeks back. First, there is nothing in it about insurance sales crossing state lines. That’s a win for federalism and, because I never thought interstate sales would do all that much, not a terrible blow to competition. Second, the attempt to tackle the tax preference for employer provided health insurance is gone. That is a terrible mistake. One could fund a lot of health care from reduction of that tax preference. But it is a sacred cow for many and, to mix a metaphor, the Republicans avoided that third rail. At least the plan gets rid of the employer mandate, which was a bad idea from the outset for a variety of reasons.

This bill desperately needs a score from the Congressional Budget Office. It appears to repeal every tax instituted by Obamacare. While that has some appeal, we are also heading for a $30 trillion debt in 10 years that will put our financial situation in the Italy/Portugal zone. While perhaps the AHCA saves some money by capping Medicaid expenditures, I’m not sure where the money to pay for the rest of it is coming from. Obamacare was horribly financed, I would not want to see the AHCA repeat the mistake.