With Michelle Hackman, Reporter for The Wall Street Journal’s Washington, D.C. bureau, covering Health Policy and Politics
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Tug Of War Continues Over Republican Version Of Changes To The Affordable Care Act (ACA)
After being lambasted for developing their healthcare bill sub rosa, Senate Republican leaders finally released their version of a healthcare bill to repeal and replace the Affordable Care Act. Soon after its release, the Senate version met stiff opposition and will surely change before being voted on. To better understand what’s at stake for all Americans, Steve invited The Wall Street Journal reporter Michelle Hackman to walk us through the Senate and House versions and see how they differ from the original ACA, in easy-to-understand terms.
Understanding The Original Affordable Care Act
Steve gets the conversation going by asking Michelle for an overview of the original Affordable Care Act, aka Obamacare. She says a big goal of the ACA, when it was passed in 2010, was to expand coverage to people who did not have health insurance. And it did that in two ways. First, it created subsidies that lowered premiums for low-income people so they could afford to buy coverage. Secondly, and perhaps more successfully, it lowered Medicaid’s income qualification threshold so that able-bodied adults, who were close to but slightly above the poverty line and not previously eligible, could now get covered under Medicaid. So the ACA cast a much wider umbrella in its quest to expand healthcare coverage to millions of previously uninsured Americans.
House Version Of Healthcare Bill Caps Medicaid Spending, Reverses ACA Taxes
Next, Steve asks Michelle to explain key changes to the ACA offered up by the Republican-controlled House of Representatives. The House bill, Michelle explains, rolls back ACA’s Medicaid expansion by reducing the amount of federal money that goes to states to help ensure lower-income Americans and also proposes caps on Medicaid spending for the first time, ending open-ended funding for Medicaid as we now know it. The non-partisan Congressional Budget Office (CBO), which is responsible for estimating the cost and effect of major bills, estimates that the House’s restrictions on Medicaid spending would cause at least 14 million people to lose their coverage.
To recap, the ACA imposed about nine new taxes to subsidize healthcare for lower-income Americans: taxes on various players in the healthcare industry, such as a medical device tax; a tax on health insurance; the so-called Cadillac tax on really expensive plans; and a set of taxes on those making over $200,000. The ACA used this new tax revenue to beef up Medicare coffers and fund subsidies that help low-income people buy health insurance.
The House bill gets rid of all ACA’s taxes except the Cadillac Tax, which it delays. To compensate for this reduction in tax revenue, the House version cuts back on subsidies and really clamps down on Medicaid spending. So the House bill’s approach, adds Steve, is that the ACA offers way too many benefits that are being funded by higher taxes and proposes cutting back on taxes and cutting back on benefits.
Before discussing the Senate’s proposed changes to the ACA, Michelle adds that Republicans really see the ACA’s taxes as hurting the economy and, especially, the healthcare industry. Republicans argue that these taxes have been passed on to the people in the form of higher healthcare premiums under the ACA and that getting rid of them will lower premiums and help more people buy insurance. Steve agrees that there is a flip side to this coin and cites the 3.8% added tax on capital gains that can amount to a lot of money.
While the House version calls for axing all taxes, the Senate takes a more measured approach, Michelle continues, with senators debating to delay repealing ACA’s taxes versus keeping some of them in, such as taxes on investment income that only affect really high earners.
Addressing The ACA’s Ten Commandments
In addition to new taxes, the ACA also came up with a whole new set of regulations that were framed as consumer protections. These included popular provisions such as allowing young adults to stay on their parents’ plans until the age of 26 and making it illegal for insurance companies to deny coverage or charge astronomically high premiums to those with preexisting medical conditions. The ACA also created a suite of ten essential healthcare benefits that all health plans needed to cover, without exception.
The House version allows states to waive some of these essential health benefits, such as maternity coverage or substance abuse. The House bill also gives states the latitude to let insurance companies charge more to people with preexisting conditions. In exchange, it creates some money to help states subsidize premiums for people with preexisting conditions.
If Premiums Drop For The Young And Healthy, They’d Rise For The Old And Aging
Steve states that another reason Republicans want changes to the Affordable Care Act is that insurance companies aren’t allowed to price policies in a manner that makes economic sense. Case in point, since young healthy Americans perhaps see a doctor once a year for well checks and routine immunizations, they should have lower premiums, but instead saw their insurance rates go up by double-digits under the ACA. Republicans want to lure these youngsters back into the market, and the House and Senate bills allow insurance companies to charge their oldest customers up to five times more than their youngest ones. But while this would lower costs for young Americans, it would raise premiums for millions of older Americans.
The CBO estimates that as many as 23 million Americans could lose coverage under Republican changes to the ACA, and this has received a lot of press coverage and backlash. While there is no disputing that millions would lose coverage under a new bill because of cuts to Medicaid, Republicans argue that a lot of people bought healthcare insurance to avoid penalties for non-coverage under the ACA. They also argue that while privately-insured Americans carry health insurance, their deductibles are often in the thousands of dollars, and they end up paying for most of their care out-of-pocket. So Republicans want to change many of the flawed provisions in the ACA and have offered solutions such as expanded Health Savings Accounts.
In closing, Michelle says that the Senate bill continues to face opposition from within the party, with conservatives saying it doesn’t go far enough in freeing insurance companies to offer variable pricing and moderate Republicans saying it cuts Medicaid too much and would hurt many of their constituents. These bills are causing a lot of angst in political circles, so a great deal of uncertainty exists about what will happen next. It’s a wait-and-watch. Let’s hope the final version of changes to the Affordable Care Act fixes its current shortcomings and gives us a bill that is truly better for all Americans.
Disclosure: The opinions expressed are those of the interviewee and not necessarily United Capital. Interviewee is not a representative of United Capital. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances. The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by United Capital.
Steve Pomeranz: Now that Senate Republican leaders have released their health bill, it is possible to see how it diverges from the House passed version and from the Affordable Care Act. The Senate proposal will change before it’s voted on, that’s for sure. But the basic elements are likely to remain. So, because of this, I’ve invited Wall Street Journal reporter Michelle Hackman to take us through the bill and compare all three plans in an easy to understand fashion. Michelle covers health policy for The Wall Street Journal out of Washington, DC. Welcome to the show, welcome, Michelle.
Michelle Hackman: Thanks for having me.
Steve Pomeranz: Let’s start with the uninsured. What does the ACA do or the Affordable Care Act, the ACA, what does that do?
Michelle Hackman: Sure, so the Affordable Care Act, a big goal of the Affordable Care Act when it was passed in 2010, was to expand coverage to people who didn’t have health insurance. And it did that in two ways. First of all, it created subsidies to help low income people buy insurance and help lower the cost of their premiums. And the other major way that it was almost even more successful was that it expanded the Medicaid program to people who make slightly above the poverty line. And included these people who even make less than the poverty line, people who, they’re called able-bodied adults who don’t have children, who previously weren’t eligible and suddenly were able to get coverage under the law.
Steve Pomeranz: So it was a much wider umbrella to try to include those who were uninsured because the big deal was that there were so many millions of people in America that were uninsured. So this bill went to cover them. So what did the House bills do?
Michelle Hackman: Right, so the House bill ended up moving the needle sort of in the other direction. So one of the major things the House bill does is it rolls back that Medicaid expansion. It cuts off the higher amounts of federal money that goes to states to help insure these people. And it actually puts Medicaid for the first time on a budget. So right now Medicaid funding is open-ended, and the House bill would end that. The Congressional Budget Office, which is responsible for estimating the cost and effect from coverage for major bills said that that Medicaid provision would cause at least 14 million people to lose their coverage. Now, the House bill also would restructure tax credits and do a couple other things.
Steve Pomeranz: I know that ACA raised taxes on some taxpayers. Let’s talk about taxes. What did the ACA do with regard to that?
Michelle Hackman: Sure, so the ACA imposed about nine new taxes. Some of those were on different health industries. There’s a tax on health insurance. There’s a tax you may have heard of called the Cadillac tax. That’s a tax on really, really rich, expensive plans that would tax some employer health benefits. There’s a medical device tax that the medical device industry really hates. And then there’s this set of other taxes that actually just tax very wealthy people. Typically, individuals who make more than $200,000. And that money goes to a couple things. It goes to beefing up the Medicare coffers. But it also helps beef up these subsidies that help low-income people buy health insurance.
Steve Pomeranz: So the taxes are an offset to some of the expenses or the cost for providing services.
Michelle Hackman: Right.
Steve Pomeranz: What did the House bill do to that?
Michelle Hackman: Well, the House bill basically reverses exactly what the ACA did. So whereas the ACA tried to raise money through taxes to help more people buy health insurance, the House bill gets rid of some of these, all of these taxes, with the exception for the Cadillac tax, which it delays. And it does that in exchange for cutting down the generosity of some of these subsidies, and really, really cutting down the Medicaid program.
Steve Pomeranz: All right, so it seems to me that the House is saying there’s too many benefits. Those benefits are being funded by the higher taxes. So we’re going to cut back on the taxes, so we’re going to cut back on the benefits. Does the Senate bill do something similar?
Michelle Hackman: Yes, for the most part, yes. And I think the thing I would add to that is that Republicans really see these taxes as hurting the economy and particularly hurting the healthcare industry. And so, they would argue that these taxes have actually been passed on to people and how much they pay for healthcare. So that has actually raised costs, and getting rid of them will lower the cost of premiums and help more people buy insurance. So there is a flip side to this coin.
Steve Pomeranz: Of course, yeah. I know that there is a 3.8% tax on capital gains. So if anybody’s selling a business, they have to pay an extra 3.8%, and that can amount to quite a bit of money. But the Senate bill is basically the same when it comes to the House bill and trying to cut back on the taxes and reduce benefits?
Michelle Hackman: Essentially the same, yes. And right now, senators are actually talking about whether they should delay repealing some of those taxes or actually keeping them altogether. And they’re particularly looking at those taxes on investment income that really only affect really high, high earners, yeah.
Steve Pomeranz: Okay, well, what about insurance rules? What does the ACA do with regard to most health insurance plans?
Michelle Hackman: Sure, so the ACA came up with this whole new set of regulations that were framed as consumer protections. They created the popular provision that let young people stay on their parents’ plans until age 26. They also for the first time said insurance companies, you cannot deny a person just for having a preexisting condition. You also can’t charge them astronomically high premiums. And it did a few more things. It created this suite of what are called essential health benefits where it said health plans need to cover these ten areas, no exceptions.
Steve Pomeranz: Well, basically the House bill does what, then, with regards to those ten required benefits?
Michelle Hackman: Right, so because of sort of the complex budget rules that Congress is using, they would like to repeal some of those protections, but can’t. And so the House bill creates this waiver system where they tell states you can consider waiving some of these essential health benefits. You can tell plans you’re not required to cover maternity coverage or you’re not required to cover substance abuse disorders. And it also allows some states to consider waiving the provision that would prevent insurance companies from charging people with preexisting conditions more. Now, in exchange, it creates some money to help states pay for those people with pre-existing conditions who might be facing higher premiums.
Steve Pomeranz: I know one of the complaints from the Republicans was that the insurance companies weren’t allowed to price their policies in an economic fashion because young people don’t use their policies that much, and older people do. So they need to charge enough to the older people in order to cover their excess costs. They’re trying to bring that back in, but it has the added effect of actually raising the cost of health care insurance for older people.
Michelle Hackman: Right, you just nailed it. So Republicans say the big problem with the Affordable Care Act is that it raised costs so much that young healthy people, who feel like they don’t really need health insurance, they’re healthy, they see a doctor maybe once a year, they are not willing to pay those larger costs that have really gone up by double digits in a lot of cases. And so, one of the many ways that Republicans want to try to lure these people back into the market is by allowing insurance companies to charge them less. So that the House bill and the Senate bill would allow insurance companies to charge their oldest customers up to five times more than their youngest ones. And you can imagine that would lower costs for young people.
Steve Pomeranz: Yeah.
Michelle Hackman: The flip side is that it would raise costs for older people.
Steve Pomeranz: Do you think that the media is giving a fair shake to this debate? Because like you, I see these reports and these headlines about the millions of people that are going to be thrown off the health care system. And I’m sure the CBO is giving some kind of accurate information. But is there more behind that kind of a headline that we’re missing?
Michelle Hackman: On the coverage numbers?
Steve Pomeranz: Yeah, on the coverage numbers, for example.
Michelle Hackman: Yeah, I would say that there is really no disputing the fact that some people would lose coverage under this bill, especially because of the way that it cuts the Medicaid program. At some point, when you lose so much money from a program, there’s no way to balance the records other than making some people ineligible. But I would say that Republicans argue that a lot of these people who have health coverage right now, first of all, are only buying it because the Affordable Care Act is forcing them to. If they don’t buy the insurance, then they’re charged this penalty. They also say these people have health insurance, sure, but their deductibles are often so high, often in the thousands of dollars, that it feels like they don’t have insurance, even though they technically do under the CBO. And so, of course, there’s, yeah, there are valid arguments on both sides.
Steve Pomeranz: So, I realize that as of this airing the Senate has gone back in and they’re still trying to rework the bill. Because I think they were shocked at the political backlash with hearing that 23 million people were going to be thrown off the insurance rolls. How do you think this is going to work out? How do you think this is going to play out, I should ask?
Michelle Hackman: Well, the trouble with trying to rework the Senate bill to win back support is that people, senators, are really opposing the bill from both sides. There are conservatives that say it doesn’t do enough to let insurance companies price their own products and offer cheaper products. There are more moderate senators who are saying it really cuts the Medicaid program too much, and we can’t stand behind that. And so, right now, the things that we’ve heard are that there are small fixes under consideration. Senate leader Mitch McConnell is considering adding a pot of dedicated funding for opioid treatment. And that is really something to try to lure some of those more moderate senators who are hesitant about the Medicaid program because it brought insurance to a lot of people in their states who have opioid use disorders. At the same time, they’re looking at expanding the role of health savings accounts. So these are tax-free accounts where you can put your money in. And, right now, they’re not eligible to be used to help pay for your health insurance premiums, and senators want to change that.
Steve Pomeranz: My guest Michelle Hackman covers health policy for The Wall Street Journal out of Washington, DC. We’re trying to take a very complicated subject and sift it down [LAUGH] to a few talking points. I hope we’ve helped. Thank you so much for joining us, Michelle.
Michelle Hackman: Thank you.
Steve Pomeranz: To hear more about this conversation and to find out more about the topic of healthcare, don’t forget to join us at stevepomeranz.com.