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Analysis: GOP Obamacare Replacement Plan Would Decrease Coverage, Lower Premiums

The House GOP’s Obamacare replacement plan would decrease coverage over the next 10 years, but lower individual insurance premiums and decrease the federal deficit by $481 billion, according to an analysis publishing today by the Center for Health and Economy and provided in advance to Morning Consult.

The Center for Health and Economy is a nonpartisan research organization that provides analysis on health care in the U.S.

While the analysis makes several assumptions because of the lack of detail in the Republican plan, it is among the first to evaluate the impact of the proposal. The analysis compares the GOP plan to projections under current law.

“The House Task Force reform carries an important lesson: there is more to reform than the number of insured Americans,” H&E Board Member Doug Holtz-Eakin said. “The House plan improves medical productivity, improves access to providers, and lowers premiums. And it covers more people with private insurance than the Affordable Care Act managed to do.”

House Republicans released their health care plan in June as part of Speaker Paul Ryan’s “Better Way” policy agenda. The plan addresses the GOP’s criticisms of the Affordable Care Act with a market-based set of changes applying to private insurance, Medicare and Medicaid.

Those changes include establishing high-risk pools for the sick, replacing Obamacare’s income-based subsidies with an age-based tax credit given to anyone without employer insurance, moving Medicare to a premium support system and giving states the option of switching to a Medicaid per-capita cap or block grant system.

The H&E analysis assumes: the value of the tax credit; that all states would use a 5:1 age ratio for setting premium rates; that there would be continuous coverage protections; that the tax exclusion for employer coverage benefits would be capped at the 90th percentile; and that all states would choose a per-capita cap Medicaid system.

It also assumes the Affordable Care Act would be repealed and replaced in its entirety, including the individual and employer mandates and new insurance regulations created under the 2010 law.

The absence of those regulations would be largely responsible for lowering premiums in the individual market for both single and family coverage, the analysis found. That includes the repeal of restrictions on how insurers set premiums, and the repeal of the requirement that insurers cover multiple essential health benefits.

Insurers can currently only vary premium rates based on age, geographic location and whether a person smokes. That results in everyone paying close-to-average premiums, according to the analysis. Thus, insurance is a better deal for sick people, and healthy people are discouraged from buying into the market, causing average premiums to rise.

Including more benefits in a plan — particularly those required under law — also results in higher average premiums in the marketplace.

“Repealing the [essential health benefits] requirements allows health insurance plans to remove costlier benefits in exchange for less expensive premiums,” the authors wrote. “In addition, offering higher deductibles allows insurance companies to offer less generous and lower premium plans for those with low expected medical costs.”

The caveat there is that despite lower prices, insurers would not be required to offer a comprehensive set of benefits. However, the plan assumes that if a consumer purchases insurance worth less than the tax credit, they could put the remaining balance in a health savings account.

“The structure of the Plan’s premium tax credits encourage catastrophic coverage enrollment, as many households can purchase catastrophic for less than the value of the subsidy,” the authors wrote.

While the GOP plan would increase coverage by 1 million people next year, 4 million fewer people would be covered in 2026 compared with current law, the analysis found. Those reductions come primarily from the Medicaid market (the analysis assumes the federal matching rate will be scaled back to pre-ACA levels over five years beginning in 2019), which would have 18 million fewer enrollees in 2026.

However, it estimates that decrease in coverage would be partially offset by increased coverage in the individual market. That would be in part because everyone without employer coverage could receive a tax credit, rather than just those who qualify based on income.

The analysis also estimates there would be a slight decrease in employer-sponsored insurance enrollment. That would be because of the repeal of the employer mandate, and because lower prices would make the individual market more attractive.

The analysis predicts the GOP plan would lower federal spending by $481 billion over the next decade primarily through large cuts to Medicaid and Medicare spending. That estimate takes into account only the insurance portions of the GOP plan and the ACA. Obamacare has many tax-related provisions — for example, taxes on health insurers and medical devices — that affect the federal budget and create savings.

Spending on premium tax credits would increase by $360 billion over 10 years because of the expanded availability, the analysis found. Revenue brought in through the ACA’s mandates and tax on expensive employer-sponsored health benefits would decrease by $218 billion.

Changes made to Medicaid would save $636 billion over 10 years, and Medicare changes would bring in $306 billion. The GOP plan includes only one source of new funding: $25 billion spent on high-risk pools for sick people.

Correction
An earlier version of this post included an incorrect reference to how much the GOP plan would lower federal spending.

This post has been updated with a quote from Holtz-Eakin.