With Republicans in Washington, D.C., promising to repeal the federal Affordable Care Act, or ACA, the focus is shifting to how the GOP might try to replace it. Stephen Parente of the University of Minnesota is well-positioned to describe what could be coming. In 2013-14, Parente worked with the American Action Forum, a conservative think tank, to evaluate the budget and coverage impact from the Empowering Patients First Act, an ACA replacement plan from U.S. Rep. Tom Price, R-Ga. Last week, President-elect Trump selected Price as his health secretary. More recently, Parente worked with staffers to model the economic impact of "Better Way," the replacement plan put forward by House Speaker Paul Ryan.
Q: How does the Better Way plan compare with the Affordable Care Act?
A: It shares more in common with the Affordable Care Act than, say, someone proposing single-payer or someone saying scrap everything.
For example, there is a tax credit structure ... in the ACA and in Better Way. There are Medicaid moneys [in] both.
Q: How would the structure of tax credits be different?
A: There are two big differences. One of them is that tax credits in Better Way are indexed and sized to a person's age. ... Someone who is age 60 might be getting a $5,000 credit for themselves. They might get only $1,500 if they're, say, 35 years old.
The second way is that tax credits will not be contingent upon an individual's income, whereas ACA has that contingency.
Q: I gather that the dollar value of tax credits under Better Way would be smaller than with the Affordable Care Act, but this reduction fits with lower premiums for coverage, too. Is that right?
A: Correct. One of the biggest changes is the risk-rating piece. The ACA has a 3-to-1 ratio for modified community rating, which means insurers can't sell coverage to an adult age 64 or older for more than three times what they'd charge a 21-year-old for the same health plan. Better Way proposes a 5-to-1 ratio.
This will lead to savings by making it more affordable for younger folks to come into the market, and expand the base.
There are fewer caps on deductibles and out-of-pocket spending with Better Way, so that's another way deregulation brings lower premiums. Finally, fewer health benefits are required to be covered by health plans under Better Way, compared with the ACA.
Q: Among readers who call me complaining about premiums under the ACA, the loudest critics tend to be those in their pre-retirement years. Wouldn't the change in age-rating actually boost premiums for those folks?
A: I think so. The question is going to be whether or not there is, essentially, a high-risk pool program that helps them out beyond what comes just through the subsidy. Part of this depends, too, on how healthy those folks are.
Depending on how insurance policies are restructured, a really healthy 60-year-old might be looking at an insurance premium that could be as low as $6,000, or it could even be lower if they take, for example, a plan that requires up to $20,000 in out-of-pocket spending. In that case, the 60-year-old's premium costs might be $3,000, and the government is providing a $5,000 tax credit. Better Way says: You can take the extra $2,000 and put it in a health savings account for when you get older.
Q: It sounds to me like the Republican plans push more costs to people who use health care, and fewer costs to the young and healthy. Is that a fair shorthand?
A: Perhaps, but for those people who are truly sick and disabled, all the safety nets are still in place for them.
And if they're sick and they're poor, the hope with this design is that more states actually will raise their Medicaid eligibility levels, so that all 50 states have fairly healthy coverage — rather than the current bifurcation between less coverage in red states and more coverage in blue states.
There's also some thought that if we're going to expand coverage, let's make sure long-term spending doesn't blow up on us. We've been very fortunate in the deployment of the ACA that interest rates have been low, and we can finance more debt as necessary. But that won't last.
Q: Minnesota is one of those blue states that has offered generous benefits via Medicaid, plus the MinnesotaCare health insurance program. Will federal funding for the state's programs decrease?
A: I think many states are probably going to see less Medicaid funding, because it's going to have to be spread around and there will be some budget constraints. There will definitely be, in that sense, some winners and losers.
Q: The ACA protects people with preexisting health conditions via "guaranteed issue," meaning insurers can't deny coverage to people who are sick. What does Better Way offer?
A: Currently, the way it's proposed, it's not considered guaranteed issue. I think this is up for discussion, because President-elect Trump has said that he would effectively like to see guaranteed issue continue.
