A Healthcare Policy Expert on Four Key Differences Between the ACA and the AHCA
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Healthcare Policy Mar 13, 2017

A Health­care Pol­i­cy Expert on Four Key Dif­fer­ences Between the ACA and the AHCA

Craig Garth­waite explains how the GOP pro­pos­al could impact patients, insur­ers, and hospitals.

The AHCA vs ACA: Here are the differences

Based on the research and insights of

Craig Garthwaite

Depend­ing on whom you ask, the Afford­able Care Act (ACA) is either a major vic­to­ry for improv­ing the health out­comes of strug­gling Amer­i­cans, or a cost­ly, auda­cious affront to per­son­al free­dom. The one thing on which every­one agrees? It’s complicated. 

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On March 6, 2017, Repub­li­cans in the House of Rep­re­sen­ta­tives intro­duced their replace­ment for the ACA, the Amer­i­can Health Care Act (AHCA). Reac­tion to the bill has been decid­ed­ly mixed, with both lib­er­als and con­ser­v­a­tives unset­tled about its impact on the future of health­care in the Unit­ed States. 

Craig Garth­waite, a pro­fes­sor of strat­e­gy and codi­rec­tor of the health enter­prise man­age­ment pro­gram at the Kel­logg School, has exten­sive­ly researched and fol­lowed the effects of U.S. health­care pol­i­cy on hos­pi­tals, insur­ers, gov­ern­ments, and indi­vid­u­als. He agreed to sit down with Insight to offer his take on the House’s orig­i­nal AHCA pro­pos­al vs. the ACA

Shift­ing Sub­si­dies from Income to Age

Rather than adjust­ing breadth or depth of health cov­er­age, Repub­li­cans have instead cho­sen to nar­row­ly tack­le its cost to the fed­er­al gov­ern­ment, says Garth­waite. It seems like that’s all they’re focused on right now.” 

Under the ACA, low- and mid­dle-income buy­ers have access to sub­si­dized insur­ance. Those with incomes between 100 and 400 per­cent of the fed­er­al pover­ty line can receive tax cred­its if they buy cov­er­age through ACA exchanges. Under the pro­posed AHCA plan, tax cred­its would no longer depend on a person’s income, but only on their age — pro­vid­ing old­er indi­vid­u­als, who typ­i­cal­ly need more health­care, a high­er tax sub­sidy to pur­chase health­care than younger peo­ple receive. The only way in which income will be con­sid­ered is that the cred­its will phase out for indi­vid­u­als earn­ing above $75,000, or $150,000 for a mar­ried couple. 

The pro­pos­al reflects some con­ser­v­a­tives’ com­plaints that bas­ing tax cred­its on income is unfair. It has that fla­vor of, Why should just low-income peo­ple have access to this?’” says Garth­waite. This feel­ing is par­tic­u­lar­ly acute among fam­i­lies earn­ing just above 400 per­cent of the pover­ty line, or about $65,000 for a mar­ried cou­ple, who often feel that they are not wealthy but who are left out of many gov­ern­ment-assis­tance programs. 

Peg­ging sub­si­dies to age would increase the num­ber of peo­ple who qual­i­fy for those sub­si­dies, which presents a new prob­lem. That sub­sidy, in order to give it to near­ly every­one, has to be rel­a­tive­ly par­si­mo­nious,” says Garth­waite. Also, the new plan would no longer guar­an­tee low-income cit­i­zens a cap on the per­cent­age of their income going toward health insur­ance, which would like­ly leave many of them unable to stay insured. This prob­lem would be par­tic­u­lar­ly acute for rel­a­tive­ly low-income old­er Amer­i­cans and those liv­ing in areas of the coun­try where insur­ance is par­tic­u­lar­ly expensive. 

They’re basi­cal­ly telling their cit­i­zens, You’re going to have to spend a lot more on health insur­ance if we pass this plan.’”

This change could be a hard sell for Repub­li­can sen­a­tors from rur­al states, where health­care tends to be sig­nif­i­cant­ly more expen­sive, and where res­i­dents there­fore rely more heav­i­ly on the low-income subsidies. 

They’re basi­cal­ly telling their cit­i­zens, You’re going to have to spend a lot more on health insur­ance if we pass this plan.’” 

Rethink­ing Penalties 

Among Repub­li­cans’ great­est sources of con­tention with the ACA has been the indi­vid­ual man­date,” which requires that that every cit­i­zen have health insur­ance or pay a penalty. 

But the indi­vid­ual man­date serves a valu­able func­tion in the insur­ance mar­ket­place by incen­tiviz­ing younger, health­i­er peo­ple who may oth­er­wise forego buy­ing insur­ance on the exchanges, thus bal­anc­ing the risk pool. If the only peo­ple in the pool are sick, insur­ing them gets very pri­cy, very quick­ly — a phe­nom­e­non econ­o­mists refer to as a death spiral. 

The pro­posed AHCA would replace the indi­vid­ual man­date with con­tin­u­ous cov­er­age pro­vi­sions, which Garth­waite says is intend­ed to achieve the same effect as the indi­vid­ual man­date, with some excep­tions. Under these pro­vi­sions, a per­son pays no penal­ty for going with­out insur­ance. But, if they are unin­sured for more than two months and they choose to buy insur­ance, they will be penal­ized an addi­tion­al 30 per­cent of their pre­mi­um for the first year they are enrolled. 

Hos­pi­tals are sort of the last defense for the ACA right now. They are the ones who have the polit­i­cal mus­cle to try and save it, and the real finan­cial incen­tive to do so.”

What the [AHCA] struc­tures instead is, Fine, you can choose not to be insured,’” Garth­waite says. “’But if you choose to want to take advan­tage of this lat­er, you pay your penal­ty then.’” 

One wor­ry about this fea­ture is that the peo­ple who are most like­ly to gam­ble on not buy­ing insur­ance in the face of a con­tin­u­ous cov­er­age penal­ty are those who are healthy today and expect to be healthy in the future. These are the very peo­ple that we need the prover­bial stick of the man­date to beat into the insur­ance mar­ket,” says Garthwaite. 

Under the pro­vi­sions, more cit­i­zens will like­ly opt out of health insur­ance. But Garth­waite cau­tions law­mak­ers from attribut­ing their depar­ture sole­ly to per­son­al choice or healthy people’s will­ing­ness to accept risk. 

Rather, if sub­si­dies are reduced at the same time the indi­vid­ual man­date is replaced with con­tin­u­ous cov­er­age pro­vi­sions, he pre­dicts that cit­i­zens who want insur­ance may no longer be able to afford it. If you don’t pro­vide peo­ple enough of a sub­sidy to buy into indi­vid­ual insur­ance, then maybe they won’t buy it because they’ve got to buy things like food or hous­ing instead,” says Garthwaite. 

The AHCA bill also does lit­tle to address what Garth­waite calls arti­fi­cial con­straints” that weak­en demand for insur­ance from the exchanges. For exam­ple, the ACA has a so-called Cadil­lac tax,” sched­uled to roll out in 2020, which tax­es the most expen­sive employ­er-pro­vid­ed insur­ance plans as a way to lev­el the play­ing field between the exchanges and oth­er insur­ance options. 

Right now if you get insur­ance from your employ­er, you don’t pay tax­es on it; but if you go into the exchanges, you do,” says Garth­waite. That stacks the deck in favor of the employ­er.” The AHCA would delay that tax until 2025, which would not relieve those arti­fi­cial constraints. 

Uncom­pen­sat­ed Care Under the ACA vs. the ACHA

Since the pass­ing of the Emer­gency Med­ical Treat­ment and Labor Act in 1985, hos­pi­tals have been pre­vent­ed from refus­ing peo­ple emer­gency care, regard­less of their insur­ance sta­tus. This law effec­tive­ly turned hos­pi­tals into insur­ers of last resort.” While there were some min­i­mal pro­vi­sions to reim­burse hos­pi­tals for low-income patients who oth­er­wise could not afford treat­ment, in pre­vi­ous research, Garth­waite found that each unin­sured per­son costs local hos­pi­tals an aver­age of $900 per year. Anoth­er study found that there was a decrease in uncom­pen­sat­ed cared at hos­pi­tals in Med­ic­aid expan­sion states ver­sus non­ex­pan­sion states. 

As the num­ber of unin­sured peo­ple dropped dur­ing the ACA, the bur­den on hos­pi­tals less­ened. Garth­waite sees the con­tin­u­ous cov­er­age pro­vi­sion as shift­ing the cost bur­den from the gov­ern­ment back onto the hos­pi­tals — a move that he expects hos­pi­tals will fight tooth and nail. 

Hos­pi­tals are sort of the last defense for the ACA right now,” he says. They are the ones who have the polit­i­cal mus­cle to try and save it, and the real finan­cial incen­tive to do so.” 

Block-Grant­i­ng Med­ic­aid Dol­lars to the States

The new Repub­li­can bill aims to reduce waste in Med­ic­aid by pro­vid­ing block grants to states. Rather than admin­is­ter­ing Med­ic­aid at the fed­er­al lev­el, the AHCA would give each state a capped dol­lar val­ue for each Med­ic­aid enrollee annually. 

Garth­waite explains that this change reforms the pro­gram with­out any­one imme­di­ate­ly los­ing cov­er­age, and in the­o­ry, allows for improved effi­cien­cy. I’m sym­pa­thet­ic, broad­ly, to the idea here that the insur­ance pro­gram in Cal­i­for­nia and the insur­ance pro­gram in Mis­sis­sip­pi prob­a­bly should be very dif­fer­ent. This is the rea­son that we have his­tor­i­cal­ly allowed waivers from fed­er­al Med­ic­aid rules that states can use to exper­i­ment with nov­el deliv­ery meth­ods,” he says. 

How­ev­er, he believes that state gov­er­nors have rea­son for con­cern: The cur­rent bill does not have a mech­a­nism to increase per-capi­ta caps when health­care costs increase — and sched­uled infla­tion­ary increas­es like­ly would not be able to ful­ly respond to med­ical infla­tion or eco­nom­ic shifts that increase a state’s Med­ic­aid costs. For exam­ple, states see­ing an increase in the share of the Med­ic­aid pop­u­la­tion that are dis­abled will lose out because, on aver­age, dis­abled Med­ic­aid recip­i­ents are more expen­sive to cover. 

At the end of the year, if they don’t have enough monies, then they’ve got to cut from some­thing, or issue debt, or do oth­er bud­getary tricks to get their bud­get to bal­ance,” says Garth­waite. That’s some­thing the fed­er­al gov­ern­ment doesn’t have to wor­ry about.” 

Regard­less of the crit­i­cisms that the AHCA has met from a vari­ety of sources, GOP law­mak­ers are mov­ing swift­ly to pass the leg­is­la­tion. Some law­mak­ers have stat­ed a desire to have the entire leg­is­la­tion passed before the April con­gres­sion­al recess. 

There seems to be a belief that this leg­is­la­tion must be passed right away because the ACA is fail­ing,” Garth­waite says. This couldn’t be fur­ther from the truth. My work shows that the mar­ket­places are func­tion­ing like we would expect from a com­pli­cat­ed, new­ly formed mar­ket. Rush­ing to replace this exist­ing frame­work — that cur­rent­ly pro­vides insur­ance to over ten mil­lion indi­vid­u­als — can cause real harm. The AHCA as cur­rent­ly writ­ten will like­ly result in more than 10 mil­lion peo­ple los­ing insur­ance, with those loss­es con­cen­trat­ed among the poor and the sick.”

Featured Faculty

Craig Garthwaite

Associate Professor of Strategy, Director of Health Enterprise Program, HEMA

About the Writer

Jake J. Smith is a writer and radio producer in Chicago.

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