The Passing of the AHCA and it’s (many) Consequences

The GOP’s new health care plan The American Health Care Act just passed today in the House and will now move on to the Senate. What exactly does the AHCA entail and what are the consequences of repealing and replacing the ACA with this bill?

What exactly is in this bill?

1. Say goodbye to the individual mandate: ObamaCare’s individual mandate forced people to purchase healthcare or they would be penalized. This individual mandate prevented adverse selection from occurring and repealing the individual mandate leaves room for adverse selection to happen. This bill also eliminates the requirement that employers with at least 50 employees provide health insurance to their workers.
2. The repeal of subsidies based on income: Under ObamaCare people would receive tax credits based on their income to help them pay for health insurance. This bill would instead provide tax credits based on age and there will be an income cap.
3. States can now decide whether or not to cover “essential health benefits”: this impacts coverage of people with pre-existing conditions. Recently an amendment was added that added $8 billion to help people who will face higher premiums due to pre-existing conditions under this bill.
4. Phasing out of Medicaid expansion accompanied with substantial Medicaid cuts: By 2020 the Medicaid expansion provision of ObamaCare will be phased out. Additionally, the AHCA will cut Medicaid expenditures by $880 billion because Medicaid will now be distributed by a “per capita cap” to each state where states would get a lump sum from the government to pay for Medicaid enrollees.
5. Offering tax cuts to the wealthy: This bill eliminates the investment income tax and the Medicare payroll tax. These tax cuts add up to $883 billion which disproportionally help the wealthy.

What are the consequences of these changes?

When the bill was proposed in March the CBO estimated that 24 million people would lose their health insurance. Republicans didn’t wait for a CBO estimate for the current bill that just passed, so it is unclear exactly how many people would lose health insurance. However, this bill substantially cuts the amount the government spend on health insurance which means a decrease in government spending. Cutting Medicaid means that low-income families will either have to now pay more for health insurance thereby decreasing their normal consumption which will impact the economy, or not pay for health insurance and rack up charges in uncompensated care costs at hospitals. If uncompensated care costs rise this could be expensive for state and local governments. Also, if states choose to continue to cover all current Medicaid enrollees even with government cuts, states will face higher health insurance expenses in that way. The tax cuts to the wealthy will not help as a stimulus to the economy because their marginal propensity to consume is smaller so the extra money will not go towards additional consumption.

Overall, this bill as it stands is likely to cause millions of Americans to lose health insurance which could potentially have costly consequences for the economy and state and local governments. Now all eyes are on you, Senate.

https://www.vox.com/policy-and-politics/2017/5/3/15531494/american-health-care-act-explained

http://money.cnn.com/2017/03/24/news/economy/obamacare-repeal-republican-health-care-bill/

https://www.theatlantic.com/business/archive/2017/03/ahca-economics/519498/