Improving the American Health Care Act for Vulnerable Populations

On Monday evening, House Republican leadership released their bill to repeal and replace the Affordable Care Act, which they have titled “The American Health Care Act.” As I describe in a lengthy writeup for Forbes, the bill as drafted would make health insurance less affordable for millions of Americans with low incomes and/or poor health status.

But the bill has many salutary aspects, especially its reforms of Medicaid, America’s broken health insurance program for those below the poverty line. And the bill’s chief weakness—its system of flat, non-means-tested tax credits that aim to replace Obamacare’s health insurance exchanges—is fixable. Indeed, the bill itself contains the language Republicans could use to fix it.

Section 202 of the American Health Care Act describes a transitional system of means-tested, age-adjusted tax credits that are meant to serve as a bridge from Obamacare to the bill’s flat tax credits. That system is summarized in the table below, which comes from the legislative text:

I describe the virtues of this approach in an earlier article for Forbes about the February 10 leaked draft of the AHCA:

Section 202 of the discussion draft actually contains a formula that could be used to combine the age-adjusted tax credit with a means-tested tax credit. As you can see in the table above, the idea would be that the tax credit would kick in once premiums exceeded a certain percentage of an individual’s income. For example, a 40-year-old childless adult making $20,000 a year — 166 percent of the 2017 Federal Poverty Level of $12,060 — would gain a tax credit to defray premiums exceeding 4.73 percent of his income (a point on the range between 4 and 6.3 percent).

There’s ample reason to believe that this approach to tax credits could cover more people than the Affordable Care Act, and at a lower cost.

Without this revision, the AHCA is highly likely to significantly reduce the number of Americans who can afford health insurance, with a particularly negative effect on people whose incomes are too low, or whose health status is too poor, because the tax credit won’t go far enough to help those individuals.

The AHCA, unlike the older leaked draft, also repeals Obamacare’s cost-sharing subsidies, whereas FREOPP’s plan, Transcending Obamacare, proposes converting them into fiscally equivalent Health Savings Account deposits. Those HSA deposits, or something like them, are essential for helping people near the poverty afford their co-pays and deductibles, and should be part of the GOP bill.

The House Ways & Means and Energy & Commerce Committees will mark up the AHCA later this week. It will be interesting to see how that goes.