At a closed-door luncheon last week, President Trump reportedly shocked his audience of 15 Republican senators by trashing the GOP House healthcare bill. According to anonymous leaks from the meeting, Trump assailed the plan shepherded by Speaker Paul Ryan as “mean, mean, mean,” and exhorted the senators to champion a proposal that’s far more “generous.” For a leader whose rhetorical signature is repeating points for emphasis, the triple “means” signaled a particularly harsh critique.
Trump’s attack appeared to reverse his previously strong support for the Ryan plan, but he reportedly made no specific suggestions for making the Senate bill less stingy. Still, the President has point: The assistance provided under the House bill, or AHCA, covers a far smaller portion of the costs of folks living in high-cost areas, and especially, for the elderly, than the Affordable Care Act does. And that’s worth paying attention as the Senate rushes to complete its version of the bill before Congress’s July 4 recess.
In fact, the two bills have diametrically different structures. The ACA is designed to protect Americans virtually entirely from rapidly rising premiums; the AHCA’s aim is to limit government spending by providing fixed payments that don’t rise with premiums, shifting the risk to individuals and families.
Let’s examine the differences that account for that wide gulf in coverage. Under the ACA, better known as Obamacare, people in the individual insurance market receive subsidies tied to three factors: their income, their age, and the cost of living in their home counties. Customers pay a fixed percentage of their income, and if premiums rise and their incomes remain flat, the government pays the entire difference in the form of tax credits. Older people also get a break; insurance companies can’t charge folks in their 60s more than three times as much as 20-somethings. The credits also vary substantially depending on the cost of living in different regions, so that the insured in higher-cost areas receive bigger subsidies.
Under the AHCA, assistance towards premiums is completely unrelated to income. It’s indexed exclusively to the age of the folks purchasing coverage. For example, a 27-year-old receives $2,000 a year, and a 60-year-old, $4,000 a year. That’s it. The insurers are also free to charge older people a lot more. The House bill expands the variation in premiums based on age to 5 to 1, from 3 to 1. Nor does the AHCA make any allowances for whether a customer lives in rural Arkansas or the Washington, D.C., suburbs. Wherever the family or individual resides, and whatever the cost of living, the tax credits are fixed. And their annual increases are limited to inflation plus 1%.
Put simply, the AHCA is a good deal for the young, and blow to the elderly. Take a 27-year old living in Alameda County, California, earning $40,000 a year. Today, Obamacare is providing that person a subsidy of just $750. The AHCA would more than double his or her assistance to $2,000. But for the elderly, the reversal of fortune is stunning. A 60-year-old in Monroe County, Fla,, who now gets a subsidy of $13,230, would see that aid reduced to $4,000. So if the annual premium is $18,000, his or her annual layout would need to rise from $4,800 to $14,000.
The AHCA’s goal is to charge young people closer to their true cost, instead of forcing them to overpay and subsidize the elderly. So the intention is to keep the youthful and healthy from going uninsured because of inflated costs. But the elderly simply won’t be able to afford the giant increases under the AHCA. Says Matt Fiedler, an economist with the Brookings Institution, “This legislation would substantially cut assistance to lower income people and people in higher cost areas, and would lead many people, especially older people, to drop coverage.”
So Trump may be right is seeking better balance between controlling future deficits, and ensuring that older folks can afford insurance. Both goals are laudable. The question is whether the Republicans can somehow forge a bill that’s a lot less “mean,” but also curbs what could be a runaway entitlement. It may be the legislative challenge of the millennium.