House GOP Proposals Would Make Health Coverage Less Secure for All Americans

Endnotes and citations are available in the PDF and Scribd versions.

This issue brief contains a correction.

Seven years after first promised, Speaker of the House Paul Ryan (R-WI) has released a vague policy white paper that outlines how House Republicans would attempt to replace the Affordable Care Act, which has expanded health insurance coverage to more than 20 million Americans since 2010 at a cost of billions of dollars less than expected. The document is a comprehensive list of conservatives’ recycled, unpopular ideas. Instead of designing a health care system that works for all Americans, the paper outlines a plan to quarantine people who are old and/or sick in separate, more expensive, and unsustainable markets. These reforms would transfer assistance from low-income people to high-income people and from the sick to the healthy. They would not only raise costs for older and less healthy Americans but also would destabilize the entire health care system, shift costs to patients and families, and make everyone’s coverage less secure.

House Republicans have tried to shield themselves from criticism and protect their proposals from careful analysis by glossing over critical details about their recommendations. But since these ideas are not new, details from similar, more specific prior proposals and data from the nonpartisan Congressional Budget Office, or CBO, as well as published think tank and academic research studies, can be used to fill in some of these gaps. The results are unsurprising, and show just how devastating these changes would be for millions of Americans.

How the ACA reformed the private insurance market

The Affordable Care Act includes targeted reforms that preserve much of the employer market for health insurance, while creating new, virtual marketplaces for individuals and small businesses to shop for health insurance products. While the pre-ACA insurance market functioned reasonably well for people whose jobs offered coverage, individuals without access to employer-sponsored insurance or other large group plans were at the mercy of insurers.

In the employer market, the size of larger groups creates a stable risk pool, and premiums paid by healthy, lower-cost people subsidize the cost of insuring people with more expensive health care needs. Larger groups also have greater market power, allowing them to bargain with insurance companies on a more level playing field. The ACA made certain changes to this part of the insurance market to further protect consumers and improve benefits.

But to protect individuals who lack market power and the ability to pool their risk, the law had to go much further. Before the ACA, these consumers were at the mercy of insurers, who treated healthy and sick individuals very differently in order to shield themselves from high-cost patients, creating fragmented risk pools. Insurers evaluated each individual separately, and based on the person’s past medical history or perceived risk, set the premiums and outlined the care for which they would and would not pay. In most states, insurers could refuse to sell insurance to individuals that they deemed to be unnecessarily risky, and they essentially competed to enroll the healthiest, least expensive consumers. Estimates have shown that 50 million to 129 million Americans have preexisting conditions that, prior to the ACA, could have led insurers in the individual market to deny them coverage, hike their premiums, or refuse to cover certain benefits.*

The ACA completely restructured the individual market to solve these problems and ensure that people receive fair treatment. The law requires insurers to issue health insurance coverage to any individual or group, regardless of the health or risk of the individual or group members. This means that millions of people with preexisting conditions are protected from discrimination. The law also includes a number of additional, key policies that guarantee that the new risk pool includes enough healthy people to offset the costs of providing insurance to patients with more expensive health care needs.

First, the law’s individual mandate requires most individuals to purchase insurance or pay a penalty, broadening the risk pool. Second, the law includes financial assistance to help lower- and middle-income Americans afford this requirement. Importantly, this assistance is tied to the amount that insurance costs; without this link, health insurance might become unaffordable. The law also guarantees that the insurance consumers do buy includes meaningful, comprehensive coverage on which they can rely. For example, insurers selling policies to individuals and small groups must cover all categories of essential health benefits, and consumers’ out-of-pocket expenses are capped.

Third, the law includes three risk-sharing programs—risk adjustment, transitional reinsurance, and temporary risk corridors. These programs further spread the financial risk that health insurance issuers bear and help keep premiums stable, especially during the first three years of the marketplaces.

Without these new requirements, the ACA’s marketplaces would attract a disproportionate number of people in poor health without attracting enough healthy people to balance the risk pool. This would raise the average cost of insuring people in the marketplace, which in turn would raise premiums for consumers. Healthier consumers would then be less willing to stay in the marketplace, which would cause costs to rise even further—a scenario deemed the “death spiral.”

Simply put, the ACA’s structure recognizes that the only way that insurers can offer affordable coverage to all Americans—sick, healthy, old, and young—is to create large risk pools that spread out the costs of paying for care. A recent analysis of premium data suggests that the ACA’s approach has worked; despite the fact that coverage has become more comprehensive, broadening the risk pool has moderated premium growth. The authors estimate that without the ACA, individual market premiums in 2017, on average, would have been 30 percent to 50 percent higher than they are for a comparable marketplace plan. Although spreading risk has always been the basic concept underlying how insurance works, opponents of the law constantly try to suggest that this approach is somehow unfair, as if sick people choose to become ill or healthy people will remain so throughout their lives. The House Republican plan would separate out those who are deemed healthy from everyone else, and, in doing so, raise costs and undermine protections for all consumers.

The ACA’s approach of broadening the risk pool, establishing strong consumer protections, and expanding Medicaid is a proven success. Since the ACA went into effect, 20 million uninsured people have gained coverage. The ACA’s marketplaces are covering more than 11 million enrollees, about 85 percent of whom receive financial assistance to help afford their premiums. The national uninsured rate has fallen below 10 percent for the first time, dropping to a historic low of 9.1 percent. This coverage expansion has cost billions of dollars less than projected due to the broader slowdown in health spending growth as well as reforms in the ACA; national health spending from 2014 to 2019 is now expected to be $2.6 trillion less than projected in 2010. The ACA is working and does not need to be replaced.

Conservative proposals would reverse ACA gains

Individual market and consumer protections

The House Republican plan would again separate people whom insurance companies consider to be  healthy from those they consider to be less healthy, recreating the fragmented risk pools that never worked. In doing so, the plan would shift costs and risks away from insurance companies and the federal government and onto millions of Americans.

Thanks to the ACA, insurers can no longer discriminate against people with preexisting conditions, charge women higher premiums than men, or engage in other unfair practices against patients and consumers. Instead of competing to attract healthy consumers and avoid those with more complex health care needs, now they must compete to offer high-quality, affordable health coverage that includes maternity care, prescription drugs, and mental health care. Consumers know that when they purchase health insurance, they are protected.

Scaling back comprehensive coverage

In place of the high-quality, comprehensive health plans now available to consumers on the marketplace, House Republicans would create a race to the bottom with bare-bones plans attractive to only the healthiest individuals. They would eliminate the ACA’s essential health benefits and caps on out-of-pocket spending. As a result, plans would generally have less comprehensive coverage paired with higher deductibles. For example, in 2011, prior to the ACA’s essential health benefits, 62 percent of individual market enrollees did not have maternity coverage—despite the fact that the average cost that year for prenatal care and childbirth for pregnant women was $20,000. Similarly, a survey of individual market plans in 2013 before the essential health benefits took effect found that 66 percent did not cover maternity care, 76 percent did not cover pediatric services such as vision and dental care, 39 percent did not cover mental health care, 46 percent did not cover substance abuse treatment, and 18 percent did not cover prescription drugs.

Although this might reduce premiums for some of the healthiest people, it also would mean that actually accessing care would become more expensive. Many important health care services would no longer be covered, leaving people who needed them on their own to pay the full cost out of pocket. In addition, the plan would allow insurers to charge seniors five times as much as younger enrollees, as opposed to the ACA’s three-to-one ratio.

By freeing up insurers to once again design their plans to appeal to healthy, low-cost consumers and discourage consumers with more expensive health needs from enrolling, House Republican proposals would separate out the youngest and healthiest people rather than encouraging a broader risk pool—raising costs for everyone else. Furthermore, these bare-bones plans would leave even the healthiest patients less protected in the event of sudden changes in health status.

Limiting financial assistance

In addition to scaling back the comprehensiveness of coverage, House Republicans also would reduce financial assistance for consumers. Currently, about 9.4 million marketplace enrollees receive tax credits to afford their premiums under the ACA, with those tax credits averaging $291 per month, or almost $3,500 per year. Although the House Republican plan includes no numbers to indicate the size of the tax credits people would receive to help pay for coverage, House Republicans essentially admit that it would be less help than under the ACA. The plan states that the credits would be “large enough to purchase the typical pre-Obamacare health insurance plans”—meaning less comprehensive plans. Furthermore, the size of the tax credit would not be linked to the cost of the plan. This means that unlike under the ACA, these tax credits would not grow at the same rate as premiums, but instead at some unspecified slower rate. As a result, the credits would lose value over time. House Republicans claim that this will lower health care costs, but in reality it will simply shift costs to individuals. In contrast, the ACA incentivizes insurers to compete on cost while still protecting consumers, by linking the tax credit size to the second-lowest-cost silver plan. This encourages insurers to lower their prices relative to their competitors without shifting costs to consumers over time.

The House Republican plan’s tax credits would only be adjusted for age, rather than income. This means that, unlike under the ACA, the tax credits would not be structured progressively: Low-income people would not receive more assistance. Compounding this problem, House Republicans would eliminate the ACA’s cost-sharing reductions. This additional financial assistance helps low-income marketplace enrollees afford their copays, deductibles, and other forms of cost-sharing by effectively increasing the actuarial value of the plan in which they enroll. Currently, more than 6.3 million people benefit from the cost-sharing reductions. The plan presents an expansion of tax-advantaged health savings accounts as an alternative way to help people afford cost-sharing. However, research has shown that health savings accounts benefit the wealthy much more than low-income people, as the wealthy have more resources available to contribute. Furthermore, because higher-income people are in a higher tax bracket, they can save more than lower-income people do in taxes by putting pretax dollars in a health savings account.

Undermining states’ regulatory powers

Although House Republicans preach the merits of federalism and returning power to the states, their proposal to permit the sale of insurance across state lines would actually undermine the power of states to regulate their own insurance markets. Because plans would only have to comply with the rules of the state they were licensed in, this could lead to a race to the bottom as some states weakened their standards and consumer protections to incentivize insurers to relocate. Perhaps anticipating this line of criticism, House Republicans would also make it easier for states to form interstate compacts to maintain more regulatory control over plan sales across state lines. The ACA actually included a provision to permit interstate compacts; few states have pursued this, however. This is not because of excessive regulation, but rather because the primary barrier to insurers selling across state lines is the need to set up networks of doctors and hospitals in the new state.

Quarantining Americans with pre-existing conditions

Ultimately, House Republican proposals would dramatically shift financial assistance from lower-income people to higher-income people and from sick people to healthy people. Yet in order to move away from stable, broad-based risk pools and back toward separated markets, House Republicans also would eliminate or water down the consumer protections that make everyone’s coverage more secure. As a result, even healthy consumers would no longer be able to fully rely on being protected.

Many of the ACA’s consumer protections, such as preventing insurers from charging women more than men for premiums or from setting annual limits on coverage, are unmentioned and thus presumably would be repealed. Similarly, the plan would undermine the ACA’s prohibition on insurers discriminating against people with preexisting conditions.

Although House Republicans claim that their plan will protect people with preexisting conditions, in reality only people who maintained continuous coverage would be protected from rate hikes. Individuals who went uninsured for a period of time or had a gap in coverage would lose protection, and insurers would be free to charge them higher prices based on their health. This danger would be compounded under the House Republican plan because low-income people would receive less financial assistance to afford coverage, making it more likely that they would struggle to maintain continuous coverage.

For people who are currently uninsured, House Republicans would offer only a single open enrollment period to get covered before they would lose protection from discrimination based on preexisting conditions. This means that any uninsured person who failed to meet the deadline, was unaware of the open enrollment period, or was unable to afford coverage with the plan’s reduced tax credits would not be protected. The ACA marketplace enrollment experience has demonstrated that outreach to uninsured individuals is difficult: Despite millions of dollars spent on education and outreach efforts, 57 percent of uninsured people did not know the deadline for the 2016 open enrollment period, and only 15 percent could say the correct deadline. As this shows, many uninsured Americans would be likely to miss the House Republican plan’s one-time open enrollment period, leaving insurers free to discriminate against them based on their health.

This dramatic weakening of the ACA’s consumer protections would affect millions of people. A 2010 survey found that of 26 million people who shopped for coverage in the individual market from 2007 to 2010, 9 million of them, or 35 percent, “were turned down by an insurance carrier because of a health problem, charged a higher price because of a health problem, or had a specific health problem excluded from their coverage.”

For the millions of people who would be priced out of affordable coverage, Speaker Ryan and House Republicans include $25 billion in their plan to fund and maintain high-risk pools. Funneling people with preexisting conditions into high-risk pools is the plan’s most explicit call for quarantining sick people in a separate insurance market. Although the idea is that subsidizing these separate pools would result in the other risk pools being healthier, in practice high-risk pools have proven to be too expensive to be stable or successful in the long term. Concentrating the consumers who are deemed most expensive into their own risk pool, instead of spreading the risk more broadly, results in premiums that are much too high for most people to afford without massive government subsidies. The policymakers who drafted the ACA recognized this, only including high-risk pools as a temporary measure during the ACA’s implementation phase. Examining a previous congressional high-risk pools proposal similar to House Republicans’ most recent one, the Congressional Budget Office estimated that only 3 million people would be covered. Ultimately, subsidizing such a system would be too expensive to be a sustainable solution in the long term, which is why the ACA instead sought to broaden and stabilize the marketplace risk pool. As explained earlier, this approach has paid off: A new analysis estimates that on average, marketplace premiums in 2017 will be 30 percent to 50 percent lower than individual market premiums for a comparable plan would have been in the absence of the ACA.

Employer-sponsored insurance

The ACA’s individual market reforms provide a critical safeguard for all Americans, even those who are currently enrolled in employer-based plans. Employees no longer need to be tied to a particular job because it is the only possible source of health insurance. For example, an individual with a preexisting condition can now find affordable, comprehensive health care options beyond employer-sponsored insurance, which might allow that person to start a new business or return to school. Americans now have greater flexibility and autonomy over their health care decisions.

The ACA also includes a “Cadillac tax” to limit the current tax preference for very high-cost employer-sponsored insurance plans. As the House Republican paper notes, “CBO has estimated that the [employer-sponsored insurance] exclusion increases average premiums,” and many economists also believe it can incentivize employers to invest in overly generous health plans rather than investing more money in wages. Although Congress has delayed the implementation of the Cadillac tax and it has not yet gone into effect, it was intended to apply only to the most expensive employer plans. House Republicans propose to repeal the Cadillac tax and replace it by capping the tax exclusion, a move toward equalizing the tax treatment of the employer and individual market.

Although in theory this is just applying a different policy approach to the issue, the problem is that the House Republican proposals simultaneously undermine the individual insurance market and the public safety net. Analyzing a similar proposal in 2013, the Congressional Budget Office estimated that this would lead companies to drop insurance coverage for 6 million workers by 2019, with 1.5 million of these becoming uninsured. CBO projected that the other 4.5 million workers would gain coverage through the marketplaces or through Medicaid and the Children’s Health Insurance Program, or CHIP. Under the House Republican framework, however, these workers would have fewer alternative sources of affordable coverage, meaning that the actual impact would be worse. Their proposals to scale back financial assistance for consumers on the individual market and to impose massive cuts on Medicaid would likely result in more of these workers becoming uninsured than CBO expected. In addition to reducing financial assistance, the House Republican proposals would reduce the comprehensiveness of individual market plans, leaving workers with worse coverage and facing higher costs to access services not covered by their plans.

Medicaid

The House Republican plan’s actions to weaken the private insurance market would be compounded by the fact that they would simultaneously gut the health care safety net.

The traditional Republican proposal for Medicaid has been to block grant the program. This would give states a set amount of money for Medicaid, rather than the current formula, where the federal government covers a certain share of Medicaid costs. Because the block grant would grow more slowly than health inflation, this would have the practical effect of dramatically cutting federal Medicaid funding over time. This would shift a greater and greater share of the costs to state budgets, resulting in widespread cuts to eligibility and benefits. It has been estimated that past House Republican block grant proposals would have eventually resulted in 14 million to 20 million Medicaid beneficiaries losing coverage.

The new plan still includes block grants but includes a new wrinkle as well: giving states a choice between switching to either block grants or per-capita caps, with the latter being the default option. Per-capita caps similarly limit funding for Medicaid, but with the federal funding capped at a specific amount per person rather than for the overall state. Because the per-capita caps under this proposal would grow more slowly than annual health care inflation, they would dramatically reduce Medicaid funding over time. Importantly, however, they would also involve cuts in the first year. The per-capita caps would be implemented in 2019, but their size would be based on state Medicaid spending in 2016, adjusted only for general inflation. Because health care inflation almost always outpaces general inflation, the initial per-capita cap level thus would be smaller than actual Medicaid spending in 2019; this would be an immediate cut to federal funding, in addition to increasing cuts in future years.

Either way, both of these proposals amount to huge cuts to a crucial part of the health care safety net. A similar congressional proposal from earlier this year would have cut $1 trillion from Medicaid over 10 years. The Center on Budget and Policy Priorities has pointed out that if all states chose a per-capita cap, “that would require cuts to federal Medicaid funding per beneficiary of about 50 percent by the tenth year.” The end results of these changes are clear: Many fewer people would qualify for Medicaid, and those who still qualified would see reduced benefits and higher costs.

In addition to cutting the traditional Medicaid program, the House Republican plan also targets the expansion of Medicaid under the Affordable Care Act. The plan would massively reduce federal funding for the Medicaid expansion over several years, shifting costs to the states in a clear attempt to force them to roll back eligibility or cut benefits. In addition, it would foreclose any of the 19 remaining states that have not yet expanded Medicaid from doing so in the future, affecting about 3 million people currently in the coverage gap.

Along with these sweeping proposals to cut off millions of people from coverage, House Republicans also outline a number of areas where they would permit and encourage states to undermine the traditional Medicaid guarantee, such as by imposing work requirements. There are a number of reasons why imposing work requirements for Medicaid would be inappropriate. First, research shows that most Medicaid enrollees who are capable of working already do: 61 percent of non-elderly enrollees have at least one full-time worker in their household, and another 13 percent of enrollees have a part-time worker in their household. Second, imposing work requirements is not consistent with Medicaid’s core mission as a low-income health insurance program. Punitively cutting low-income people off from coverage for being unable to find a job would fly in the face of the principle of ensuring access to affordable health care that underlies the Medicaid program.

And although the House Republican white paper criticizes Medicaid’s relatively low provider payment rates as a barrier to accessing care, it simultaneously proposes cutting payment rates for CHIP.

In an attempt to justify these radical changes and their proposal to roll back Medicaid expansion, House Republicans paint an extraordinarily misleading picture of Medicaid, criticizing the program’s quality of care, access to providers, and rates of patient satisfaction. The reality, however, is much more positive than they let on. They cherrypick one survey’s finding that 48 percent of new Medicaid enrollees said that their ability to access care had stayed the same since enrolling; in fact, this same survey also found that among new Medicaid enrollees who had used their plan to access care, 70 percent said that they “would not have been able to access or afford this care before” enrolling in Medicaid.

Furthermore, House Republicans ignore the fact that the same survey found that in 2016, 88 percent of new Medicaid enrollees were satisfied with their coverage, and 77 percent described their coverage as “good, very good, or excellent.”

Ultimately, these Medicaid proposals are not designed to improve health coverage or reduce overall costs. Rather, they are expressly designed to reduce federal spending at the expense of low-income people. Like House Republicans’ proposed changes to other parts of the health care system, they would shift costs and risks to patients, families, and state budgets.

Medicare

As in past proposals, House Republicans would raise the eligibility age for Medicare from 65 to 67. This is bad enough even with current protections such as the ACA in place. In 2013, the Congressional Budget Office analyzed the effects of raising the eligibility age to 67 and found that 5.5 million seniors would be affected and forced to find alternative sources of health coverage. CBO estimated that 10 percent of these people—or 550,000—would become uninsured.

Without the ACA’s coverage expansions, however, the effects of this would be far worse. CBO’s estimates assumed that under the higher eligibility age, low-income seniors younger than age 67 would have the option of finding coverage under Medicaid expansion if their states chose to expand Medicaid. The House Republican proposals to roll back Medicaid expansion and dramatically cut traditional Medicaid would take away this option for seniors in states that had expanded Medicaid, likely resulting in more of them becoming uninsured. And in the private sector, the elimination of the ACA’s marketplaces and many of the law’s consumer protections would make the individual market more difficult to navigate and more expensive for these individuals. Under the House Republican proposal, insurers would be able to charge seniors five times as much as young people and the coverage would be far less comprehensive.

Along with raising the eligibility age, House Republicans would transform Medicare into a premium support system beginning in 2024. Medicare beneficiaries would have a set amount of premium support funding they could apply to a private sector health plan or to a traditional Medicare plan.

The premium support payments would ultimately shift costs to seniors at a steadily increasing rate over time, because they would grow at a slower rate than health care cost inflation. Consequently, future generations would be much worse off. A Center for American Progress analysis of a similar Republican proposal in 2012 estimated that, on average, it would raise health care costs over the course of retirement by $32,900 for seniors reaching age 65 in 2023 and by $225,200 for seniors reaching age 67 in 2050. For this latter cohort of seniors, this cost shifting would consume 42 percent of their lifetime Social Security benefits. Furthermore, the proposal would raise system-wide Medicare costs by shrinking the population of beneficiaries in traditional Medicare, which would reduce Medicare’s bargaining power to negotiate lower prices for health care services. This in turn would raise costs for the remaining beneficiaries by additional tens of thousands of dollars over the course of retirement. For the two cohorts mentioned above, CAP estimated that these system-wide effects would raise the total cost-shifting amount to $59,500 and $331,200, respectively, over the course of retirement.

There are better ways to help lower costs in traditional Medicare than merely shifting costs to patients: payment and delivery system reform. The ACA launched a number of innovative reforms intended to shift Medicare toward paying for the quality of care rather than the quantity of services provided, with the goals of reducing health care costs while also improving care quality and coordination. It created the Center for Medicare and Medicaid Innovation, or CMMI, to design and implement these demonstrations and reforms, many of which are modeled after innovations in the private sector. But of course, House Republicans propose to eliminate CMMI, putting traditional Medicare at even more of a disadvantage. Their attack on CMMI makes clear that House Republicans are not truly interested in improving Medicare, but rather in undermining it.

Conclusion

An estimated 24 million Americans would lose coverage by 2021 if the ACA were repealed, and the House Republican plan would not make up the difference. Millions of Americans would be left unable to afford or access coverage, and others would be paying more for less meaningful benefits. Instead of building a health care market that works for everyone, these proposals would once again separate healthy people from sick people—and in doing so, weaken everyone’s protections and the sustainability of America’s health care system.

Maura Calsyn is the Director of Health Policy at the Center for American Progress. Thomas Huelskoetter is the Research Associate for Health Policy at the Center.

*Correction, August 4, 2014: This issue brief has been corrected to clarify which market protections were included in the ACA. A 1996 federal law required guaranteed issue in the small group market.