For nearly five years Republicans have fruitlessly tried to repeal and obstruct implementation of the Affordable Care Act (ACA) or Obamacare. Apart from lacking the votes to do so, they have not been able to agree on an alternative. Now, Senator Richard Burr (R-NC), Senate Finance Committee Chairman Orrin Hatch (R-UT) and House Energy and Commerce Committee Chairman Fred Upton (R-MI) have put forward such a plan.
Is it viable? The plan is complex and only an outline has been released. Based on what is available, it is not adequate—not even close. Two aspects of the proposal tell the tale.
In place of the Obamacare requirement that people carry health insurance, the Burr-Hatch-Upton plan would impose penalties lasting indefinitely on families that, even briefly, go without insurance, even if insurance is unaffordable. And it is likely to be unaffordable, as the plan would give so little help to low-and moderate income families and individuals that out-of-pocket costs would be staggering.
One has to go beyond the rhetoric in which the proposal is cloaked and examine how it would work. Let’s focus on a couple ages 60 and 62 living in San Francisco. Under Obamacare, this couple qualifies for tax credits to help make insurance affordable if they are eligible to buy insurance from Covered California, the state’s health exchange. They would also be eligible for tax credits under the Burr-Hatch-Upton plan– but much smaller ones. In fact, the credits would be so low that health insurance would probably be unaffordable, confronting the couple with cruel choices. To understand just how tough this plan is, one has to do the math.
Covered California set a premium of $20,652 for a couple of this age based on moderate coverage under the ‘silver plan,’ which serves as the base for determining tax credit assistance. Obamacare requires that couples with incomes of $31,460 (twice the federal poverty threshold), pay 6.34 percent of their income for health insurance and offers a tax credit to cover the rest of the premium. At that income level, the couple would have to pay $1,982 out of pocket and would receive a tax credit of $18,660 to cover the rest of the premium.
Under the Burr-Hatch-Upton plan, this couple would be eligible for a tax credit of only $11,110—and that amount would be the same, even if the couple still had dependent children living with them.
But that isn’t all. The Burr-Hatch-Upton plan would allow wider variations in premiums based on age than does the ACA. So, insurance companies would be authorized to charge this couple more under the Burr-Hatch-Upton plan than they would under the ACA. Taking into account this higher premium, this couple would have to spend 38 percent of their income—$11,837 to buy the same insurance plan.
If the couple’s income is a bit higher, just over three times the federal poverty threshold, or $47,190, Obamacare requires them to spend more of their own income, 9.5 percent, for the same plan, but it still provides a tax credit of more than $16,000. The Burr-Hatch-Upton plan provides nothing—it denies any financial help at all to individuals or families with income more than three times the federal poverty threshold. Under such a plan, the couple would have to spend more than 48 percent of its income to buy this basic insurance plan.
What would the couple do? If both are healthy, they might go without insurance. If they did, then later when the couple decided to buy insurance, they would discover that the Burr-Hatch-Upton plan had removed all limits on how high insurance companies could set their premiums or that it had limited their potential benefits until and unless the couple secured insurance for eighteen months in a row. If they were sick, they might scrimp on everything else and buy coverage. Note that because the sick would be more likely to buy coverage than the well, the insurance pool would get sicker, overall premiums would rise still more, and still more people would find insurance unaffordable. As a third option, the couple might buy insurance that covers fewer medical services or imposes higher deductibles and cost sharing. But then, of course, out-of-pocket payments would eat into their incomes. Obamacare helps cover deductibles and co-payments for people with incomes below two and one-half times the federal poverty threshold. The Burr-Hatch-Upton plan would provide no such help.
Against this background, it is ironic that the preface to the Burr-Hatch-Upton plan indicts Obamacare for sending ‘out-of-pocket costs skyrocketing.’ In fact, out-of-pocket spending has fallen since enactment of Obamacare—from 12.1 percent of total spending in 2009, the year before Obamacare was enacted to 11.6 percent 2013, the last year for which data are available. The Burr-Hatch-Upton plan would create the very problem for which it falsely blames Obamacare. In fact, the Burr-Hatch-Upton plan would also eliminate the very important annual limit on annual out-of-pocket expenses that Obamacare provides.
And there is a deeper lesson. One should not be fooled by slogans and generalities. One has to examine details in order to know whether a plan is or is not a basis for negotiation. Make no mistake—details of Obamacare do need fixing– but those repairs involve filling holes in coverage, not making more holes. It requires making benefits more generous, not less. The Burr-Hatch-Upton plan proposes to move in the wrong direction. Such a plan cannot serve as a basis for negotiation.
For the other side of the argument, you can read this commentary from my colleague Stuart Butler.
Commentary
Not ready for prime time: The Burr, Hatch and Upton Obamacare proposal
February 9, 2015