Distributional impacts of the Price Plan

Yesterday I gave a brief overview of how Rep. Tom Price (R-GA) HR.2300 would work.  The “plan” is to repeal everything related to health insurance in ACA and the reconciliation bill, and then replace it with generous tax treatment to savings, high risk pools, small subsidies by age for use on the individual market, selling insurance across state lines and tort reform pixie dust. He funds the plan with a modified Cadillac Tax.   So who wins and who loses from this proposal when compared to the baseline of current law.

Repealing all of the ACA

This is the largest source of people who will be made worse off.  The big changes are the killing of Medicaid expansion, the re-opening of the donut hole, and underwriting changes.

Anyone who is newly eligible for Medicaid due to expansionwill be far worse off.  At best they will transition from very affordable or free high actuarial value coverage to unaffordable junk coverage with $10,000 or more deductibles.  More likely, most of these people will become uninsured as they have made the determination that food, rent, heat are more immediate needs than healthcare on a limited budget.

Senior citizens who are moderate to high prescription drug users will also be worse off.  The Donut Hole in Medicare Part D is scheduled to be closed entirely by 2020, and it is significantly smaller and hitting fewer people now than it did in 2009.

Underwriting changes are significant.  The ACA/PPACA has guaranteed issue/partial community rating (age/geography/smoking bands).  That means a 24 year old non-smoking woman pays the same as her 24 year old non-smoking male roommate.  Premiums are banded so a 64 year old can not pay more than three times the premium of a 21 year old.  Under Price’s plan, guaranteed issue and partial community rating go away.  Instead, insurers are allowed to charge whatever they want and to underwrite with price discrimination.  There is a minor carve-out for continuous coverage through Section 134 but if there is any coverage gaps, people will face full medical underwriting to get back into the market.  Job lock will be back with a vengeance.

Repealing PPACA makes poor, women, sick, 50 to 64 year olds, Medicare beneficiaries and people not employed by larger employer groups worse off.  On the other hand, young men with no pre-exisiting conditions and decent incomes are better off as they don’t have to pay for pregnancies any more.  Additionally, the very well off who are paying higher taxes are better off as those taxes disappear.  This is not surprising as it is why the Americans for Prosperity anti-Obamacare ads sucked last year:

There are a couple of categories of people who are undeniably worse off under Obamacare than they would have been under a no change policy. They can be clustered into a few broad groups.

  • People earning over $250,000 per year in Modified Adjusted Gross Income who have employer sponsored health care or Medicare and are paying more in taxes
  • Young single males with absolutely no health problems, no relatives with health problems and incomes over 250% Federal Poverty Line that previously had a $42 a month, $25,000 deductible plans that did not cover maternity or mental health needs. Those policies got cancelled and they actually have to buy good insurance. Young guys making under $25,000 a year usually will get decent subsidies, past that, it is hard to be sympathetic to someone bitching that they (a member of a high accident group) have to buy decent insurance. Avik Roy has been trying to make this class sympathetic and failing miserably)

Those are the two big classes of losers under the law. Neither are particularly sympathetic.

The New Plan

Once the ACA has been repealed, the replacement component has even more distributional implications.  Subsidies,  tax treatment for HSAs, Cadillac taxes and how the Price plan deals with high risk and high cost individuals are the major points I want to cover.


The first thing to look at is the subsidy/tax credits (they are the same damn thing) being offered by ACA and Price.
I looked at Atlanta pricing as it is near Rep. Price’s district, and it is not wildly divergent from typical experiences, as well as Cheyenne, Wyoming as that is one of the more expensive markets in the country.  I used Healthsherpa.com for the premium subsidy offered to a non-smoking, single individual at different ages.  Price Distributional ImpactYellow bands indicate where a person receives more money from Price than from PPACA.  In Atlanta, anyone who makes under 150% FPL receives more money in PPACA advanced subsidy tax credits than they would receive from Prices’ plan.  The same applies in Cheyenne.  If anything this chart significantly understates the amount of subsidy people who make under 150% FPL receive as it does not include the Cost Sharing Reduction (CSR) subsidy that bumps the actuarial value of Silver plans from 70% to 94%.  But even with that concession anyone who makes under 150% is most likely worse off.

People who make 300% FPL are a bit more complicated.  People under age 58 in Atlanta get slightly more money from Tom Price’s plan than they do under PPACA.  People under age 42 in Cheyenne get more money from Price than from PPACA subsidies.

People over age 55 and in the individual insurance market are significantly better off under PPACA than they are under Price for multiple reasons.   Price lifts the premium banding restrictions as PPACA is repealed.  This means premiums for comparable policies for a 55 year old will be much higher for a perfectly healthy 55 year old in Price’s world than under current law.  Premiums for a 64 year old who is perfectly healthy will be five to eight times more than the premiums of a perfectly healthy 21 year old instead of the three times more healthy.  Note that I am specifying perfectly healthy.  If a 55 year old or even more so a 64 year old has an actual medical history with pre-exisiting conditions such as getting old, insurers will either significantly upcharge them from a base rate of three, four, five times that of a 21 year to ten, twelve or fifteen times that of a perfectly healthy 21 year old or not cover them at all if they can find a way to do so.  As a side note, the medical recission regulations in PPACA are repealed, so insurers will again start going through 15 years of medical records to find reasons to deny claims after the fact and cancel policies due to non-disclosure of acne as a teenager.

The subsidy plan makes people who make under 150% of poverty line universally worse off as either their subsides are much lower or Medicaid expansion is gone.  Young and healthy people who are making 300% or more FPL are slightly better off.  Healthy people of all ages who make more than 400% FPL are better off as they’ll qualify for an individual market tax credit in Price’s plan instead of being disqualified by income for subsidy under PPACA.  Healthy people in general will see lower premiums due to the resumption of medical underwriting.  Any one who is sick or has a history indicating higher future expenses (two slightly different things) will probably be worse off as their premiums will soar.

Price will argue that premiums under his plan will on net decrease and thus affordability is not a concern.  Premiums will decrease because covered services will decrease for two reasons. The first is that he got rid of all Essential Health Benefit requirements in repealing the ACA.  That means mental health, maternity, contraceptive and preventative screening care will be voluntary add-ons to coverage with massive adverse selection in pricing (Only women who think there is a decent chance they’ll be pregnant in the next eighteen to twenty four months will buy a maternity rider etc).

Secondly, he wants to replicate the credit card regulatory environment for health insurance.  If a plan is approved in one state, it can sell in any state without the second state imposing any additional coverage burdens.  That means within eighteen months of this law being passed, one small, easily bought state government  will be home to 98% of the nation’s health insurers as they’ll do whatever it takes to please their new job creating overlords.  Mississippi or South Dakota or Delaware will then impose their minimalist regulatory burden that won’t require coverage for autism, won’t require coverage for addiction rehab, won’t require coverage for anything expensive and politically unpopular.  It will be a Gresham law situation where any insurer who does offer decent coverage will death spiral out.

These changes means that a young, male with no medical history will again see $57 a month policies for $10,000 deductibles.  They’re a winner until they are either not young or have a medical history.  Anyone else is probably no better off and potentially significantly worse off as they’ll either be uninsurable, their needs won’t be covered or their rates will significantly increase.

HSAs

Health Savings Accounts are a primary focus of the Price Plan as well as most other Republican health care ideas.  The idea is to put people in control of their health care spending by having people covered by very high deductible, low actuarial value  plans while allowing them to save money in a tax advantaged account. High deductible plans are great from a Republican point of view as long as they are proposing them but evil when Silver plans have high deductibles, but that is another post for another day.  There are a couple significant HSA policy changes. Right now, a single person under age 55 can contribute up to $3,350 while someone over age 55 can contribute up to $4,350.   HSAs are restricted to spending on prescribed medical care and limited non-prescription items.

Under Price’s plan, the HSA contribution limit is moved to the maximum limit to an IRS retirement account contribution limit. I am not sure if the apporiate limit is the combined IRA/Roth IRA limit of $5,500 for people under age 50, or $6,500 for people over age 50 making catch-up contributions, or the $18,000/$24,000 for Under-50/Over-50, or something else.  I am not a retirement expert.

In any case, bumping up the contribution limits only helps people who are already maxing out their current contributions.  That means the benefit will be overwhelmingly concentrated for people who make over 400% FPL who are looking for a tax advantaged savings vehicle.  The tax advantaged nature of the HSA means a person who makes poverty level wages might see a $50 federal subsidy on their $500 HSA contribution (the odds of a person in this situation actually having an HSA is low), while someone making $500,000 a year will see a $350 federal subsidy for an marginal increase contribution of $1,000 to their HSA.

So the HSA scheme is a massive transfer of resources to the well and very well-off.

Cadillac taxes

As we all know PPACA has the Cadillac tax.  It is a 40% surcharge on the incremental dollars for policies that cost more than certain thresholds.   In 2018, those thresholds are $10,200 for individual coverage and $27,500 for family coverage.  It is scheduled to increase at CPI-U+1 for 2019 and then CPI-U.  Price’s plan modifies the Cadillac tax by reducing the thresholds but decreasing the tax rates.

Sec 131: Allows for the employer exclusion of health care coverage up to $20,000 for a family and $8,000 for an individual, with any additional funds used to be taxable dollard….

The threshold changes are important.  In 2013, employer sponsored coverage for individuals averaged $5,500 and family coverage averaged $16,000.  To hit the Cadillac threshold, the average plan premiums from 2013 would need to grow annually  at 13% for individuals or 11.5% for family coverage.  Right now we are seeing growth rates of less than 5%.  Bringing the thresholds down to $8,000/$20,000 changes the growth rates needed to hit the thresholds down to 7.8% for individuals and 4.7% for family premiums.  Family premium growth is roughly the sum of real growth plus inflation.

These threshold changes mean most employer provider health plans will have some portion of their premiums taxed within a few years even in a low premium growth environment.  This means families with slightly above average premium plans will see their wages decrease as their health insurance will be partially taxed under Price but not under PPACA.   This difference in rates will benefit individuals with very rich benefits but low cash wages.  It is probably a wash to slight disadvantage for people like the Cruz family with their $40,000 a year policy from Goldman Sachs as they’ll pay a slightly lower rate (35% to 39.6% vs. 40%) on a larger increment.

(NB: From a behind the veil build a system from scratch, clawing back the employer tax exclusion for health insurance premiums is a good thing, but the transition in front of the veil is a nasty problem with significant distributional issues.

High Risk/High Cost Individuals

PPACA deals with high risk/high cost individuals by using community rating, subsidies and participation enforcement through a soft personal mandate to build big risk pools that can absorb the costs of people with consistent $30,000, $100,000, $500,000 or million dollar claim years.  Price plans to deal with these people in two ways.  The first is to block grant $1 billion dollars a year for four years (or $2.2 million per Congressional District per year) to help states fund high risk pools.  The second is to create re-insurance pools where the states agree to pay claims above a certain level and taking the high cost tail risk off of private insurers. Re-insurance is part of PPACA as a short term bridge function.  Historically state based re-insurance pools are under-funded with high premiums, long waiting lists, and limited benefits.  For instance, the Tennessee high risk pool (ACCESS TN) in 2014 had a maximum annual benefit limit of $250,000 for medical expenses and $100,000 for pharmacy and a lifetime limit of $1,000,000.  There are numerous conditions which can burn through either of those limits by mid-March.

The Price Plan makes people with high cost, chronic conditions far worse off as either their premiums will be far higher for far skimpier benefits, or they’ll be waitlisted for access to limit care via the high risk pool.

Wrap-up

The typical person who benefits from the Price Plan on net are families making more than $200,000 with employer sponsored insurance as they’ll see lower taxes and expanded tax shelter opportunities in the HSA.  Additionally, young men with no medical history will see cheaper premiums for equivilant or worse plans.  Individuals who are sick, poor, and/or female will be on net worse off.  Seniors on Medicare with moderate prescription drug usage will be worse off as the donut hole re-opens.

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16 replies
  1. 1
    rk says:

    So everyone except the rich and young healthy men suffer. Sounds like a republican plan alright! Isn’t there another plan to send the young healthy men off to war so only the rich get the benefits?

  2. 2
    guachi says:

    I give the Republicans credit for making a health car plan that’s actually worse than the status quo.

  3. 3
    JPL says:

    I wish the local AJC would do a series. GA is a state with several additional requirements for insurance companies. State insurance policies would be not be affordable and disappear. Yesterday I mentioned Ava’s Law which expands coverage for autistic children. The state house and senate are controlled by republicans and it would be interesting to ask everyone who voted for the law what they think of the Price plan.

  4. 4
    benw says:

    @rk: Are the young, healthy men also minorities? Then yes.

    @guachi: it’s not just worse than the status quo, it’s worse than the pre-ACA status quo!

    Jokes aside, thanks again for a dive into the details, Richard! As someone on the youngish side with long-term, extremely expensive managed care (multiple trips to specialists + tests per year, nearly $100k per year drug costs), I can testify that pre-ACA was white-knuckle terrifying, and the Price plan sounds worse.

  5. 5
    Mike in NC says:

    Republican prick from Georgia with a lot of time on his hands crafts shitty healthcare plan. Film at 11.

  6. 6
    Ryan says:

    Many thanks for the explanation!

  7. 7
    jafd says:

    On front page of today’s Newark _Star-Ledger_
    http://www.nj.com/politics/ind.....costs.html

    Passing it along FYI. Thanks, and keep up the great work!

  8. 8
    PeorgieTirebiter says:

    Question for your previous post. I have BCBSTX silver purchased as a long time heavy smoker on the Marketplace in 2014. I quit smoking 1-16-15, the same day as my triple bypass (cabg). Will blue cross just take my word for it when I renew? Thanks for all your posts.

  9. 9
    Rob says:

    Richard, I find these posts informative. I can’t say I enjoy reading them because I have a single-person policy, being a contractor and all that entails. This one brought me way down; I sure hope the Supreme Court doesn’t overturn anything this summer…

  10. 10
    Ruckus says:

    Have to say you’ve got to hand it to conservatives, especially those like Price, to be able to come up with a plan to replace an at least workable healthcare system with one that is worse than the crap before the workable system, that takes……. OK I’m at loss for a word, a phrase that could describe such a broken political premise.

  11. 11
    MomSense says:

    I was just having lunch with a friend of mine who is a just under 50, single woman who worked for a restaurant. About a year ago she had an almost life ending cardiac event that makes it impossible for her to work. She has had four surgeries, multiple expensive tests, a couple rides in an ambulance, prescriptions, and a schedule of doctor and rehab visits that is practically a full time job.

    This happened to her a few months after enrolling in ObamaCare. Before that she didn’t have insurance because it was too expensive and her employer didn’t provide it.

    She is in the process of applying for disability after just deciding not to put her name on the transplant list and when the subject of health care came up she had a lot to say about the Republicans who have made it so difficult. She thinks it is selfishness.

    Her friends and family have been helping her out and she recognizes that without help she would be homeless and trying to deal with a life threatening condition. It shouldn’t be this way. This Republican ideology is rotten to the core.

  12. 12
    rikyrah says:

    THANK YOU for this information.

  13. 13
    SuperHrefna says:

    It has taken me all day to find enough time to concentrate on this post ( I’ve been reading it paragraph by paragraph as concentration opportunities opened up) and it was so worth it. Thank you for explaining this ( hopefully ephemeral) plan so well. It’s people like you who make it harder for the republicans to obfuscate their plots with jargon.

  14. 14
    Karen says:

    I’ve been on Medicaid for almost a year and a half and that is only because the ACA expanded the qualifications. Last year I had a double mastectomy. Now I take anti-cancer drugs for the next five years. I had a DVT and a TIA and needed to be hospitalized in December and went to rehab. In three weeks I’m getting my ovaries and fallopian tubes out because I have the BRCA1 gene (AKA Angelina Jolie gene). I was hospitalized three times last year. If it wasn’t for Medicaid, I’d either be broke or dead.

  15. 15
    mowgli says:

    I live in Price’s district. I would love to see him gone, so in August I volunteered to help his opponent, Bob Montigel, with his “campaign.” It was laughable. Price won re-election 66-33.
    Welcome to the South.

  16. 16
    John says:

    You say “people earning over $250,000 per year in Modified Adjusted Gross Income who have employer sponsored health care or Medicare and are paying more in taxes” are worse off.

    I”d add that the worst off of all are self-employed high earners. Not just because we are paying more in taxes (which actually was fine with me because I understand the need), but because it is impossible to get high-quality health insurance in the post-Obamacare environment. In NY, there are no PPO plans that I am aware of that are available to the self-employed any more.

    We went from awesome Freelancer’s Union PPO insurance to Empire Gold…what a nightmare that crap is. Yeah I know the typical response is going to be “poor rich guy can’t get fancy insurance any more and now he has to have the same insurance as the rest of us.”

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