Tag Archives: American Health Care Act

The Fundamental Flaw in the GOP Healthcare Plan

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The Democratic Affordable Care Act expands access to health insurance for millions of Americans. This is its great virtue.  However it does nothing to rein in overall costs  which is a huge deficiency.
The Republican American Health Care Act, passed by the House and being considered by the Senate, has both strengths and weaknesses, as I have previously discussed.   Primarily, it puts Medicaid on a budget by block-granting it to the states with sufficient flexibility for the states to operate it much more efficiently.  This needs to be done and is a big money saver.
The major problem with the AHCA is that all cost savings come from just one program, namely Medicaid, and this is a program for people with low incomes.  Simple fairness, as well as the need for much bigger savings, dictates that financially well-off people should also have to share in solving the healthcare cost problem. This can and should be done in two different ways:

  • The tax exemption for employer provided health insurance should be replaced with a universal (and refundable) tax credit sufficient to pay for catastrophic health insurance (with a high deductible). Also tax preferred Health Savings Accounts for all can be subsidized based on income. The purpose here is to force all of us to pay attention to, and take responsibility for, the cost of our own healthcare.
  • Redesign of Medicare. Medicare is already being subsidized by the federal government at a net cost (after FICA taxes and premiums paid) of over $400 billion per year, and this overall cost will continue to increase as the number of retirees increases and the net subsidy per retiree also increases (see chart). Details of possible redesign will be discussed later.

Conclusion. The ACA needs to be improved in many ways to get the cost of healthcare under control. The AHCA bill currently being considered by Congress needs major changes so that all Americans, rich and poor and in between, are part of the solution of our healthcare cost problem.

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The Necessity of Fixing Medicaid

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As I have discussed in previous posts, here and here, the American Health Care Act, the GOP replacement for the Affordable Care Act, is a step in the right direction.


One of the best features of the GOP bill is its provisions to revamp the Medicaid program.  The problems of Medicaid are well described by the healthcare expert, Avik Roy, here and here:

  • Medicaid was established in 1965 and now provides healthcare benefits for individuals and families with incomes up to 133% of the federal poverty level.
  • The states pay 40% of the costs on average while only controlling 5% of how the program is operated.
  • The federal Medicaid law mandates a laundry list of benefits which the states must provide. States cannot charge premiums and copays and deductibles are minimal.
  • Medicaid is the largest or second largest line item in nearly every state budget. The only tool states have in controlling costs is to pay doctors and hospitals less than private insurers pay for the same care. This means that fewer and fewer doctors are accepting Medicaid patients.
  • Thus Medicaid enrollees have poor access to healthcare. In fact, their health outcomes are typically no better than for those with no insurance at all.
  • An able-bodied adult on Medicaid receives about $6000 a year in government health-insurance benefits. Yet CBO estimates that five million Americans won’t sign up for Medicaid if the ACA individual mandate is repealed as proposed by the AHCA.
  • AHCA block grants will give states more flexibility to manage Medicaid’s costs in ways which increase access to doctors and other providers. It would also decrease federal outlays for Medicaid by $880 billion in its first decade.
  • AHCA’s goal is to ultimately merge Medicaid for able-bodied low-income adults into the system of tax credits which the AHCA proposes for those above the poverty line.

Conclusion. The AHCA will make Medicaid into a much more efficient, flexible and effective program for serving low-income individuals and families. This represents a first step in the entitlement reform which the U.S. so badly needs.

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The GOP Can Do Better on Healthcare Reform

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The Congressional Budget Office has just released its analysis of the GOP Healthcare Reform Bill, the American Health Care Act, designed to replace the Affordable Care Act.  The Committee for a Responsible Federal Budget has summarized its main features as follows:

  • The AHCA would reduce federal deficits by $337 billion over the next ten years.

  • CBO estimates that there would be 24 million fewer Americans with health insurance under the AHCA as compared with the ACA by 2026, with 14 million fewer Medicaid beneficiaries (see the above chart). The decrease in individuals with employer coverage would result from dropping the employer mandate. The decrease in individual coverages would result from smaller subsidies under the AHCA.

I have previously summarized the AHCA pointing out its strengths and weaknesses:

  • Strengths: discards mandates, fewer regulations, turns Medicaid into block grant program to states.
  • Weakness: huge discrepancy between lavish tax treatment of employer-paid care (no upper limit on tax exemption) and much stingier tax credits for individuals

The U.S. now spends 18% of GDP on healthcare, both public and private, almost twice as much as any other developed country. Such high costs are a big drain on government revenue as well as a drag on economic growth.  The AHCA should take a much bigger step towards controlling the cost of healthcare.  Block granting Medicaid to the states, and giving the states more flexibility in implementation, definitely helps, but it is not enough.
But basic fairness as well as fiscal responsibility requires a major cutback in the tax exemption for employer provided care.  This is essentially a subsidy to employees.  It should have no greater value than the refundable tax credit provided to individuals who purchase health insurance on their own.

Conclusion. A free market healthcare system allows more individual choice and delivers more medical innovation. But our current system is too expensive to be sustainable for much longer.  Either the GOP fixes this problem or a single-payer system will be the inevitable result.

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