The Failures of the American Health Care Act

Here are the problems with the House plan to repeal and replace Obamacare.


From the time it was enacted, most Americans disliked the Patient Protection and Affordable Care Act, also known as Obamacare. Republicans, promising to "repeal and replace" Obamacare, rode the wave of public dissatisfaction to repeated election victories. The GOP took the House of Representatives in 2010, the Senate in 2014, and the White House in 2016, largely capitalizing on the skyrocketing premiums, rising deductibles, and disappearing choices that characterize Obamacare.


Now, as Republicans control both Congress and the White House, they finally have the chance to deliver on their promise. And not a minute too soon. Because the mandates that Obamacare places on health insurance have sent our health insurance system into a death spiral. Premiums continue to soar as insurance companies are pulling out of the market, leaving consumers with fewer and fewer affordable choices. In over a third of the nation's counties, individuals have just one insurance plan as a choice. Soon, many counties will have no plans available. Repealing and replacing Obamacare is no longer an option. It's essential.

Answering the alarm, on March 6 the House leadership unveiled the American Health Care Act, their attempt at "repeal and replace." To advocates of health care freedom there is little reason to be pleased. The American Health Care Act does little to stop the death spiral underway. It may even accelerate it. Here's why.

A major force behind the death spiral is the series of mandates that Obamacare places on all health insurance sold in the U.S. Companies that offer insurance that is not "ACA-compliant" suffer penalties, as do any individuals that buy such a policy.

For example, there are 10 essential benefits, including maternity care, mental health care, chemical dependency rehab, and vision and dental care for children under 18—which all insurance must provide, regardless of the needs or desires of the health plan customer. This makes insurance much more expensive than it would otherwise be for people who don't want or need those benefits.

But the mandate that contributes in the greatest way to making premiums unaffordable is called "guaranteed issue/community rating." This is the requirement that insurance providers accept people who are currently sick or have preexisting conditions, yet providers are not allowed to charge such people any differently than those who are not sick and don't have preexisting conditions. In order to have enough money in the risk pool to pay out claims, this feature makes insurance companies thus charge younger and healthier people much more, while charging sicker and older people much less. Even worse, it creates an incentive for people to put off buying health insurance until they get a health problem, when the insurance company must sell it to them and cannot charge them any differently than if they were healthy. Imagine if auto insurance worked this way. There would be no reason to buy it until you got in an accident. But imagine how much that auto insurance would cost.

To deal with this problem, Obamacare has the infamous "individual mandate," which penalizes people with a tax if they put off buying health insurance. But the penalty isn't stiff enough because more and more young and healthy people are choosing to take the penalty rather than pay for expensive health insurance they don't need.

The American Health Care Act effectively leaves all of the Obamacare mandates in place. It does remove the individual mandate, but in its place is the threat of a 30 percent premium surcharge for one full year for anyone who goes without continuous coverage for more than 63 days (which sounds a lot like a Republican version of an individual mandate). Obamacare makes the individual mandate penalty payable to the Internal Revenue Service. The American Health Care Act makes it payable to insurance companies.

Therefore, nothing in the American Health Care Act addresses the cause of rising health care premiums, rising deductibles, and insurance companies leaving the market. Proponents say the proposal increases consumer choice. But as long as the government is designing insurance policies with one-size-fits-all mandates, there never really will be choice.

To be fair, the GOP leadership argues that arcane Senate rules left no choice but to leave the mandates in place. In order to avoid a filibuster by the Democrats, the Republicans are forced to use a procedure called "budget reconciliation." Otherwise, they reason, nothing at all will clear Congress and head to the president's desk for his signature. And the budget reconciliation process does not allow them to address the mandates.

However, some serious analysts argue that, based upon information provided by the non-partisan Congressional Budget Office, mandate reform can indeed be included as part of this budget reconciliation package. The cautious House and Senate leadership seem unconvinced by such arguments.

The architects of the American Health Care Act reassure critics that Secretary of Health and Human Services Tom Price can address the mandate problem in what they call "Phase 2" of Obamacare repeal/replace, once the act ("Phase 1") is passed. They point out that the Affordable Care Act delegated extensive administrative authority to the HHS secretary. They refuse to specify, however, just how the secretary will do the fix administratively. Moreover, constitutional law professor Josh Blackman argues that the powers of the secretary are severely limited when it comes to the matters of the essential benefits and guaranteed issue/community rating.

To help people deal with the exorbitant insurance premiums resulting from the mandates, Obamacare provided means-tested subsidies to many people. These subsidies were paid directly to the insurance company in order to reduce the premium price to the consumer. The American Health Care Act ends these subsidies. In their place it offers an age-adjusted, means-tested, refundable tax credit (meaning the credit is given to people even if they pay no net income tax) that, again, is paid directly to the insurance company to lower the premium. This amounts to nothing more than renaming the subsidy as a "tax credit" to make it sound more Republican. The entitlement created by the Obamacare subsidy still remains but in a slightly different form.

To be sure, there are some good things in the American Health Care Act. It removes most (but not all) of the taxes in Obamacare that have been a drag on economic growth, investment, and job creation. The act also removes the mandate that employers of 50 or more full-time workers (defined as 30 or more hours per week) provide ACA-compliant health insurance. This has stifled full-time job growth while increasing the number of part-time workers.

The expansion of Health Savings Accounts is also a very laudable feature. This empowers patients to use their own money to make their health care decisions.

A major step in the right direction is the act's block granting of Medicaid funding to the states while also allowing states to innovate and design programs free of Washington micromanagement. Fiscal conservatives have issues with the way in which this is structured. For example, it allows for Medicaid to be extended to working, healthy adults (not the original mission of Medicaid) until 2020. Nonetheless block granting constitutes a major entitlement reform.

GOP leaders promise to make even more improvements with separate legislation ("Phase 3") to allow for the sale of insurance across state lines. This will result in more competition and consumer choice, and help drive down insurance premiums. Again, Senate rules preclude this matter from being included in any budget reconciliation bill.

These things are nice, but they really don't matter: Unless and until the House and Senate leadership find a way to repeal the Obamacare mandates, none of the positive features of the American Health Care Act will be able to stop the individual insurance death spiral that is already well underway. And, in fact, it could be argued that removing the hated "individual mandate" while leaving the Obamacare mandates on health insurance in place will make things even worse. Either way, when it all comes crashing down, the Republicans will have only succeeded in wresting ownership of this disaster from the Democrats.

Perhaps it is time for the GOP leadership to exercise some of the same raw legislative gamesmanship their Democratic predecessors used to ram the Affordable Care Act through in 2010. For example, it is within the Senate majority's power to declare that repealing the Obamacare mandates is germane to budget reconciliation. Senate Republicans even override the Senate parliamentarian if he disagrees.

If the Republicans are not up to the task, then, as cynical as it seems, it might be politically safer to just do nothing, avoid the blame for the crash, and then try to rebuild from the ashes.

NEXT: What Does It Mean to Have a 'Right' to Health Care?

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  1. “Therefore, nothing in the American Health Care Act addresses the cause of rising health care premiums, rising deductibles, and insurance companies leaving the market.”

    Ultimately, the cause of the problem we have with our healthcare system derive from Medicare and Medicaid only paying for a fraction of the cost of care.

    This chart gives a glimpse of that:


    Providers gouge private insurers to make up for the money they lose on Medicare and Medicaid patients. There are other sources of problems, of course, but Medicaid and Medicare are the ultimate source of the problem.

    The ACA did a number of things to make the problem worse, but the thing it did that exacerbated the problem the worst was the Medicaid expansion. There is no effective solution to our healthcare problems that doesn’t include cutting Medicaid–and the Ryan plan revokes the ACA Medicaid expansion.

    In that way, the Ryan plan–uniquely, far as I can tell–actually addresses the ultimate cause of our healthcare problems by revoking the Medicaid expansion.

    I suppose an alternative solution might be for the government to fund the total costs of Medicare and Medicaid, but taking money out of taxpayers’ paychecks to save consumers by way of their insurance premiums is just a shell game. Unless people are being shifted off of Medicaid–as the Ryan plan does–then we know the ultimate cause of the problem isn’t being addressed.

    1. And yet, the insurance companies aren’t hurting. UnitedHealth announced it expected another record year of revenue at $197-$199 Billion. In 2016 they had $185B in revenue and $13B in profit. The problem with the current setup is that it does not force competition for insurance. Insurance companies are able to pick and choose where they sell, creating defacto monopolies or near-monopolies.

    2. The amount that Medicaid pays is about what doctors in the rest of the developed world get paid. Part of the problem is today American doctors have big office staffs which the doctor has to pay from the he receives from patients. In the past a doctor had an “office nurse” and that was that. The cost of a visit was about $8 in 1960. I had a doctor in the early 1960 do minor surgery for $80. He did it himself with just his office nurse in attendance. The US actually did have “affordable” health care back then. My mother in 1948 was in the hospital for a couple weeks and the entire bill was $300.

      The creation of health insurance meant that since the insurance company was paying the claim, less and less people were concerned over the cost of what was done to them. Most of the cost was coming out of their employer’s pocket. (actually out of theirs through lower wages). This is really what has driven our health care costs so high today…

  2. Normally Washington has no problem choosing winners and losers, but in the health insurance debate, attempts to refuse the fact that some will benefit and some will not in whatever course they take is making things worse. Democrats lost control of Congress because they decided to make that choice and all but a select few benefited (and even that is proving to be short lived). Congress needs to understand that not everyone can benefit equally and all they’re meddling in the healthcare market can do, at best, is manage how bad things get overall.

  3. GOP leaders promise to make even more improvements with separate legislation (“Phase 3”) to allow for the sale of insurance across state lines. This will result in more competition and consumer choice, and help drive down insurance premiums.

    The GOP keeps saying this, but it is it actually true? One of the reasons that many counties have only one insurance is the increasing prevalence of health care networks where nearly all the doctors and hospitals in an area are owned by a particular insurer. For one particularly prominent example I’d mention the way UPMC (University of Pittsburgh Medical Center) is increasingly using it’s control of hospitals in the Pittsburgh area to drive its main competitor Highmark out of the western parts of Pennsylvania.

    What good would letting insurers from other states come in, when even in-state insurers are getting locked out of the market? It doesn’t matter how cheap insurance elsewhere if the local hospitals refuse to accept it. Are you going to propose banning insurers from owning hospitals and doctors practices? That hardly seems libertarian.

    1. I’d propose banning restraint-of-trade laws that grant monopolies to the local hospitals. Let Walmart and CVS and Johnson open a few hospitals and offer whatever services they want and let’s see what happens. Selling insurance across state lines is bullshit if the government still dictates the specifics of the policy – how competitive would automobile pricing be if the government mandated that all automobiles must be Ford Explorers?

      1. *Johnson ampersand Johnson you stupid squirrels. What the hell does Reason have against ampersands?

        1. It’s not Reason, its HTML/XML. Try this — …ampersand… “amp;” and see what happens. I will try it right here: (&)

          1. There you go — look at source, search for “ampersand”.

            The other two are greater than (>) and less than (

            1. Well hell, they are tricky sons a bitches. 1(

  4. I think the gop just doesnt let this go thru and then the aca keeps falling apart making reform easier politically (though continue govt intervention keeps causing problems)

    1. Probably right, but of course the GOP will be blamed for the crash of Obamacare anyway, even if they do nothing. “Why, Trump gutted the law with his executive order! Republicans never funded it properly! They’ve been undermining it since it passed! They never tried to fix the law! Blah Blah Blah! Reasons reasons reasons!”

      1. The rubes and yokels should not have taken their Repeal and Replace!?? slogan seriously?

  5. “If the Republicans are not up to the task, then, as cynical as it seems, it might be politically safer to just do nothing, avoid the blame for the crash, and then try to rebuild from the ashes.”

    I never thought Reason would write something like this. Was Gillespie among the “staff” that wrote this?

    But yeah, doing nothing and allowing the law to crumble is a viable as a last ditch strategy, especially since the democrats’ solution is basically not change anything about the law.

    I didn’t know they replaced the individual mandate with something else. Now I’m not so hot on this proposal. Just kill the employer AND the individual mandate.

  6. People’s sympathies go more to poor people not getting medical care because it’s quite different from other commodities. One never knows when or if he’ll get sick and actually require it. Thus insurance companies. And to say “leave it to charities” sounds to many people like leave it to the good will of others, or even leave it up to fate. People want to be sure because they fear “Could I be next”?

  7. I think preventive care has to be Single Payer just to streamline volume based discounts, have people not put off preventive care. But private insurance that is portable, fully free market , not dependent on employment should be for everything else. Because I really care about choice when I need to see a doctor for something other than a simple lab exam or first aid or something simple.

    But we also need to increase the supply of doctors and more importantly Physician Assistants. Also, nurses need to be paid better to attract more nurses even if it means a doc has to take a measly 20K paycut and he or she will still get paid handomsley. Also getting more docs means quality will not necessarily go down because what we have is already idiots who slip through the system and part of a doctor being bad is laziness or unstable behavior after he or she finishes medical school. With the advent of medical informatics which make it so easy to remember drug interactions, symptom matching, etc, the old method of crazy hours during residency is ridiculously inflexible driving away qualified candidates for medicine.

    But what really is needed as a first step is to make costs more transparent to the users. And yes, for that we will need some kind of regulation to actually facilitate the capitalistic part of the system. A patient should have the right to know if everything in a treatment chain of care is in network when they get admitted to a hospital.

  8. But what to do about preexisting conditions? is it fair for the insurer at the time of the inception of the disease be responsible lifelong since that is when it occurred under their watch? Is it fair for the insurer that comes into play when the treatment is at its most expensive despite the inception happening under anothre insurer’s watch? In theory, what is wrong about a private company not wanting to cover a preexisting condition?

    Or should the state be the defacto insurer for stuff like cancer, diabetes where the state is making a statement that if you are born a citizen of the country, we provide basic protection for stuff that is too big for private individuals to bear reasonably and not shift the dilemma of who covers such people to the vagaries of which insurance company is in coverage at inception of that disease and who takes over during a serious part of the treatment needed. and let insurance companies insure everything else including full coverage for most conditions, and supplemental coverage in terms of enhacning care for those preexisting conditions covered by the state?

    1. Why is anyone entitled to cutting edge medicine and life extension shit that is super expensive? Why is it everyone else’s problem to spend 3 million dollars making you live an extra 3 years?

      If you don’t have 3 million dollars than go fucking die!

      I see no issue with being able to buy insurance that does not provide expensive life saving bullshits…er life extending bullshit….because we all are going to die anyways.

      I am for one will let a disease kill me than drain society of millions of dollars for a few days or years.

      I hate medicare and medicaid. Why the fuck am I paying for some old hag to live another 5 fucking years on a death bed? If she or her family doesn’t have the money let that bitch die. It is part of life fuck.

      1. I would much rather a free market exists that allows insurance to sell many packages.
        I would buy basic care and catastrophic. Basically injury base coverage with minimal coverage for cancer. This would be super cheap.

        If someone wants insurance that pays for all sorts of weird shit and will spend 3 million to help you beat cancer thats fine. Have fun with 2,000 a month premiums.

        I’ll gladly have my insurance with 100 dollars a month premiums.

        1. Right now i pay 330 a month for a PPO that has 40% coinsurance and a 14K deductible.

          Jesus is it completely useless if i didn’t have TRICARE as a secondary to pick up the massive amount of uncovered shit.

          1. If i could buy insurance without all this unneeded bullshit my premiums would be like 50 bucks a month! and not have a 14K deductible. But all these woman shit, cancer shit, mental health bullshit, and other fringe shit makes it ridiculously expensive.

      2. i never said we should provide cutting edge medicine for free for anyone. Covering preexisting conditions by the state was just a brainstorming idea as a form of self insurance pool. But I dont know offhandhow much is fair to provide as coverage for such dire afflictions. I would rather have some consensus to set limits and people will have to pony up for some private insurance for cadillac care.
        As far as you hating Medicare as a concept, i hope you share the same consistency for defense. There are some people out there self armed who feel they don’t need a military to defend them from external threats. They dont care who is in power, and they woudl rather not pay taxes to fund a national military. But you know what? You can’t get everything you want. If you benefit from a community, you have to pay up or you are free to move to another country with a system that pleases you more.

  9. 1. Outlaw employer provided insurance. They do not pick individual policies that best meet each employees needs. So employees have to pay part of premiums for policies they would not choose in a free market. Allow employers/unions to assist in funding health care saving accounts, or allow them to just increase wages.
    2. Allow insurance companies to sell whatever policies they wish. Require them to publish the premiums. This allows consumers to shop, comparing the benefits to the costs of their chosen provider.
    3. Require healthcare providers to set a single price for each service they provide, and to publish that price. This lets consumers shop comparing the costs to their chosen insurance. It eliminates the mess of networks.
    This leaves 2 problems caused by the existing interference of the feds; the mandate, and low income assistance.
    Eliminate the mandate, but allow policies to have reduced benefits in the first x number of years, like guaranteed issue life insurance. This will provide a carrot to buy and keep insurance, rather than a stick of “tax”. The stick is provided by eliminating the slave mandate of treating with getting paid. Anyone choosing to self insure (not buy insurance) will have to rely on charity to get treated. Harsh, but fair.
    Provide help to low income citizens in a manner similar to food stamps. Overall cheaper than the current mess, and to the replacement mess. And a lot more transparent in showing the taxpayer costs.
    (Oh yes, I would also like a pony)

    1. Allow employers/unions to assist in funding health care saving accounts, or allow them to just increase wages.

      The whole process of healthcare savings accounts is just set up wrong. The whole “use it or lose it” mentality prevents you from putting a little extra in it during good years in order to give you a buffer for off years. You should be able to roll-over savings, especially as you get older and may need more coverage. I suspect the only reason some pols wanted HSA’s was so they could confiscate more ill-gotten gains.

      1. yea the whole use it or loose it seems super shady and a giant con by the government.

  10. Prove that ACA premiums are the problem. The new reports I just googled suggest that medical inflation is similar for ACA versus employer provided health insurance. The real ACA problem is that it is exposing the inflation of medical care cost that has been hidden behind employer insurance and Medicare / Medicaid. The death spiral is the entire system, not whichever detail in ACA that you object to.

    1. mandates are the reason it costs so much. The total lack of choice is the issue.

  11. Insurance premiums increase because healthcare costs increase. This is obvious to most, but somehow the conversation continues around premiums as if commanding-and-controlling them will solve the underlying problem.

    The key statistics are: 5% of the population consume 50% of the national healthcare spend, and 15% consume 85%. Why? Because patients scream that “money is not an object” when it isn’t their money. Single-payer won’t solve the problem, just stick future generations with a many-trillion-dollar liability.

    Unfortunately, there is zero political courage to undo decades of laws and regulations that created this mess. I am pessimistic that we’ll see the problem solved. It will go single-payer and after a few years no one will remember how it was before, thus adapting to the new normal.

    1. exactly, lack of competition and too many regs/mandates. Epipens are a prime example!

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