MCVEA: GOP’s Obamacare Replacement Misses the Mark

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Last week, Republican leaders unveiled a healthcare bill which they claim is an effective replacement for Obamacare. However, the Republicans’ bill is inadequate compared to the promises of an Obamacare replacement. It is, as Senator Rand Paul described it, “Obamacare Lite.”

Above all other issues, the bill does not make economic sense. A Congressional Budget Office study released Monday found that the GOP plan will save $337 billion over the next ten years, but it will result in higher short-term premiums, more uninsured Americans and significant budget shortfalls for many states.

The largest criticism of Obamacare on both sides of the aisle has been the dramatic increase in premiums. For 2017, consumers on the base silver plan saw their premiums rise an average of 22% from 2016 in all states, with a maximum of a 116% increase in Arizona. For years, Republicans have heavily criticized these price increases and promised that they would reverse the trend of more costly healthcare for millions of Americans.

Yet, the CBO study found that the proposed healthcare bill has the exact opposite effect from its intent. In the next 3 years, premiums are projected to increase by 15-20% more than they would have under the current law. For the consumer, this means that their premiums will rise by 5-10% annually under Obamacare, plus an additional 15-20% over 3 years. Needless to say, it is difficult for governments to completely stop price increases, but this plan will add to the rate at which premiums increase.

The one saving grace for Republicans is that the CBO projects that premiums will level off at about 10% below Obamacare projections after 2020, which achieves their long-term goal. However, these savings must be taken with a grain of salt because they are contingent upon subsidies from state governments and insurance company policy responses, which may or may not materialize.

More importantly though, citizens who have seen their premiums increase consistently and dramatically will not care if CBO economists expect premiums to level out in the future. They will be angry, and they will direct their anger at the party who failed to deliver on the promise of lower prices. In 2018 and 2020, these grievances will be directed at Republicans

The second issue with this law is the mechanism which will drive price increases. Fewer Americans will be insured than under Obamacare. By 2018, the CBO projects that 14 million fewer Americans will be insured than would have been under Obamacare. This gap is expected to increase to 21 million by 2020 and 24 million by 2026. Most of the drop is due to the repeal of the penalties associated with the individual mandate, but about 5 million fewer people are expected to be covered under Medicaid.

Individuals should have the freedom to decide whether or not to purchase insurance. The problem is that without substantive changes to Obamacare, repealing the individual mandate causes the entire law to fall apart. The CBO concluded that “eliminating [the mandate] penalties would markedly reduce enrollment in the non-group market and increase the share of enrollees who would be less healthy.” Without allowing insurance companies to exercise more discretion in choosing their customers and premiums, everyone left on insurance will have to pay more to cover the gap.

The withdrawal of healthy individuals from insurance plans puts more pressure on the already-distressed insurance exchanges created by Obamacare. In 2016, several insurers, including United Health and Blue Cross Blue Shield, reported massive losses from the exchanges and pulled out of several states’ exchanges. Now, the CBO projects 6 million healthy people to drop out of the exchanges in 2018, which will cause widespread losses above those reported. Invariably, more insurers will drop out, leaving the exchanges either barren with insurance plans or leading to their complete collapse.

The Republican healthcare bill sets up large budgetary constraints in many states over the next decade. Since Obamacare was enacted, states have been able to expand Medicaid completely financed by the federal government, and the GOP bill allows this to continue through 2020. Many states, including 16 with Republican governors, have elected to expand Medicaid to plug significant budget holes in the short term. However, this only shifts the burden of covering the costs for more people onto the states which have elected to expand Medicaid under Obamacare.

It is clear why Republican leaders opted to propose this “replacement” to Obamacare: it avoids the roadblocks of a Democrat filibuster in the Senate. However, the bill does nothing to control the serious overregulation and expansion of government inherent in Obamacare and only exacerbates the economic and political issues of the original law.

Is this honestly the best that Republican leaders can do?

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Born and raised in Parsippany, New Jersey, Mike is most passionate about economic issues and fiscal policy. Aside from The Georgetown Review, Mike is heavily involved in the Georgetown University Student Investment Fund (GUSIF). Mike is in the College, doubling majoring in Economics and Mathematics and minoring in Business Administration.

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