AHCA: Insured to Rise by 7M by 2026 – CBO Misses Power of Free Plans

The CBO generally performs careful, in depth analyses – but their approach is susceptible to inaccuracy when policy proposals differ sharply from existing norms. The CBO projects that over 24m individuals will lose insurance coverage as a result of the AHCA, as older individuals and Medicaid recipients lose insurance faster than younger individuals gain it. This projection misses the power of free plans, however. The table below shows how much different age groups might pay for coverage under the AHCA, with prices based on 2017 ACA exchange prices for states with low (Oregon), medium (Ohio), and high (Nebraska) insurance costs [1]. As the table shows, the AHCA tax credits can provide catastrophic coverage to the majority of Americans below age 45.

Monthly Cost after AHCA Tax Credit
(Plan cost as found on healthcare.gov, cheapest available plan)
State Age 20 Age 30 Age 40 Age 50 Age 60 Family Ages 40,10,8 Family Ages 30,30,5,3
Oregon (Low Cost State, Zip 97035 Used) Free ($112) Free ($208) Free ($234) $35 ($327) $160 ($493) Free
($466)
Free
($648)
Ohio (Medium Cost State, Zip 43004 Used) Free ($121) $12 ($216) Free ($244) $49 ($341) $186 ($519) Free
($487)
Free
($677)
Nebraska (High Cost State, Zip 68010 Used) Free ($131) $66 ($274) $59 ($309) $139 ($431) $323 ($656) $33 ($616) $105 ($855)

Using the information compiled above, we can estimate the change in uninsured rates for each of the groups in the chart below. For age groups below 40, the uninsured rate is projected to drop close to the same level as that of children below 19, since these groups will have access to free plans paid for by tax credits (and insurance companies will market these subsidized free plans mercilessly). For age groups above 45, the uninsured rate will rise, though not quite to pre-ACA levels, when no support was provided.

Projected Uninsured Rate Under AHCAThe CBO estimates that 14 million Americans will lose Medicaid coverage, and that 9 million more will lose either individual or employer-based coverage.

Using population estimates for 2026, I calculate that the number of insured Americans aged 19-34 rises by 7 million, aged 35-44 rises by roughly 2 million, and aged 45-64 drops by roughly 2 million [2]. While it’s important to note that these plans will be much less generous than ACA-subsidized plans, the total number of insured actually rises by around 7 million under these estimates. The GOP will have installed universal, nearly-free catastrophic plans as the future of American health care – if the AHCA passes, as Mssrs. Trump and Ryan continue their struggle to get it through Congress.

P.S. If you are interested to find out more about how the AHCA might impact you or your clients’ investments, my company HiddenLevers has modeled that in our TrumpCare scenarios. Have a look through one of our free demo accounts.

 

[1] The 2017 ACA prices are a reasonable guide as the Trump administration plans to relax the essential benefits associated with plans, and to widen the max price differential between plans for young and old. The risk pool under the AHCA will also likely be healthier, as young, healthy Americans will be drawn into free AHCA plans – because they are free.

[2] Roughly 23% of the population is aged 19-34, and a 9% point drop in uninsured rate for this group in 2026, translates to a rise of 7m more insured Americans. A similar calculation for the 35-44 group yields another 2m insured Americans, while the 2.5% rise in uninsured among older Americans yields a loss of insurance for 2 million. The CBO appears not to contemplate that many of those losing Medicaid will receive tax credits sufficient to provide them with free catastrophic plans, as shown in the table above. This mitigates the Medicaid cuts to some extent.

[3] The original chart above can be found here at the CommonWealth Fund.

List of Countries with Universal Healthcare

Update 1/21/2013: With the Supreme Court’s decision to uphold the ACA (aka Obamacare), and President Obama’s inauguration to a second term today, the US will have universal health care in 2014 using an insurance mandate system.

Thirty-two of the thirty-three developed nations have universal health care, with the United States being the lone exception [1]. The following list, compiled from WHO sources where possible, shows the start date and type of  system used to implement universal health care in each developed country [2]. Note that universal health care does not imply government-only health care, as many countries implementing a universal health care plan continue to have both public and private insurance and medical providers.

Country Start Date of Universal Health Care System Type
Click links for more source material on each country’s health care system.
Norway 1912 Single Payer
New Zealand 1938 Two Tier
Japan 1938 Single Payer
Germany 1941 Insurance Mandate
Belgium 1945 Insurance Mandate
United Kingdom 1948 Single Payer
Kuwait 1950 Single Payer
Sweden 1955 Single Payer
Bahrain 1957 Single Payer
Brunei 1958 Single Payer
Canada 1966 Single Payer
Netherlands 1966 Two-Tier
Austria 1967 Insurance Mandate
United Arab Emirates 1971 Single Payer
Finland 1972 Single Payer
Slovenia 1972 Single Payer
Denmark 1973 Two-Tier
Luxembourg 1973 Insurance Mandate
France 1974 Two-Tier
Australia 1975 Two Tier
Ireland 1977 Two-Tier
Italy 1978 Single Payer
Portugal 1979 Single Payer
Cyprus 1980 Single Payer
Greece 1983 Insurance Mandate
Spain 1986 Single Payer
South Korea 1988 Insurance Mandate
Iceland 1990 Single Payer
Hong Kong 1993 Two-Tier
Singapore 1993 Two-Tier
Switzerland 1994 Insurance Mandate
Israel 1995 Two-Tier
United States 2014? Insurance Mandate

Will the United States join this list in 2014?

[1] Roughly 15% of Americans lack health insurance coverage, so the US clearly has not yet achieved universal health care. There is no universal definition of developed or industrialized nations. For this list, those countries with UN Human Development Index scores above 0.9 on a 0 to 1 scale are considered developed.

[2] The dates given are estimates, since universal health care arrived gradually in many countries. In Germany for instance, government insurance programs began in 1883, but did not reach universality until 1941. Typically the date provided is the date of passage or enactment for a national health care Act mandating insurance or establishing universal health insurance.

System Types:

Single Payer: The government provides insurance for all residents (or citizens) and pays all health care expenses except for co-pays and coinsurance. Providers may be public, private, or a combination of both.

Two-Tier: The government provides or mandates catastrophic or minimum insurance coverage for all residents (or citizens), while allowing the purchase of additional voluntary insurance or fee-for service care when desired. In Singapore all residents receive a catastrophic policy from the government coupled with a health savings account that they use to pay for routine care. In other countries like Ireland and Israel, the government provides a core policy which the majority of the population supplement with private insurance.

Insurance Mandate: The government mandates that all citizens purchase insurance, whether from private, public, or non-profit insurers. In some cases the insurer list is quite restrictive, while in others a healthy private market for insurance is simply regulated and standardized by the government. In this kind of system insurers are barred from rejecting sick individuals, and individuals are required to purchase insurance, in order to prevent typical health care market failures from arising.

Medicare Bankrupt in 6-8 Years Without Rationing

Think rationing is impossible in the US? Medicare will soon be bankrupt, and the government will have to spend its healthcare funds in a limited, rationed way.

Medicare’s annual spending exceeded revenue brought in from taxes in 2008, forcing Medicare to begin spending its reserve funds. According to the Medicare Trustees, Medicare’s reserve will be empty by 2017, and Medicare will have to cut benefits or payment rates by 19% to balance its budget [1]. Since the projected date of Medicare’s bankruptcy has been brought forward many times [2], it’s likely that the actual date of bankruptcy may be as early as 2015.

This should come as no surprise to observers of US healthcare policy, since Medicare has limited funds, but nearly unlimited liabilities. Medicare will pay for almost any treatment that a licensed doctor provides, without regard to the effectiveness of that treatment, or its own ability to pay for that treatment.

In the past, politicians have paid for Medicare’s growth through borrowing. That route will be unavailable this time, as US government debt will exceed GDP by next year, and could be over 120% of GDP by 2017. Raising taxes will be difficult as well, since tax revenues will have to be increased just to pay for the existing debt! If Congress and the President fail to curb Medicare cost growth as part of health care reform, the cuts in 2017 will look a lot like California’s budget, where the state was forced to cut $16.1 Billion (18%) from its  in state services across the board.

The current health care reform plans have introduced a variety of cuts in Medicare, which may reduce costs in the short term. But none of the plans under consideration address Medicare’s root problem: Medicare is not allowed to say NO. Rationing health care is not part of the current health care discussion, but it happens covertly today, and it will become the norm. If Medicare is to avoid insolvency, the government will have to decide when some procedures just aren’t worth doing. Seniors should be allowed to pay extra for those procedures, but Medicare will have to limit its responsibility. If you don’t believe me, look at California, where they finally learned that when the money’s gone, it’s gone.

[1] The Medicare Trustees’ Report Summary can be found at: http://www.ssa.gov/OACT/TRSUM/index.html

The fiscal situation referred to in this post refers specifically to the solvency of the Medicare Part A, the Hospital Insurance (HI) fund. Other parts of Medicare are in slightly better shape, but not by much. In 2017 the HI fund will have revenue for 81% of benefits, but in 2035 it will have revenue for only 50% of benefits.

[2] The Medicare Trustees note that the 2008 Report projected a Medicare HI Fund insolvency date of 2019 – it was brought forward 2 years this year. The solvency calculations also assume that Medicare will cut payments to medical providers based on a Deficit Reduction Act formula – but every year from 2003-2009, these cuts have been rolled back. The likely date of insolvency may move forward by a few more years as a result.

US Doctors Are Overeducated

US medical students study for 8 years prior to residency, compared to 5-6 years of study in the rest of the world. This discrepancy increases health care costs by $25 Billion annually without contributing to quality.

In the UK, medical students study for five years after high school before beginning residency. They can expect to become practicing doctors by their late 20’s. This is true in Australia as well, where it’s possible to become a practicing doctor after less than 10 years of post-secondary education.

In much of Europe, medical students study for 4-6 years before beginning vocational training, and this process is slowly being standardized throughout the EU. Finally, in Japan, Brazil, China, India, and many other countries, medical education involves a 5-6 year degree followed by optional specialty training.

Since medical students in the US have a career path two years longer than in most other countries, their initial salary requirements must inevitably be higher to compensate for two years of extra tuition and lost salary. Using a career ROI calculation, it’s possible to estimate that US doctors must be paid an additional $30,000 per year as a result of this additional schooling [1]. With roughly 800,000 physicians in the US, that amounts to $25 Billion per year in additional compensation!

Why does the US stand almost alone in requiring aspiring doctors to study for eight years before training for another 3-8 years prior to practicing medicine? Is it possible that American doctors are better at their profession as a result? In fact, a small number of accelerated six-year medical programs exist in the US, and these programs have extremely competitive admissions. In a 6 year program, typical Bachelors-level general college education is curtailed while still accommodating a full four years of medical school. This model should become the norm rather than the exception, enabling medical students to enter careers more quickly and with less, thereby saving the entire health care system money!

[1] Using the spreadsheet used to perform Career ROI calculations, we can first adjust the medical student’s career path to shorten it by two years. This will raise the NPV and rate of return. We can then lower the expected salary to the point that the NPV is equivalent to the original NPV – the difference in salary is the salary amount made necessary by the extra schooling.

Excellent Analysis of the State of US Healthcare

I’ll digress here from my typical short-essay style to post an excellent series of articles by Dr. Richard Fogoros on the state of US healthcare. Dr. Rich does an excellent job showing how healthcare in the US is primarily government-funded, and how politicians’ inability to confront growing healthcare demand has led to covert healthcare rationing. He goes on to argue that open rationing of public resources is the only long-term approach moving forward, and proposes a system for rationing. The “Grand Unification Theory of Healthcare” is a bombastic title, and the articles are verbose, but Dr. Rich does an excellent job of addressing the topic head-on, and I agree with most of his conclusions.

The Grand Unification Theory of Healthcare, Dr. Richard N. Fogoros, MD