Healthcare is once again in the center ring at the Greatest Show on Earth – Washington, DC.
Tomorrow, the Republicans’ American Health Care Act (AHCA) goes to the Budget Committee for review and voting. According to Speaker Paul Ryan, this proposed replacement for the Affordable Care Act, a.k.a. Obamacare was written with substantial input from President Trump.
Healthcare is serious business, by many definitions. It’s a life-and-death issue that also accounts for one-sixth of the entire U.S. economy. Healthcare costs and insurance premiums devour a huge chunk of every family’s income.
So, how would the proposed new plan impact those costs? Will it help tamp down those skyrocketing insurance premiums? Reduce the cost of having a baby or back surgery?
No one knows –yet. There is a chance that restructuring the insurance marketplace by, for example, allowing insurers to sell policies nationwide instead of at the state-by-state level, could empower consumers and lead to more options. But critics of the plan are skeptical. Those in opposition fear some proposed changes under the AHCA would drive healthcare costs up further.
Proposed Changes To Healthcare Under The AHCA
The proposed AHCA is often portrayed as President Trump’s effort to make good on his promise to dismantle Obamacare, but doesn’t overhaul the substance of Obama’s ACA. Instead, it modifies certain key provisions.
One of the biggest changes under the AHCA is the removal of the requirement that all Americans buy health insurance. Under the ACA’s “individual mandate,” Americans who don’t carry health insurance for an entire year face a penalty at tax time. The AHCA would replace this rule with a different kind of penalty – if you let your policy lapse for more than 63 days, you would be charged a penalty in the amount of 30% of your premium.
Another modification to the ACA is the repeal of the tax increases the Act allowed. Remember the extra 3.8% tax on investment income and 0.9% surtax on high-income folks? Under the ACHA, these taxes would be no more.
Under the AHCA, there will be an increased emphasis on Health Savings Accounts (HSAs). Provisions of the AHCA increase the maximum HSA limit; in essence, our HSAs will become the 401(k)’s for our health. The year 2018 will see HSA contribution limits increase: $7,350 for self-only coverage and $14,700 for family/other than self-only coverage. Today, these numbers are much lower. For an individual, the limit is $3,350 for the year. For families, the limit goes to $6,750. Other changes to HSAs in the bill include rolling back the tax for HSA distributions not used for qualified medical expenses to 10 percent.
This iteration of the AHCA bill would ultimately double the amount you can put into your HSA. For perspective, that’s more than the individual IRA allowance of $5500 per year for individuals (or $6500 if you’re age 50 or older). These figures also aren’t far from the 401(k) employee elective deferrals limits of $18,000 for an individual (or $24,000 if you’re age 50 or older).
A tax credit revision has also made its way into the AHCA bill, increasing the available subsidy from $2000 to $14,000 a year. Under the new plan, the credit would phase out for individuals with income over $75,000 per year, or over $150,000 for couples who are married and file joint tax returns.
And let’s not forget about Medicaid. How could we? After the ACA was enacted, state expansion of the program was hotly debated. This was not lost on President Trump and GOP leaders. The ACA expanded Medicaid to 133% of the federal poverty limit, and this expansion immediately added about 10 million people to program’s roster. When we look at the financial impact of this shift ineligible participants, we see that federal spending increased 44% (or $160 billion) since the ACA Medicaid expansion provision of 2014. The heated debate over Medicaid rages on. No doubt more remains to be seen regarding how any replacement to the ACA will tackle Medicaid eligibility, whether through eligibility constraints or spending caps.
While some folks are celebrating the introduction of the AHCA bill to Congress, the stock market was less than jubilant this week – the Dow and S&P 500 were virtually flat. The iShares Pharmaceutical ETF IHE was down about ½%, but XLV was actually up 0.7%. So right now, it seems the market is saying one of two things: either it’s too soon to tell how changes in healthcare policy will impact various industry subsectors, or the impact of any transition from the ACA to an AHCA won’t be that significant. Only the coming days, weeks, and months will tell.