The Ultimate Cheat Sheet for Trump’s Health Care Bill Vote

We’re going to unmask what President Trump and Speaker Paul Ryan are really targeting. Spoiler alert: It’s not at all the free-market revolution they’re advertising. Put simply, the whole purpose is stop ObamaCare from driving future federal budgets to far higher levels of spending, and even deeper and more disastrously into the red.

And that’s an honorable goal. But it also ignores the only real cure for this cancer—arresting the relentlessly growing costs of check-ups, MRIs, hospital stays, and angioplasties without resorting to rationed care.

(Related: The Stock Market Is Predicting that TrumpCare Will Pass)

Here’s the ultimate cheat-sheet for the AHCA, and a guide to its three big features.

The AHCA Could Save the Government $2.4 Trillion

The CBO’s early March analysis of the AHCA projected that the measure would shrink future deficits by $337 billion from 2027 to 2026. Although a March 23 analysis of amendments added to the bill lowered predicted savings to $150 billion, the big savings would come in future decades. Although the CBO reckoned that reforms wouldn’t swell shortfalls and debt in the 10-year periods beyond, it didn’t put a number on the savings. But in a recent study, the non-partisan Committee for a Responsible Federal Budget did just that. The findings are a vote for the AHCA’s fiscal prudence. According to the CRFB, the new law would lower deficits from 2027 to 2036 by over $1.6 trillion, for total savings of $2.4 trillion over 20 years, including foregone interest.

A portion of the savings flow from reforms to Medicaid. ObamaCare greatly expanded the program for the poor by providing rich subsidies to states that extended coverage to millions of low-income Americans. The AHCA would end that aid in 2020. And a new amendment, added just after the CRFB study, would block states from adding new enrollees. Another amendment granting states the option of requiring able-bodied adults to work as a requirement for benefits could further curb costs.

From the start of 2020, federal payments to the states would no longer rise in lock-step with state spending, no matter how fast that spending might wax. From that date, funding would be capped at the rate of medical inflation, a pace slower than the rise in total health care costs because it considers only prices, not how many visits or procedures folks are consuming. So the AHCA is indexing future Medicaid payments for the first time ever. Result: The federal outlays would rise a lot more slowly than forecast under ObamaCare.

The AHCA deserves praise for containing what could have been a ruinously expensive entitlement, no small feat. But don’t get too excited. It doesn’t stop America from careening towards a budget crisis. Even with the AHCA reforms, debt would rise to an overpowering 112% of GDP by 2036.

But the real goal isn’t a gigantic reduction in future deficits. The plan’s contribution is that it both curbs future spending by a big number––$3.7 trillion over the next two decades––and lowers future taxes by eliminating $1.6 trillion in ObamaCare levies. Best of all, it removes the risk that spending, as structured under ObamaCare, will explode in the decades ahead, swamping the CBO’s forecasts. That’s a looming danger with entitlements that the AHCA could succeed in eliminating.

America’s Families Beware!

A big source of savings are a gigantic reduction in future subsidies for the folks both ObamaCare and the AHCA are addressing—Americans who aren’t insured through their employers. ObamaCare furnishes “premium tax credits” designed to tie payments closely to enrollees’ incomes. Under ObamaCare, subsidies cover the difference between a fixed percentage of the enrollees’ income and the cost of a mid-range plan in their local market. If the cost of the policy soars, no worries. The enrollee always devotes the same share of income to buy it.

That’s not how it works under the AHCA. The tax credits under the GOP plan have little to do with your income or what it could cost to buy health care. The credits, slated to start in 2020, are based soley on age. Kids and folks 29 or younger get $2,000 a year. Enrollees from 30 to 39 receive $2,500. Here’s the critical fact: The AHCA increases those credits on a tight formula of inflation plus one percentage point, no matter how fast the actual cost of health care insurance rises.

The AHCA’s principal purpose is transferring the burden of almost all future cost increases from the government to families. That’s the ticket to reaching its budget goals.

To gauge the gulf between the plans, let’s examine the example of a family of four earning $50,000 a year. They live in southern Illinois, and both parents are age 37. We’ll assume the cost of policies is the same as today in the ACA exchange at $12,534 a year. Today, the family we’ll call the Strollers would pay 6.62% of income on that policy, or $3,309 a year. The government covers the balance of $9,225.

In this scenario, the ACA remains in place, and by 2019, the Strollers are earning $53,000. Over two years, the price of their policy leaps by 30% to $16,062. That’s not an outrageous prediction, given the spectacular jumps in the last several years. The Strollers now pay 7.06% of their slightly higher income, amounting to $3,739, or an extra $391 a year. The government pays the balance or $3,317 of the $3,708 increase, or 85%. The Strollers pay just 15% of the increase. They’re are doing fine, and the deficit is swelling.

Let’s leap to the AHCA. The Strollers’ policy still costs $12,535 in 2017, and they receive about the same credit, in this case the sum of two adults at $2,500 each, and 2 kids at $2,000, for a total of $9,000 in assistance. So right now, they’d be paying $3535 a year, just a bit more than under the ACA, or 7.1% of income.

But look what happens when that policy gets repriced by 30% two years hence. Once again, the Strollers are now earning $53,000. And once again, the price of their policy increases 30% to $16,062 for the year. The Strollers now pay 12.2% of their $53,000 income, amounting to $6514, or an extra $2879 a year. The government pays the balance or $548 of the $3527 increase, or 15.6%. The Strollers now pay 85.4% of the increase. They’re suffering badly, and the deficit picture is improving.

How did the Strollers go from paying 15% of that big increase to 85%? Simple. Under the ACHA, their credit rose from $9,000 to just $9548, reflecting the pre-set, indexed adjustment of 3% a year for two years, assuming 2% inflation. Their credit increased a puny $548 even though the cost of their policy rose by $3,527. Suddenly, families like the Strollers, not the government, are covering the overwhelming share of the relentless rise in premiums. That’s the story of the ACHA.

It’s a study in two shockingly different outcomes for the Strollers. Had they remained under ObamaCare, they’d be doing pretty well, simply because the ACA is designed to insulate families from steeply rising premiums. The extra $391 in costs takes just a small bite from their income, leaving them modestly better off after two years. The AHCA is designed to do the opposite, shield the budget and let families shoulder most of rising costs. Under the AHCA, the additional burden more than erases the Strollers’ $3,000 in extra income, leaving them far poorer than today.

The AHCA fails to create a competitive market that lowers costs.

The AHCA’s approach would work if it included sweeping deregulation that lowered health care costs. In that case, premiums would fall, rather than soar, keeping the Strollers from tumbling to the rocks below, and as a huge bonus, bolstering future budgets.

The AHCA could make consumers somewhat more price conscious, but that appears to be something of a coincidence. Since enrollees would need to cover almost all the price increases, they’d likely be more inclined to shop for cheaper, high-deductible policies, and spend their own money on routine procedures. “That’s an improvement, but it doesn’t go nearly far enough towards creating a true market,” says Michael Cannon of the Committee for a Responsible Federal Budget.

Shackling the AHCA are three stringent “mandates” that ObamaCare required, and that the Republicans––at least so far––haven’t found a way to shed.

The first is a raft of ten “essential benefits” that all plans must offer to qualify for tax credits. Those include maternity care, chemical dependency rehab, and dental and vision care for children. If you’re young, male, single, and healthy, paying for lots of stuff you don’t need means overpaying big time, even under the AHCA.

Nor does the AHCA scrap “community rating,” a regime that essentially requires insurers to charge the same premiums, for policies offering the same coverage, to everyone. People who are sick and costly pay the same as those who are healthy and inexpensive. Those restrictions prevent carriers from pricing based on projected cost or risk, the bedrock of real insurance. A partial exception is made for age; ObamaCare limited the range in pricing folks in their sixties versus the young to 3 to 1. The AHCA lifts the ratio to 5 to 1.

Even with that change, the young and healthy are still paying far more than their cost, and the old and frail are getting a big break. That’s why young people have often shunned ObamaCare, leaving the risk pools overpopulated with older, expensive enrollees, a phenomenon that explains much of the big increases in premiums.

The third mandate left in place aggravates the problem of “adverse selection.” It’s called “guaranteed issue,” requiring insurers to provide coverage to anyone who can pay, even if they were long uninsured, and only signed up after becoming seriously ill.

The president and the AHCA’s supporters in Congress claim that they cannot eliminate the mandates under the constraints of “budget reconciliation” procedures required to pass the bill in the Senate. It’s unlikely they’ll disappear anytime soon.

Even if ACHA passes, Washington is not doing the health care reform this country actually needs.

The really big opportunity is sweeping deregulation in the employer marketplace that insures as many as 170 million Americans, 8 times the total under ObamaCare or the AHCA. Today, companies spend $700 billion a year on employee healthcare, or $13,000 per worker. That’s because they can provide insurance as a benefit that’s tax-free to employees, whereas if they simply handed them that extra $13,000, the workers would pocket far less after payroll and federal levies.

The solution: Replace the one-size-fits employer coverage by transfering what companies are paying on behalf of their workers directly to the workers themselves, also tax free. That way, the employees can use their own money to buy any policy they want. That’s the definition of a real market.

The instrument is “health savings accounts” that allow employees to put savings or income, tax free, into special accounts for “qualified medical expenses,” usually deductibles and co-pays. The AHCA laudably increases the limits on HSAs substantially, from around $6,000 for an individual to $13,000 for a family.

But as CRFB’s Cannon points out, that leaves two major obstacles. First, employees can only use the money in the HSAs to pay for procedures, checkups, medication, and the like. They cannot use the funds to purchase actual policies. And the limits are too low, according to Cannon. In many cases, companies spend far more than $13,000 on employees’ insurance, yet those workers could only bank that much lower limit. So even if employees could use $13,000 to buy premiums, that money wouldn’t cover the full price in many cases, and leave zero tax-free funds for co-pays and deductibles.

A measure proposed by Senator Jeff Flake (R-Ariz) and Dave Brat (D-Va.) Would both increase the HSA limits to $9,000 for individuals and $18,000 for families, as well as allow employees to use that money to buy policies, in addition to any out of pocket health care expenses. And folks could buy high-deductible or rich-coverage policies as they prefer. Hopefully, Americans armed with their own money would quickly perceive that the mandates are swelling their costs, and push for deregulation. It’s highly possible that the strictures of community rating and standard packages would disappear. In other words, de-regulation would build on itself, spawning more freedom.

So the real solution is unlocking the cash that companies spend on their employees, and making those employees true consumers. Only by paring the AHCA with market-liberating reforms can the plan avoid hammering the budgets of America’s families.