The American Health Care Act: What You Need to Know About “Trumpcare”
The Republican leadership in the House of Representatives has released its proposal to replace the Affordable Care Act. The bill, known as the American Health Care Act, would modify numerous provisions of the Obamacare law, and the debate in Congress is already getting fierce.
But what should American health insurance consumers know about the American Health Care Act?
How would it change the way they buy and use their health insurance in the years to come?
To help answer these questions, we’ve provided a summary of the bill below.
Coverage requirements and penalties
- Under Obamacare most people are required to purchase coverage on their own unless they get qualified coverage through an employer or another source. Those who go without qualifying health insurance for more than two consecutive months risk a penalty on their federal taxes. Obamacare also require employers with more than 50 full-time workers (or the equivalent in part-time workers) to provide coverage to their employees or risk penalties.
- Under the American Health Care Act no one would be required to purchase health insurance, and there would be no tax penalty for going uninsured. However, in an effort to discourage people from allowing their coverage to lapse, a one-year 30% surcharge may apply when you reenroll in coverage after a significant gap. Employers would no longer be penalized for not providing health insurance to employees.
- Between now and the 2020, the Department of Heath and Human Services (HHS) has proposed changes to the individual health insurance market to make it less vulnerable to people gaming the system. According to officials, too many people delay signing up for insurance until they’re sick and then drop coverage once they receive care.
- To stop this, HHS proposes cutting the annual open enrollment period to six weeks to reduce the number of people who find out they’re sick during open enrollment and sign up for a policy.
- HHS would also require people who sign up for health insurance during open enrollment to prove they qualify for a special enrollment period, due to a change in their life, like the loss of a job or a divorce.
- The new HHS rules would also allow insurance companies to force consumers to pay any premiums they missed before the insurance companies issues them a new policy.
Making coverage more affordable through subsidies and tax credits
- Under Obamacare government determines a fair price for a silver health insurance plan. If actual the cost of a silver plan is higher than the government’s estimate of a fair price, the rest of the premium is subsidized. So, for example, if the actual price of a plan is $500, but the government’s fair price is $300, a person who signs up for the plan pays $300 and the government pays the remaining $200. Under this system, no matter how high the actual cost of the plan goes, a person receiving subsidies only pays the fair price.
Subsidies are provided to people that earn up to 400% of the federal poverty level (that is, up to about $47,000 for an individual or $65,000 for a two-person household). If a person earns 401% of the Federal Poverty level, they hit what’s referred too as the subsidy cliff and have to pay the full price of the health insurance plan.
- Under the American Health Care Act subsidies would function largely as they do today through 2019. Starting in 2020 tax credits would be provided to individuals and families based on age, instead of income. Older people would get higher subsidies than younger people. Tax credits begin to phase out in 10% increments after a person’s income goes above $75,000 a year for individuals or $150,000 for married couples.
Coverage of pre-existing medical conditions
- Under Obamacare no one is turned down or charged more for health insurance based on their personal medical history or pre-existing medical conditions.
- Under the American Health Care Act this does not change.
Health plan benefits
- Under Obamacare all major medical health insurance plans must provide coverage for a set of federally-defined “10 essential health benefits” that provides comprehensive coverage for a wide variety of medical services
- Under the American Health Care Act these benefit requirements are unchanged, but the AHCA would allow insurers to lower the “actuarial” value of certain types of coverage (like maternity coverage, for example) in order to give people more flexibility in their benefits and to lower their monthly costs.
Open enrollment periods and special enrollment periods
- Under Obamacare health insurance shoppers can typically only purchase health insurance on their own during an annual nationwide open enrollment period or within sixty days of experiencing a qualifying life event such as marriage, the birth of a child, moving to a new coverage area, etc.
- Under the American Health Care Act this is unchanged. Health insurance shoppers will still be able to enroll during an annual open enrollment period or after a qualifying life event.
Coverage of adult children up to age 26
- Under Obamacare parents are allowed to keep their adult children covered under the family health insurance plan until they turn 26 years old.
- Under the American Health Care Act this is unchanged.
Cost of coverage based on age
- Under Obamacare older people can be charged up to three times more than younger people for coverage under the same health insurance plan (this is described as a 3:1 cost ratio).
- Under the American Health Care Act a 5:1 ratio would apply, meaning that older people can be charged up to five times more than younger people for coverage under the same plan.
The role of Health Savings Accounts (HSAs)
- Under Obamacare HSAs (originally created in 2003) were left intact. When used in conjunction with eligible health insurance plans, HSAs allow consumers to save money on a tax-advantaged basis (up to annual limits) to pay for qualified medical expenses.
- Under the American Health Care Act the annual contribution limits for HSAs would be increased, allowing consumers to save more money on a pre-tax or tax-deductible basis for qualified medical expenses. The range of qualified expenses would be somewhat expanded and the penalty for using HSA funds for non-qualified expenses would be cut in half.
- Under the American Health Care Act, people who qualify for tax credits could save any unused tax credits in their health savings account.
This is only a summary of key highlights of the proposed law, of course. It’s important to note that details of the American Health Care Act are subject to change during the legislative process.
The bill is being considered in the House of Representatives at this time. If it passes there, the bill it would still need to be taken up by the Senate, where a second round of changes may be made before a final bill can be sent to President Trump for his signature.