Obamacare Repeal and Replacement: What the AHCA Does and How It Will Affect You

Earlier this month the Republican-led House of Representatives released its preliminary version of the American Health Care Act, its “repeal and replace” version of the Affordable Care Act, also known as Obamacare.

The long-awaited overhaul of the current insurance system includes some significant changes that will affect individuals and families who buy insurance through the health care marketplace.

The new legislation is an absolute beast of a document – hundreds of pages long – and includes some pretty confusing and technical language. Figuring out what the myriad changes mean is all but impossible just by reading the text of the bill.

Thankfully, experts ranging from the Congressional Budget Office, the healthcare industry and the insurance sector have voiced their opinions and perspectives.

To help you understand what the new bill could mean for you, we’ve mined this chorus of opinions for the most important takeaways.

We’re going to answer the following questions:

  • Why don’t lawmakers like Obamacare?
  • What are the big changes?
  • Who will be affected?
  • How will they be affected?

Along the way, we’ll include the insight of experts we interviewed via email and phone, along with information we gathered from reliable news sites.

Why Don’t Republican Lawmakers Like Obamacare?

Ever since Obamacare was passed, Republican lawmakers and politicians have brought up various aspects of the law they feel aren’t beneficial to the American people.

1. Mandate Is Unnecessary

First, they say, the Affordable Care Act includes a mandate that all adults above 18 should have health insurance. If you don’t get it, then you’ll be penalized either a flat fee or a percentage of your income.

2. Premiums Have Increased

Second, Republicans have said that Obamacare failed in keeping premiums under control. Consumers have seen premiums jump year-to-year.

3. Medicaid Expansion Contributes to Higher Premiums

Third, experts say the ACA’s expansion of Medicaid programs allowed more people to get health insurance, but since sicker and younger people weren’t signing up for Obamacare plans, insurance companies had to take on more expenses than in the pre-ACA days.

4. High-Income Families Don’t Get Tax Credits

Another big complaint is that families who earn more than 400% of the federal poverty level (about $81K for a family of three in 2017) don’t get the ACA-created tax credits to ease the pain of premium increases.

These high earners also deal with higher out-of-pocket maximums, deductibles, and co-pays for visits to primary care doctors, specialists and more. Poorer families received bigger tax credits and lower out-of-pocket maximums, deductibles, and co-pays.

5. Lack of Insurane Providers

Lawmakers also point to the lack of choice in state health care markets as an Obamacare weakness. Some cities in Texas, for example, only have one health insurance provider.

A Summary of the Arguments Against Obamacare

In principle, these arguments make sense.

Republicans have long been outspoken opponents of the ACA, and part of that has to do with the party’s dedication to keeping the government’s hands off the lives of citizens. The less regulation, they say, the better.

A mandate on every individual is definitely not the sign of a hands-off government, nor is increased regulation of the insurance industry, lawmakers would point out.

All of this has led to higher premiums, which Americans aren’t happy about, they say.

Now, the issues involved in the ACA certainly go beyond what we’ve mentioned here, but these are the main arguments against the legislation.

Paul Ryan provided perhaps the best summary of why Republicans drafted a repeal and replacement of Obamacare. The law is destined to ruin the insurance industry and hammer Americans’ finances.

“If we did nothing, the law would collapse and leave everybody without affordable health care," Ryan was quoted as saying in a recent press conference. “We are doing an act of mercy by repealing this law and replacing it with patient-centered health care reforms.”

What Are the Big Changes in the Obamacare Repeal and Replacement?

The new health care legislation the House proposed takes aim at the complaints we mentioned earlier: mandate, rising premiums, Medicaid expansion and little help for high earners.

1. The Federal Mandate is Gone

The legislation removes the controversial federal mandate included in Obamacare.

Instead of consumers paying the government a fine if they don’t enroll, they’ll have to pay 30% more in premiums if they go without coverage for 63 days or more.

2. Subsidies Will Be Adjusted

Under the previous plan, people who bought health insurance through the health care marketplace received tax credits based on premium increases, location, income and family size.

The proposed AHCA will give flat subsidies (payments) to people based on age. A Kaiser Family Foundation graph indicates that high-earners will get subsidies and younger people will see significant increases, while older people will see a significant decrease in subsidies:

A Kaiser Family Foundation graph

These subsidies won’t be enacted until 2020, at which point cost-sharing subsidies will also be repealed (more on that in a few minutes).

Just like the current plans, “the new tax credits are designed primarily to be paid in advance on behalf of enrollees to insurer,” the CBO says.

3. Cost Ratios Between Old and Young Will Increase

Under Obamacare, insurers were allowed to charge older folks a max of three times the amount of younger people.

Under the AHCA, that disparity will increase to five times the amount. This means that older people, who get sick more often, will pay more out of pocket for their care.

Health insurance companies will pay less, which means they can pass those savings on to younger customers.

4. Mandated Coverage Regulations Will Be Removed

Obamacare forced insurance companies to offer basic, comprehensive care in all of its plans, even the cheapest ones.

The upside was that things like mental health visits were covered, but premiums went up because of it.

Rea S. Hederman Jr., executive vice president and COO at independent policy think-tank The Buckeye Institute, says some of these regulations will be removed.

Who Will the Obamacare Repeal and Replacement Affect and How?

We can write for hours and hours about what changes have taken place, but the real question is: How will it affect the average person?

To answer that question, we’re going to turn to the Congressional Budget Office’s (CBO) report on projected outcomes of the AHCA.

How the Removal of the Mandate Will Affect Us

The effects of a mandate repeal would happen in two steps, the CBO says. First, about 14 million people would go without health insurance in 2018.

“Most of that increase would stem from repealing the penalties associated with the individual mandate,” the CBO’s report reads. “Some of those people would not choose to have insurance because they chose to be covered by insurance under current law only to avoid paying the penalties, and some people would forgo insurance in response to higher premiums.”

Now, the idea here is that most of the people who go without insurance are healthy. They feel like they don’t really use health insurance, so they don’t want to pay for it. With fewer healthy people paying into the system, premiums will go up.

“The legislation would tend to increase average premiums … mainly because the individual mandate penalties would be eliminated, inducing fewer comparatively healthy people to sign up,” the CBO report says.

Rea Hederman says the exact opposite will happen. Younger people will sign-up because the ratio we talked about earlier will make plans more affordable.

“ Younger enrollees will pay less in premiums because the age-band restriction on what insurers can charge older enrollees has been changed,” Rae said.

This creates a winner-loser scenario that’s the opposite of the current environment where older people get far more tax credits than younger people. And that leads us to the next section.

How Tax Subsidy Adjustments Will Affect Us

As the graphic we showed earlier in this article suggests, tax credits will increase for the young and the middle-/upper-class. However, Americans aged 60 and above will see significant decreases in federal help.

Dr. Adam C. Powell, president of Payer+Provider Syndicate, says this reversal of fortune will also lead to younger people signing up.

 “The health care reform which is being currently considered will have a different set of winners and losers than the Affordable Care Act,” Adam told us via email.  “Young people, healthy people, and middle-income people may benefit from lower premiums and less regulation of insurance products. Older people, sicker people, and lower income people may be in a less advantageous situation under the new plan.”

How the Removal of Cost-Sharing Subsidies Will Affect Us

As we mentioned earlier, the AHCA calls for the end of cost-sharing subsidies in 2012. These subsidies were given to families who made 250% of the federal poverty level or less, giving them plans with low or no co-pays to their primary doctor, low or no deductibles and reduced fees for specialist visits and medical procedures.

The removal of cost-sharing subsidies and the decrease of tax subsidies could put poor families and older adults in a financial jam, said Jonas Sickler, marketing director at ConsumerSafety.org.

“Middle and lower income Americans will see their premiums increase as much as 25% as healthy individuals pull out of the insurance pool to save money without the non-insured penalty in place,” Jonas said. “With higher premiums, the insured may be unable to afford co-pays and medication.”

A Quick Word About Projected Premium Increases Over the Next Three Years

According to the CBO’s report, premiums will increase to about 15-20% higher than what they’d be in Obamacare, but only until 2020.  At that point, they’ll start to dip below Obamacare levels.

Why the peak and then decline in premiums? Well, the CBO says, the first couple of years, people who didn’t like the mandate won’t get health coverage, which will drive up prices for everyone else.

However, in 2020, those premiums will go down for two main reasons: the Patient and State Stability Fund and actuarial value changes. (You can learn more about actuarial values on page 14 of the CBO’s report.)

State Funding, Actuary Changes Will Drive Premiums Down

The first concept is pretty simple – the bill will give states a chunk of money to help insurers offset the cost of customers with expensive claims.

The second concept, actuarial value, is a little harder to understand. Here’s how the CBO defines it: “Actuarial value is the percentage of total costs for covered benefits that the plan pays when covering a standard population.”

Currently, insurance companies are required to offer four tiers of projected costs: 60% (Bronze), 70% (Silver), 80% (Gold) and 90% (Platinum).

Under the proposed AHCA legislation, those tiers would end and could allow insurance companies to offer plans at 60% or less.

The CBO says it would be hard for plans to drop below 60% because the law will still keep “10 categories of health benefits that are defined as ‘essential’.”

In other words, premiums will go down, in part, because insurance companies will no longer be required to cover 70-90% of its customers’ projected spending.

And because premiums will go down and more of the cost will be put on consumers, more insurance companies will enter the market.

Under Obamacare, choices were limited in some states after health care giants Humana and United pulled out of the marketplace because they were, according to company representatives, losing money through marketplace plans.

Some Final Thoughts About the Obamacare Repeal and Replacement

The AHCA law presented by the House has some positive and negatives.

Lawmakers say the repeal of the mandate, income-specific tax credits and actuary requirements will lower premiums and make insurance more accessible to younger, healthier Americans.

Also, the CBO reports that the bill would save about $337 billion over the next 10 years.

Some critics of the bill say shifting tax credits from the old to the young will make health care unaffordable for poor families and older individuals who relied on substantial tax credits and cost-sharing subsidies.

Younger and Wealthier Americans Will Benefit

If there’s one theme our sources and experts, in general, have repeated, it’s that younger American’s will benefit from the new bill and older Americans will not.

Jeff Smedsrud, co-found of HeatlhCare.com and an insurance-industry veteran, summed it up well in an email to us.

“Under Obamacare, there were winners and losers. The Republican plan to replace the Affordable Care Act makes significant changes to who wins and who loses. The winners? Both the young and old who earn more than 400% of the federal poverty level. The losers? Lower income Americans of all ages.”

The New Law Keeps a Crucial Part of Obamacare

While experts have been widely divided on the effectiveness of the ACA, there is relative agreement that Obamacare offered one huge advancement to health care: pre-existing conditions can’t influence insurance plans.

Under the new law, insurers will continue to be prohibited from denying coverage or care to customers because of pre-existing conditions.

The Legislation Is Not Final

One thing to keep in mind about the AHCA is that what’s written today is not final. Over the past few weeks, the bill has undergone several changes.

For example, seniors with health care bills that hit 5.8% of their yearly income will get to deduct those expenses, whereas the threshold 10% under Obamacare.

We encourage you to follow along with the news of changes or updates to the plan, as those alterations could affect how much you’ll pay in premiums and taxes each year.

Read Next: How to Lower Your Car Insurance Cost and Still Have Enough Coverage

J.R. Duren

J.R. Duren is a personal finance reporter who examines credit cards, credit scores, and various bank products. J.R. is a three-time winner at the Florida Press Club’s Excellence in Journalism contest. He is a member of the Society of Professional Journalists and his insight has been featured on Investopedia, GOBankingRates, H&R Block and Huffington Post.