This is the third in a series that will briefly examine various plans designed to repeal and replace Obamacare. My first post examined the Patient CARE Act and the second reviewed 2017 Project’s Alternative To Obamacare.

Today I will focus on AEI’s Improving Health And Health Care Plan, developed by a group of scholars affiliated with the American Enterprise Institute [1]. As we will see, this plan, which is somewhat more ambitious than either the Patient CARE Act or 2017 Project’s Alternative To Obamacare in terms of the scope of its reforms, would result in a substantial increase in coverage relative to Obamacare, even as it produces large federal tax savings ($350 billion over ten years for the under-65 population plus an additional $1.56 trillion in net savings from Medicare reforms).

Key Features of the Improving Health And Health Care Plan

This plan, released on December 9, 2015, only partially repeals Obamacare. The replacement consists of three broad components:

Private Health Insurance Reform. This would consist of 4 parts:
- Age-Adjusted Tax Credits. Obamacare’s income-related subsidies are replaced with less expensive advanceable and refundable tax credits that vary only by age (0-17, 18 to 34, 35 to 49, and 50 and over).
- Automatic Enrollment. Any household that does not take the tax credit they receive and purchase insurance of their choice will automatically be enrolled in a catastrophic plan equal to the value of the credit for which that household is eligible. States have the option to decline to implement default enrollment.
- - Capped Tax Exclusion. The long-standing tax exclusion for employer-provided health insurance coverage is retained, but the ACA’s Cadillac tax is replaced by a functionally-equivalent cap on the amount of the exclusion ($8,000 for single and $20,000 for family coverage).
  - Expanded Use of Health Savings Accounts. All households become eligible to open an HSA account regardless of enrolled health plan. Those that open an HSA can make tax preferred contributions of up to $2,000 for individuals and $4,000 for families. Beneficiaries enrolled in HDHPs would be allowed to make contributions up to the allowable amounts under current law in addition to the $2,000/$4,000 contributions allowed for all. As well, a one-time HSA credit for up to $1,000 for those that are enrolled in an HSA-compatible plan in 2017.
- Medicaid Reform. Medicaid is reformed in three important ways:
  - Standardize Eligibility at 119% of Poverty. Instead of repealing the entire Medicaid expansion, eligibility levels for Medicaid are slowly adjusted to 119% of the federal poverty level (FPL) over the course of the first five years. Thus, states currently above the 119% percent level would see federal matching reduced while states below will see federal matching increase [2].
  - Capped Allotments per Beneficiary. Medicaid spending would be capped using a per-beneficiary allotment adjusted for inflation (a less stringent form of block-granting Medicaid insofar as it automatically adjusts for changes in the number of Medicaid eligibles [3]);
  - Integration with Private Insurance. Unlike Obamacare, tax credits would be available to those on Medicaid, allowing states to combine their Medicaid resources with federal tax credits to allow private insurance purchases by Medicaid eligibles.
- Medicare Reform. The plan includes a number of Medicare reforms, some of the most important being:
  - Increase Eligibility Age to 67. Gradually increasing the eligibility age to 67 would mirror the age used to determine eligibility for full Social Security benefits.
  - Premium Support. Under premium support, all beneficiaries wouldreceive a uniform subsidy to purchase insurance from competing health plans including traditional Medicare (similar to how federal employees and members of Congress have been provided health benefits for over a half century).
  - Modernize Medicare Benefits. These would include combining Medicare Parts A and B, simplifying cost-sharing and providing catastrophic protection [4].
Note that while the proposal repeal many of Obamacare most egregious regulations, many of the consumer protections granted by Obamacare remain intact, including grandfathering of all Medicaid expansion enrollees. Specifically:
- Previously covered households cannot be dropped from their current health plan, denied coverage through a new plan, or charged higher premiums on the basis of health status in the individual market.
- Households with coverage through an employer can transition to the individual market with the same protections.
- Anyone who signed up for Medicaid under ACA rules should be allowed to remain on the program indefinitely until they cycle off naturally.
This plan was scored by the Center for Health and Economy in December 2015. That score highlights some of the political strengths and weaknesses of this plan. The discussion that follows is based entirely on the H&E analysis.
Impact on Non-Group Premiums
Unlike the two earlier plans I have discussed, the H&E analysis does not include any projections of the impact of this plan on health insurance premiums in the non-group market. The large increase in coverage relative to Obamacare certainly is consistent with a non-trivial decline in premiums. However, there is no way of reasonably inferring from the numbers provided how much of the coverage gain can be attributed to lower premiums as opposed to automatic enrollment into catastrophic coverage.