Changes to Republicans' Amended Health Care Bill Could be Disastrous

Donald Trump's American Health Care Act has reappeared following its initial rejection last month, and Republicans are pushing for a vote (stat!). Michael Chernew, a professor of health care policy at Harvard Medical School, breaks down the revisions—and the broader health care debate we are now in the midst of.

What are the main differences between the new bill and the prior iteration?
They added a provision, the so-called MacArthur Amendment, to give states the option to waive some of the rules that existed in the Affordable Care Act [ACA] and which were not waived in the original version of the American Health Care Act [AHCA].

What rules would states be allowed to waive?
The rules surrounding essential benefits, community ratings and age bands.

What are essential benefits?
Essential benefits refers to services that all insurers are required to cover. Under the ACA, insurance providers must cover emergency services, hospitalization, maternity and newborn care, mental health, prescription drugs, preventive care, pediatric care, rehabilitation and a few other needs.

Related: Forget Trumpcare. Here are some other health care bills Congress is considering

What is the age band?
The age band refers to rules around how much more you can charge an older person than a younger person. The ACA allowed insurers to charge older people three times as much as younger people. The new bill expands that ratio to 5:1—insurance could cost older people five times as much as what younger people pay.

Who is disadvantaged by this bill?
The bill has provisions that are worse for lower-income, older people compared to the ACA. Depending on how some of these new waivers play out, higher-income older people could also suffer. The end result really depends on the specifics of what states decide to do. Overall, the spirit of the new bill as a whole, not only these changes, has been to remove certain protections for higher-risk people, which includes older people.

Could you give a simple way to understand how health care spending works?
There's a certain amount of money that we spend on health care in this country. That money is financed by people living here. And there's only a certain amount of mechanisms through which money goes from people to health care. One route is taxes, another route is premiums, and another is the price people pay when they use care.

Related: What you need to know about the new health care bill: An expert's view

How does the AHCA differ from the ACA in terms of spending along these different pathways?
The new law changes the distribution of money among those channels, compared to the approach taken in the ACA. The new law, and its modification, requires that more money be paid by people who get sick—if states get the waivers—because the plans might not be as generous.

The ACA set a floor, a minimum requirement, for benefit generosity. The new law, including some of the waivers in the modification, relaxed that floor in several ways. And this relaxed floor means that when some people become sick, then they will have to pay more out of pocket. The monthly premiums will not be sufficient to pay for their health care needs.

Also, the ACA was financed through a number of taxes. Through several provisions in the bill, the AHCA tends to reduce taxes, not only through the health care exchanges and subsidies but also through Medicaid.

What are the different principles at play in these two approaches?
There are people in any community who are healthy and some who are less so. Some people are old, some people are young. The ACA tried to push those individuals into a common risk pool, as if all individuals pose the same risk of health issues and therefore spending on care. As a result, if you're on the younger, healthier side of that equation, you end up paying more than you otherwise would because you're in a risk pool with an older, sicker person. If you are an older, sicker person, you pay less than you otherwise would because you're in a pool with a healthy person.

The AHCA and the modification now under consideration have relaxed the pressures around that pooling. As a result, premiums for healthy, younger people could be reduced and those for sicker, older people could be increased. The extent of those changes depends on what each state chooses in terms of waivers and how that choice shapes benefit packages.

Is the AHCA approach to Medicaid altered in the revision?
No. The AHCA puts various limits on Medicaid coverage in a way that, most people believe, will reduce government spending on Medicaid, leaving states and individuals to bridge the gap. Health care providers could also be forced to make up some of the difference somehow.

Why is the exclusion of essential benefits in the health care law controversial?
The thinking behind the exclusion of the essential benefits requirement is that women shouldn't be paying for men's health services and men shouldn't be paying for women's health services. Old people shouldn't be paying for needs that are specific to young people and vice versa.

But isn't the coverage of all risks a fundamental part of how insurance works?
There are two types of insurance. One approach enrolls people who are exactly the same, who buy insurance at a premium that matches what you'd expect each person to spend over the course of a year. If a person in that group becomes sick, the insurance premium pays for it. But at the beginning of the year, everyone was considered to be an equal risk for health issues, so no one was receiving a better deal than anyone else. Similar people pooled their similar risk to cover the possibility of something costly happening. That's pure insurance.

In another approach, people in the same pool have different risks. For example, say that my father and I enrolled in the same plan. You can be close to certain that my father will use more health care than I will. But that type of pooling is not the purpose of insurance; it's not why insurance exists. The market used to have ways to mitigate that result, such as underwriting, age differentials and other approaches that avoided pooling risks.

How did the ACA handle the fact that people seeking coverage have different health care risks?
The ACA pushed the world into a broader type of risk pooling across risk classes. These risk classes include, for example, age and pre-existing conditions. The AHCA is relaxing the pressure to put all risk classes in the same insurance pool.

Isn't it a bit of a cop-out for the federal government to allow states to choose whether or not to waive requirements like essential benefits and age bands? Cop-out is a strong word. This modification does solve the political problem that some lawmakers voting on the bill represent states that wanted certain protections and some represent states that don't. The waiver also solves the broad problem that different places may want to take different approaches.

You can't say exactly what the amendment does because it doesn't actually do anything. Rather, it expands the options for states to do things only if they want to do it. But the amendment does imply higher costs for people in high-risk groups who live in states that seek the waiver. Alternatively, people in low-risk groups in those states could benefit. States would have the flexibility to decide who they want the winners and losers to be.

What are the potential long-term consequences of states choosing to not cover essential benefits or the other provisions included in the waiver clause?
I'm skeptical that many states would opt out. But to the extent that they do, the long-term consequences would be that individuals in those states that have pre-existing conditions, many of whom are older, and people who want coverage for certain types of services will end up paying more. People who don't want those services and who don't have those pre-existing conditions will pay less.

Everyone ages, and many people become sick. Someone may not be born with a pre-existing condition, but they acquire one as they live. So even if you think you're a winner and you enroll in a health plan that's perfect for you as a healthy person, you may become a loser if you develop diabetes. All of a sudden your insurance plan may not be so great.

That is how insurance works. There is risk in life. We live in a world of risk. Insurance is designed to mitigate against that risk. The ACA tried to push everyone into the same risk pool, helping everyone by protecting against risk. In the short term, that's obviously good for some and less so for others. But which category any individual falls into could easily change at any time.

Does the AHCA rely too much on short-term thinking rather than considering your long-term risk?
This plan will help some people in the short term. Those who start out healthy and remain that way will be helped in the long term.

What issues are at the heart of the current health care debate?
The debate surrounding the bill really revolves around the argument about who should pay for the cost of people who are sick and high risk. The ACA tried to spread that out among everyone through taxes, benefit generosity minimums and restrictions on pooling. The new law takes the stance that the high-risk and sick people should pay. That's the crux of the debate.

But the population of people who are in the high-risk group and who are sick changes over time. There are people who are sick, there are people who are at high risk of incurring health care costs—and those groups are not the same; sometimes healthy people are at high risk for, say, a car accident. Who should pay for their care? Should they pay through their premiums and out of their own pockets? Or should we finance that care more broadly? That's the debate.

What problems does the AHCA not address?
As a country, if we cannot control health care spending, then none of this financing discussion is really going to be important. Nothing will survive if we continue to spend on health care at the rate we have been. We can talk about who pays for the cost of care. But strategies to control the cost are equally, if not more, important.

The ACA included some strategies for controlling cost. The AHCA increases the out-of-pocket cost for individuals. Therefore, if you become sick, then you may choose less care. That could be good or bad, but it does control spending to some extent.

People react differently to the AHCA approach for controlling health care spending. How do you feel about a cancer patient who has to pay a lot out of pocket? Is that good because they will use less health care, so overall spending will be lower? Or is that bad because the cancer patient is not receiving care that could benefit them?

It's easy to lower premiums by giving people less generous coverage. But premiums should not be the measure of success. Success is a combination of the premium and how good the coverage is. If I sell you cheap bread that's three days old, that's not so great. A lower premium doesn't indicate better health care; it only indicates cheaper health care. Cheaper may or may not be better, depending on your needs.

The ACA has healthy, low-risk people subsidizing sicker, high-risk people through premiums. By relaxing that part of the law, the AHCA is creating a situation in which the premiums will fall for some and rise for others.

The difference between the ACA and the AHCA seems to reach to the heart of how we think about health care as a country: Do we take care of each other or do we just look out for ourselves?
Absolutely. There is a certain amount of spending on health care and certain ways to finance that spending. That spending will be done through premiums, paying at the counter or taxes. Some of these routes embody the view that we are all in this together, and others place the responsibility on the sick and high-risk individuals. That's the economic and ethical debate that we're having. The jargon of health care often obscures and confuses that big picture. But what we're talking about is who should pay for the sick and at-risk people in our country.