U.S. House Majority Leader Kevin McCarthy, U.S. House Speaker Paul Ryan, and U.S. Representative Greg Walden hold a news conference on the American Health Care Act on Capitol Hill in Washington, D.C., March 7, 2017.
Eric Thayer / Reuters

On March 6, House Republicans introduced the American Health Care Act to partially repeal and replace the Affordable Care Act, also known as Obamacare. The new legislation raises four questions: What are its elements, will it pass, what would its effects be if it did, and what does it leave out?

It might be hard to tell from all the heated rhetoric, but the AHCA follows many of the basic building blocks of the ACA, albeit imperfectly, in providing insurance. Both impose community rating on private insurance companies, a provision that requires offering the same premiums within a region for both healthy and unhealthy individuals. They both encourage people to buy insurance when they are well, rather than waiting until they are sick, to minimize the gaming of the system. And given the costs involved, both plans provide subsidies to help low- and moderate-income households afford the coverage. They also both limit the degree to which insurance companies can charge older people (who tend on average to have higher costs) more than younger people.

Despite these similar building blocks, however, the new plan differs substantially in its implementation from the one it is intended to replace. For example, instead of a mandate for healthy people to buy insurance, the AHCA would impose a 30 percent penalty if a healthy individual doesn’t purchase insurance and then subsequently gets sick and wants it. The new legislation’s subsidies would be substantially less generous for low- and moderate-income workers, and unlike today, they would be set nationally and wouldn’t vary with the local cost of health care. And although the ACA limits the ratio of older to younger people’s premiums to three to one, the new bill allows for a ratio of five to one. There are also important differences in Medicaid, the program for low-income Americans and those with disabilities, in that the AHCA would impose limits on the federal government’s financing of the program and shift an estimated $370 billion in costs to states over the next decade, which could result in some combination of less coverage or more pressure on state budgets. 

It’s not clear at this point whether the new proposal will ever become law. Many on the Republican right do not like the new tax credits used to subsidize coverage. Some Republican moderates, meanwhile, are concerned that the subsidies are too small. More than a few Republican governors are wary of the changes to Medicaid. The legislation was written to allow it to pass with only 51 votes in the Senate using the so-called reconciliation procedure, but even that means the Republicans can lose no more than two of their senators on this vote.

The Congressional Budget Office has estimated what would happen if the legislation is enacted: In 2018, 14 million people would lose coverage and premiums would rise by 15 to 20 percent compared to current law. The Center on Budget and Policy Priorities has estimated that even without taking premium increases into account, the cost of coverage after subsidies would increase (because the subsidies would decline) by an average of more than $10,000 in Alaska, more than $5,000 in North Carolina, and more than $2,000 in Pennsylvania.  Older beneficiaries in high-cost states would face the steepest increases.

The dog that didn’t bark in this new legislation is that it leaves alone the ongoing shift to value-based care and away from fee-for-service payment, which created a perverse incentive for physicians to offer more care rather than quality care. That’s important because expectations of this evolution are a key reason why Medicare spending has decelerated so dramatically over the past seven years. That slowdown has exceeded the wildest hopes of those who want to see lower health cost growth—and it continues, with Medicare spending increasing only a little more than three percent in nominal terms so far this fiscal year. There were nonetheless fears that the AHCA would abolish the Center for Medicare & Medicaid Innovation, which has been driving the move toward a new payment system in the United States; those fears proved unfounded.

The bottom line? The ACA was an important but admittedly imperfect step in the right direction, as I argued previously in Foreign Affairs. The AHCA seems like a poor imitation: according to the Congressional Budget Office, it would reduce coverage and increase premiums compared with the ACA. It turns out that health-care legislation is, indeed, quite complicated.

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  • PETER R. ORSZAG is Vice Chairman of Investment Banking and Global Co-Head of Health Care at Lazard.  He previously served as the Director of the Office of Management and Budget and before that as Director of the Congressional Budget Office.
  • More By Peter R. Orszag