Why the AHCA Has Already Failed

The American Health Care Act is here, and it has already earned a place in history. Few pieces of realistic legislation have arrived to such a chorus of resoundingly negative analysis.

Whether it's the AARP's criticism that this would weaken Medicare, the revelation that this bill would most hurt Republican voters or the CBO's finding that up to 24 million Americans could lose their insurance, almost everyone who knows anything about health care has come out against this bill becoming law. 

By now all of this has been well covered, along with the vast wealth transfer it would affect from the sick and the poor to the healthy and wealthy. Why is that? What has almost every expert lined up to declare this law a dumpster fire before it's lit?

Here are five of the biggest reasons:

Prioritizing "Access" Will Lead to Underinsurance

It has been said before but cannot be said enough that the terminology of "access" to health insurance is at best imprecise and at worst deceptive.

"The first question is this very interesting verb and/or noun regarding 'access,'" said Dr. Mark Fendrick, director of the University of Michigan's Value-Based Insurance Design Center. "I think there will be lots of access to insurance products and services, but the level of coverage that we will have for that access is unknown."

"I heard one really smart colleague of mine say, 'we all have access to a yacht but we don't buy it.'"

One of the key design principles behind the AHCA has been a focus on increasing access to insurance, but that's a policy sleight of hand. Regardless of market availability, unless consumers can afford the premiums and deductibles on health insurance they won't have access to health care, and that's the important part.

A Halfhearted Mandate Will Skew Risk Pools

In place of the individual mandate the AHCA institutes a policy called continuous coverage, which is the worst of all worlds.

This policy guarantees coverage for consumers regardless of pre-existing conditions only as long as they maintain uninterrupted insurance coverage. If that coverage lapses, insurance companies will be allowed to triple the price for re-enrollment.

The result is a mandate at once both less effective and more draconian than under the Affordable Care Act. For young and healthy people tripled premiums might remain affordable, encouraging them to stay out of insurance risk pools until they get sick.

Everyone else will face the specter of getting priced of health insurance altogether if they lose coverage. For them this is functionally a mandate, except instead of a financial penalty the AHCA punishes them by withholding access to care.

All in all, it's a recipe for instability.

Obamacare Isn't Actually Failing

One of the chief talking points to repeal and replace is that that Obamacare is in a death-spiral that will take the health care market with it. This logic undergirds the anything-is-better message with which lawmakers have written and sold their reform bill: Even if 24 million people lose their insurance under the AHCA, that's still better than letting the system collapse.

These lawmakers are lying.

That's not to say that there's no room to criticize the ACA. As a policy it has had numerous practical failures and many areas where people of good faith can legitimately disagree. There are numerous local markets across the United States where insurer participation has dropped and premiums have gone up, and questions remain about what it will take to ensure long-term participation by the nation's largest carriers.

Yet nationwide this law has remained largely stable. Its consumer-based model is predicted to keep most exchanges functional without intervention and any discussion of the ACA's failures should consider its success at insuring roughly 15 million Americans despite a Congress determined to engineer its failure.

In other words, it's complicated.

The AHCA was written to solve a crisis that doesn't exist and accordingly accepts sacrifices it doesn't need to. It's akin to a doctor who wants to amputate the patient's leg; a reasonable solution if gangrene has set in, but disastrous in case of a botched diagnosis.

Fiscal Misalignments

There are numerous areas where the AHCA misaligns its fiscal priorities.

The law replaces Obamacare's need-based subsidy scheme with an age-based tax-credit. According to a Kaiser Family Foundation analysis, this will provide substantially less support for "people who are older, lower-income, or who live in high-premium areas" and more generous funding for those who are "younger, higher-income, or who live in low-premium areas."

This will shift money specifically away from the groups most likely to need support.

In addition, Fendrick said, "a very important stipulation is that the maximum [premium] difference for older folks has increased from three times to five times."

The result is that, while older consumers will get additional tax credits, their premiums will go up even faster still.

Rearranging the support base by age rather than need will have two effects. First, it will price out many young-but-sick consumers whose premiums reflect their health status rather than their age. Second, it will further incentivize the young and healthy to wait out the insurance market by giving them less money with which to participate.

Similar to the redesigned individual mandate, this will skew risk pools.

A Focus on Premiums vs. Spending

"For the people who have coverage, meaning they are in an insurance plan, what is the extent of the out of pocket exposure they have to get the care they need?" Fendrick said. "That's the premiums, deductibles, copayments and coinsurance."

"I think one of the somewhat surprising elements of the bill was the fact that they kept in the essential health benefits, the ten classes of benefits that need to be covered [but] just because it's covered doesn't mean that you're going to be able to afford them."

Given its focus on reduced premiums and catastrophic coverage insurance, the AHCA will create more consumers with have high out-of-pocket costs. The law will then repeal the ACA's subsidies for out-of-pocket expenses in 2020, creating a substantial pool of consumers with health insurance that is cheap to purchase but very expensive to use.

As we have covered in this space before, one of the biggest problems of the health care debate is that lawmakers often focus on premiums to the exclusion of other out of pocket expenses. Yet even a patient with affordable health insurance can still lack health care if he can't afford the associated costs such as the deductible and co-pays.

This is a major potential problem with the AHCA.

It's important to note again that this is not to call Obamacare an unmitigated success. However these are only five of the several reasons why the AHCA has drawn so much criticism in recent days.

By all measures, this law seems poised to fail. The CBO predicts that it will cause 24 million people to lose their insurance, the Office of Management and Budget places that estimate higher at 26 million. (http://www.politico.com/story/2017/03/obamacare-uninsured-white-house-236019) Government spending will go down due to fewer tax credits, but consumer spending will go considerably up among those who can still afford to buy health insurance.

The question in Washington remains whether Republicans will push forward nevertheless.