The American Health Care Act: Potential Effects on ARM

March 20th, 2017

Seven years after former President Barack Obama signed his signature bill, The Patient Protection and Affordable Care Act (ACA), there may actually be a repeal and replacement bill, hopefully fixing some of the problems incurred through the ACA. Among others, a few of goals of a repeal and replace bill were:

  • Repealing the individual mandate, which was, in essence, a tax on people who didn’t have health insurance.
  • Lowering the rising premium costs that made many of the health insurance plans on the ACA marketplace either unaffordable or simply not comprehensive enough (i.e., low quality) to justify the costs.
  • Alleviating the “failing” health insurance market for the ACA marketplace, in which numerous health insurance providers exited or vowed to exit due to financial losses.

In general, Congressional and Senate Republicans have vehemently opposed the ACA since its inception. With a majority in both the House of Representatives and Senate, in addition to President Trump’s ACA-related agenda, they should be able to finally act upon their wishes and repeal and replace the ACA. Recently, the House Speaker and other members of the House presented their solution: The American Health Care Act (AHCA), which has caused significant outrage on both party lines for various reasons.

  • More conservative Republicans believe that the AHCA doesn’t go far enough to repeal the ACA since it still provides an entitlement feature through health insurance tax credits, among other things.
  • Democrats strongly oppose many facets of the bill, notably its Medicaid roll-back after 2020 and its toll on low-income earners by reducing the health insurance subsidies (ACA provided subsidies based on income level, whereas the AHCA facilitates tax credits scaling with age).

However, all of this was pure conceptual speculation. That was until the Congressional Budget Office (CBO), the government’s independent economic and statistical “judge” or “calculator”, provided its analysis on Monday, March 13. In all, the CBO’s report provides positive and negative takeaways to the proposed AHCA in its current form. The chart below highlights a few of its findings:

Pretty much all of the CBO’s projections were suspected by readers of the AHCA, or those that have followed the discussions since its release last week. However, the CBO’s report provides tangible and quantitative forecasts with in-depth analyses supporting its findings and calculations, providing even more ammo for both sides of the political spectrum. Both Democrats (24 million more uninsured individuals by 2026 and higher costs for older enrollees) and Republicans (lowering the federal deficit by $337 billion by 2026, and ultimately, lowering premiums in the long-term) have tangible, quantitative evidence to support each of their claims and arguments in favor or against the bill.

It’ll be interesting to see how things develop in the coming weeks and whether there’ll be significant discussions on the AHCA, leading to substantial revisions and/or amendments to help progress or even kill the bill. If the bill becomes law in its current form, however, it may have a significant impact on the ARM industry:

  • Healthcare bad debt will transfer from individuals (and insurers) to hospitals (in the long-run) since premiums will be lower, reducing the monthly costs of health insurance for consumers, but there’ll be substantially more uninsured individuals throughout the economy, leading to more “emergency” visits and unplanned healthcare expenditures, which many of these uninsured, low-income individuals won’t be able to afford.
  • Older, low-income enrollees in rural areas are projected to be negatively impacted the most, potentially leading to a consumer preference shift towards these individuals reserving more money for healthcare expenditures instead of general economic and goods consumption.

In all, this bodes well for ARM companies servicing the healthcare industry, as overall healthcare bad debts for consumers should rise. However, much of ARM services will be on behalf of healthcare providers (e.g., hospitals and physicians’ offices) instead of consumers. Additionally, there should be less required collection services with regards to health insurance providers since, under the AHCA, they should be better able to turn a profit and pay for health insurance enrollees.

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