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Admit it: Republicans’ proposed Obamacare overhaul offers relief for some middle earners

Summary:
WHAT is the best part of House Republicans’ proposed reform of Obamacare? There isn’t one, if you believe much of this week’s commentary. The bill will benefit the young and healthy, by bringing their premiums down, but only at the cost of the old and sickly. But most writers are overlooking the help the bill would offer to one group that has clearly suffered unfairly under Obamacare. So long as Paul Ryan’s reform does not send the market into a death spiral—which is not a sure thing (see article)—this group will get some needed financial assistance under the Republican plan.I'm talking about people who buy health insurance for themselves, rather than through an employer, and who do not get the subsidies which shield those on low incomes from Obamacare’s high premiums. It is easy to overlook this group, because the vast majority of the 10m people who buy insurance through Obamacare’s websites (or "exchanges") receive subsidies. For example, here is Jared Bernstein, Vice-President Joe Biden's former chief economist, in the Washington Post:Of course, there’s the infamous, headline-generating 2017 premium increases in the non-group market. After growing 2 and 7 percent in 2015 and 2016, insurers in the state-based exchanges raised the cost of the benchmark plan by an average of 25 percent. To Obamacare critics, this was proof of the program’s unsustainability.

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WHAT is the best part of House Republicans’ proposed reform of Obamacare? There isn’t one, if you believe much of this week’s commentary. The bill will benefit the young and healthy, by bringing their premiums down, but only at the cost of the old and sickly. But most writers are overlooking the help the bill would offer to one group that has clearly suffered unfairly under Obamacare. So long as Paul Ryan’s reform does not send the market into a death spiral—which is not a sure thing (see article)—this group will get some needed financial assistance under the Republican plan.

I'm talking about people who buy health insurance for themselves, rather than through an employer, and who do not get the subsidies which shield those on low incomes from Obamacare’s high premiums. It is easy to overlook this group, because the vast majority of the 10m people who buy insurance through Obamacare’s websites (or "exchanges") receive subsidies. For example, here is Jared Bernstein, Vice-President Joe Biden's former chief economist, in the Washington Post:

Of course, there’s the infamous, headline-generating 2017 premium increases in the non-group market. After growing 2 and 7 percent in 2015 and 2016, insurers in the state-based exchanges raised the cost of the benchmark plan by an average of 25 percent. To Obamacare critics, this was proof of the program’s unsustainability. But because 85 percent of participants in this market (state exchanges) receive premium tax credits to offset the cost of coverage, they do not face the full shock. 

What Mr Bernstein does not mention is that another 8m Americans buy coverage directly from insurers, without going through the exchanges. These buyers get no subsidies. But they must pay the same prices as those who do, because the law forces everybody in the individual marketplace—on or off the exchanges—into the same “risk-pool”. 

In total, there are 9m unsubsidised buyers for whom criticisms of Obamacare resonate strongly. Most of these people are not rich: a family-of-four stops receiving subsidies at an income of just under $100,000. Obamacare forced such buyers onto the same plans as a lot of people with pre-existing medical conditions who could not previously afford insurance. That pushed their premiums and deductibles up—and they have risen further over time. Here’s an example from a piece I wrote last September:

Before the law, Brian Anderson, a 30-something orthodontist from Nashville, paid $80 a month for insurance that came with a $5,000 deductible. In 2014 his insurer cancelled the plan, as it did not now comply with the law. His new plan, from healthcare.gov, provides, in his view, essentially the same coverage—the deductible is in fact higher—but costs fully $201 per month. Mr Anderson says he is glad many more people now have insurance. But the estimated 2.6m others whose plans were cancelled that year may not all be as understanding.  

Since I wrote that, Mr Anderson’s insurer has dropped out of his local marketplace, and he has had to switch to a plan costing over $400 a month. You can understand why someone who has seen their premium go up by over 300% would be disillusioned with the law.

Does this matter?  A family-of-four earning $100,000 is clearly not poor. However, they face very high prices for health insurance. In much of Arizona, for instance, they would have to pay over $22,000 per year—almost a quarter of their pre-tax income—for “silver” coverage, according to the Kaiser Family Foundation’s Obamacare calculator.  And that is before you count their out-of-pocket medical costs. When Donald Trump says that Obamacare is a “disaster”, such a family would look at their health insurance options and agree.

The House Republican plan offers this group some help. Individuals earning less than $75,000, and couples earning less than $150,000, will get a big tax credit to help them with their premiums. (Minnesota has already passed “premium relief” for such buyers).

Is that a good thing? Obamacare explicitly tries to spread the costs of health insurance around, in order to increase coverage. Unfortunately, it does so only in the individual market. The 155m Americans who get health insurance through their employers need not foot the bill for unhealthy people on the exchanges. Not only that, but this coddled group also gets a tax break on their coverage. People in the individual market have a right to feel hard done by. The best thing about Mr Ryan’s tax credit is that it begins to redress the imbalance. 

I am not suggesting that helping this group justifies removing means-tested subsidies for the poor. But I am pushing back on the idea that Obamacare's redistribution only hurt the "rich". Here is Matthew Yglesias at Vox (emphasis added):

Policy-minded conservatives have serious criticisms of President Obama’s health care law. They think it taxes rich people too much, and coddles Americans with excessively generous, excessively subsidized health insurance plans. They want a world of lower taxes on millionaires while millions of Americans put “skin in the game” in the form of higher deductibles and copayments. Exactly the opposite, in other words, of what Republican politicians have been promising.

Mr Yglesias portrays Obamacare's redistribution as flowing primarily from rich to poor. But his chart shows something else: that it hurts middle-income groups most. That is consistent with the experience of millions of Americans in the individual market who have seen their premiums soar while they have received no help from the government. They are treated unfairly by the system as it stands, and should not be ignored when thinking about health care reform.

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