ACA Replacement and Market Reaction

Earlier this month, the Republicans issued their plan to replace the Affordable Care Act (Obamacare). Andy Friedman, “one of the nation’s most sought-after speakers on all things political” according to CNBC, recently discussed the Republican’s plan on the CNBC Nightly Business Report to share his thoughts.

 

 

The Republican plan seeks to replace the ACA subsidies that reduce the cost of insurance purchased on government-run exchanges with refundable tax credits that may be used to defray the cost of insurance purchased in private markets. The credit amount would be based on a recipient’s age and income level. The plan would also effectively repeal the Medicaid expansion beginning in 2020, and would turn Medicaid from a federal entitlement into a state-run program with capped annual federal grants, leaving the states to bear any future cost increases. Furthermore, the plan repeals virtually all of the taxes used to fund the ACA, including the 3.8% surtax on investment income, the 0.9% surtax on earned income and the medical device tax.

While this answers certain questions on what changes the Republicans are proposing to Obamacare, certain questions still remain. The primary questions left to be answered are, 1) how many people who currently have coverage under the ACA will lose that coverage under the Republican plan and 2) how much will the Republican replacement plan cost? The plan eliminates most of the funding sources, such as the 3.8% surtax on investment income. If non-partisan Congressional “scoring” determines the plan would balloon the deficit, it will run into push-back from the deficit hawks in Congress and might concern the equity markets. Similarly, if many families who have coverage under the ACA lose that coverage under the alternative, the plan will run into opposition from moderate Republican Senators who insist that their constituents not be harmed. Lastly, it remains to be determined whether the plan will prompt enough healthy people to purchase insurance to attract insurers willing to issue riskier policies that cover pre-existing conditions on the same terms.


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File #0372-2017