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posted on 08 May 2017

AHCA Solves Little

Written by , Clarity Financial

First, everyone just calm the **** down.

The passage of the American Health Care Act by Congress last week does nothing immediately. Nobody is going to die. No one will lose access to health care. The world will not end.


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All that happens now is the bill moves to the Senate where it will likely be dead on arrival. Given the bill only passed by 4-votes in the House, there is a much narrower spread of leadership in the Senate. The bill will likely get tied up in debates, and even it does somehow miraculously get passed out of the Senate, whatever changes are made will likely lead to a loss when it returns back to Congress for a final vote.

Then we will get to restart this whole process over again.

This also means that tax reform, repatriation, and infrastructure spending are likely much further down the road than currently estimated.

One thing, however, is for certain - Obama no longer owns “the failed healthcare plan."

It now squarely rests on the shoulders of President Trump and the Republican party. Since the current construction will increase healthcare costs and government debt, the opposite of why Trump was elected, it will likely cost Republicans control of House and Senate in the next election.

The ACHA, or now known as “Trump Care," is roughly 90% ObamaCare with the taxes stripped out of it. Here are the details as provided by Goldman Sachs on Friday:

COVERAGE

  • It would allow young adults to stay on their parents’ health plan until age 26.

  • The bill would let states opt out of Obamacare’s mandate that insurers charge the same rates on sick and healthy people.

  • It would also allow states to opt out of Obamacare’s requirement that insurers cover 10 essential health benefits, such as maternity care and prescription drug costs.

  • The measure would provide states with $100 billion, largely to fund high-risk pools to provide insurance to the sickest patients.

  • The bill also would provide $8 billion over five years to help those with pre-existing conditions pay for insurance.

  • It would let insurers mark-up premiums by 30 percent for those who have a lapse in insurance coverage of about two months or more.

  • The ability to charge older Americans up to five times more than young people. Under Obamacare, they could only charge up to three times more.

TAX

  • The bill would end in 2018 Obamacare’s income-based tax credits that help low-income people buy insurance.

  • These would be replaced with age-based tax credits ranging from $2,000 to $4,000 per year that would be capped at upper-income levels.

  • The Republican bill would abolish most Obamacare taxes, including on medical devices, health insurance premiums, indoor tanning salons, prescription medications and high-cost employer-provided insurance known as “Cadillac" plans.

  • Those taxes paid for Obamacare. Republicans have not said how they would pay for the parts of the law they want to keep.

  • The bill would also repeal the Obamacare financial penalty for the 2016 tax year for not purchasing insurance, as well as a surtax on investment income earned by upper-income Americans.

  • It would repeal the mandate that larger employers must offer insurance to their employees.

MEDICAID

  • The bill would allow the Medicaid expansion to continue until Jan. 1, 2020. After that date, expansion would end and Medicaid funding would be capped on a per-person basis.

  • State Medicaid plans would no longer have to cover some Obamacare-mandated essential health benefits, fulfilling a Republican promise to return more control to the states

The ramifications for the economy are not good. For investors it likely means a much longer wait for tax reform and the expected boost to corporate profitability. Per Goldman:

“In our view, House passage of the AHCA is likely to further delay the consideration of tax reform. House passage arguably reduces doubts that Republicans can assemble a working majority for controversial legislation in the House, which suggests that complex tax legislation might be achievable as well. However, since the House cannot act on tax reform using the ‘reconciliation’ process until the Senate has passed (or decides not to pass) its own health legislation, tax legislation looks unlikely to emerge until September in our view. Given the time it will likely take to reach an agreement on tax legislation, this suggests that enactment of tax legislation is unlikely until Q1 2018. While our base case is still that legislation is more likely than not to pass in 2018, further delays could push consideration of tax legislation too close to the upcoming midterm election, reducing the likelihood that tax legislation is enacted in the next two years."

For investors, it is a case of “Waiting On Godot." The only question is just how long will they wait.

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