A Republican health-care plan to lower insurance premiums relies on cutting payments to hospitals and doctors to the same level as federally-set Medicare rates and would require billions of dollars in extra government spending, according to an independent analysis of the policy.

The Republican amendment made Thursday adds what’s called the Federal Invisible Risk Sharing Program to the legislation to help appease conservatives and get the bill through the House. At a committee meeting to make the changes, one GOP congressman said it would lead to substantially lower premiums.

“We had an actuarial firm that did an analysis of this,” Gary Palmer, a Republican from Alabama who was one of the drafters, said Thursday. “What we believe will happen is a significant reduction in premiums.”

However, according to a 27-page assessment released Friday by the consulting firm Milliman Inc., such a proposal would likely cost the government far more than the $15 billion total over nine years that Republicans have provided for, and rely on essentially paying government-set rates paid to hospitals, doctors and other health providers to care for some sick individuals.

More expensive

Milliman analyzed several scenarios based on who gets covered under the program, and whether hospitals and doctors get paid at Medicare rates, or the higher amounts typically paid by most private insurers. Under one scenario, at the lower Medicare rates, the program would cost $6.59 billion a year, and would lower premiums by 16 percent to 31 percent. If higher commercial rates were paid, it would cost $11.3 billion a year, and reduce premiums by 12 percent to 23 percent. The estimates include other changes to insurance rules.

Without either the additional government spending or the price caps, there would be little effect on premiums, according to the analysis. If funded and successful, it would decrease the number of people without insurance by about 1 million to 2 million.

House Republicans are struggling to revive the legislation, known as the American Health Care Act, after pulling it from a vote last month because they lacked the votes to pass it. House Speaker Paul Ryan told reporters Thursday that the change to the legislation “makes this a much better bill.”

“This amendment alone is real progress and it will help us build momentum toward delivering on our pledge to the country” to repeal and replace Obamacare, Ryan said Thursday.

The Milliman analysis was requested by a conservative group called the Foundation for Government Accountability, a think tank that supports the proposal. Congressman Palmer’s press office didn’t reply to an email and a phone call with questions about the Milliman report.

Price controls?

David Anderson, a health policy researcher at Duke University, said that the policy looked like a price-control program.

“It is structurally single-payer for the chronically ill and expensive, with a private sector front-end sorting system,” said Anderson.

Republicans have typically opposed that sort of policy, and there were signs of immediate skepticism on Thursday. Representative Louie Gohmert, a Texas Republican and member of the conservative Freedom Caucus, said he was worried the program would just “give the federal government more power and more money.”

The Republican plan would subsidize the costs of expensive, sick patients -- using subsidies to keep down insurance premiums for all by making sure that people with costly conditions don’t drive up premiums for the rest of the population.

Under the Milliman analysis, if health insurers kept paying regular rates, instead of the lower Medicare rates, or if there wasn’t any federal or state funding, “the premium reduction would be 0 percent.” Milliman is an actuarial and consulting firm based in Seattle that frequently analyzes the effect of government policy changes.

Instant Insights /

GOP health plan relies on cutting payments to doctors, hospitals

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