Compromising for Freedom   Leave a comment

The “Patient Freedom Act” is a compromise, a bill that recognizes that an outright repeal and replacement of Obamacare is a heavy political lift. It also recognizes that the persistence of Obamacare nationwide is likely to be challenging and expensive. It relies on fiscal federalism — the federal government collects the money (more likely prints it) and gives it to states (kind of like expanded Medicaid) who can then choose to keep their Obamacare if they like. Alternatively, the states can receive about the same amount of money and use it to provide healthcare in different ways.

The Cassidy-Collins Patient Freedom Act has several great virtues.It’ll probably make more people happy. People tend to choose the state they live in because of its culture suits their political views, so decentralization of power leads to more people getting their way.

It allows for experimentation. Nobody really knows what works in healthcare coverage. Obamacare was a singular experiment that has failed gloriously. It has helped some people receive useful healthcare, but it has also failed to meet expectations by being more expensive per person than anticipated while covering fewer people. (Cue up reflexive mutual blame by Republicans and Democrats here). And while we can point all we want to Canada or Britain or Singapore and assert that adoption of their system would be great, the truth is we don’t know how well those systems work when they are inserted into a society with a different history, different medical traditions and a different culture.

Cassidy-Collins lets each state give it their best shot. Let’s actually see what happens when the states can use federal dollars to provide healthcare to their people. It’s not as if most state legislatures are greatly more dysfunctional than their monolithic counterpart in Washington, DC. Probably some states will use the money poorly. There may be people who would be better off under Obamacare than they will be under a state-fashioned alternative. Still, I suspect there are many states that will use the money wisely and there will definitely be people who will be considerably better off under the state alternative than they would if Obamacare insurance was unaffordable or the state’s medical markets had been distorted beyond recognition as a result of the interplay of numerous federal policies.

More importantly, the Cassidy-Collins Patient Freedom Act would permit states to learn from each other and adapt in a way that is not possible under Obamacare and that would be challenging under some of the other Republican alternatives. Maybe a Vermont single payer system really will work wonders without requiring massive tax hikes, though I doubt it. Maybe a Texas approach based more on health savings accounts will result in smarter and cheaper healthcare without worsening health among the poor. Unfortunately, bad Supreme Court decisions like Shapiro v. Thompson make it hard for one state to be particularly generous with social benefits lest it become a nationwide magnet for the poor, but there are still enough impediments to interstate movement to allow for considerable state flexibility.

It’s also one of the few proposals that can actually be implemented before Obamacare collapses. Like it or not, the friendly environment in which Obamacare has limped on is about to disappear. The reinsurance subsidies for insurers have gone away. The IRS under President Trump has weakened the individual mandate by deliberately perpetuating what might have been seen as a bug in its enforcement: it has “discovered” that it’s apparently optional to indicate that you have qualifying health insurance coverage on your 1040 tax return. As a result of the complete dysfunctionality of Obamacare, insurers are already departing or threatening to depart for 2018 if market reforms are not made. It’s highly unlikely that Republicans are really going to shore up Obamacare greatly while we wait for formation, enactment and implementation of their replacement. I suspect the Trump administration has a rule pending that modifies special enrollment and does a few other things that will marginally increase the stability of Obamacare, but that’s a blue tarp over one hole on a roof that leaks like a sieve.

That said, Cassidy Collins is neither perfect in concept or details. As currently conceived, it’s way, way too expensive. The Patient Freedom Act says that each state gets 95% of the amount that their residents would have received in Obamacare premium tax credits and cost-sharing reductions. Precisely because the ACA has increased premiums greatly over original projections, provision of premium tax credits and cost-sharing reductions is costing the federal government a large sum of money. This expense persists even though enrollment on the ACA exchanges is far less than original projections. So paying 95% of a really large sum of money is still placing a heavy burden on the federal government, which really can’t raise tax and seems seriously unwilling to reallocate funds from other federal programs. Moreover, the federal government currently saves tens of billions per year when states refuse to go along with expanded Medicaid. The Cassidy-Collins Patient Freedom Act ends that unequal treatment, but it does so in a very expensive way by giving non-expanding states basically the same amount of money as expanding states, 95% of what “would have been received” had the state expanded Medicaid. Given what we are seeing on the healthcare expenses of the population in expanded Medicaid, this equal treatment of the states could be a stunningly expensive component of the proposal.

The “would have received” language in the bill also leaves a lot to interpretation that could easily lead to escalating federal obligations. There are lots of important questions.

  • Will the formula just count people who actually enrolled in the state or will it count people who could have enrolled?
  • How will the formula work in states that choose not to continue with Obamacare?
  • How will the formula work in states that have never expanded Medicaid?
  • How do we know which people would have enrolled on the exchanges or what their subsidy-determining financial situation would have been?
  • How would we know in 2020 what the premiums would have been in, say, Texas, if Texas discontinued Obamacare in 2018?
  • And how could one compute cost-sharing reduction obligations, which requires knowledge of the premium charged by each insurer and the number of policies purchased from each insurer?
  • How do we know how many people would have enrolled in expanded Medicaid if the state had gone along with it?

Yes, a tight-fisted administration could likely answer these questions and interpret “would have received”language  in such a manner that the overall bill did not escalate dramatically, but there is an equal risk that an administration eager to please constituents and willing to engage in yet more debt finance could interpret “would have received” in a way that was extremely costly.

We may already be looking at a $30 trillion gross federal debt amount in 2027, which will be 107% of projected GDP, which would put the United States into the Italy-Portugal zone of fiscal recklessness. The Patient Freedom Act would be improved if the amount paid by the federal government was diminished well below 95% of the “would-have-received” amount, with states being free, if their own taxpayers oblige, to provide additional appropriations for additional benefits. The Patient Freedom Act would be further improved if a specific schedule were in place for its aggregate budget.

Conceptually, the Patient Freedom Act is a bit strange. Instead of saying that states can use the money either for perpetuated Obamacare or for a plan featuring health savings accounts and high risk pools, why not just have the federal government give states the money and say that they can, within broad limits, do what they want with it in order to address healthcare? What if a state wanted to keep most of Obamacare but let insurers charge its oldest enrollees more than three times what it charges the youngest adults? What if a state wanted to keep many of the ideas of Obamacare but use a different income-based schedule to determine subsidies? If block grants are good enough for Medicaid, why are they not good enough for other forms of healthcare insurance? And, of course, the Patient Freedom Act exemplifies the conceptual issues with “fiscal federalism.” If states want to provide generous healthcare coverage, why not let them raise their own taxes and face clear accountability for their decisions rather than relying on a more elaborate system in which the federal government taxes and then gives some money back to the states.

The Cassidy-Collins Patient Freedom Act needs considerable work and has some conceptual challenges. Rick isn’t ready to dismiss it entirely. He thinks that it might be a tolerable bride with some work on the details. I suspect the Patient Freedom Act is going to be a big lift for a couple of reasons. Liberals will insist fellow United States citizens in less enlightened states will be denied the benefits of the signature accomplishment of their beloved president. ACA despisers, particularly those in red states, will see their tax money continue to go to what they regard as an expensive, freedom-infringing federal government system. They probably also have trouble with accepting that they control the Presidency and both houses of Congress and still can’t come up with an idea that is ideologically pure, politically palatable, and economically sound. Deficit hawks should be mortified at what it will all cost. I predict the Cassidy-Collins bill won’t become an actual viable option until Obamacare is clearly in collapse and then it might actually be more palatable to everyone simply because something is required rather than just an option.

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