How Could They Make It Worse   Leave a comment

So when Rick and I started our series, we didn’t yet know what Congress was going to propose for certain, but they came out with the House plan now (March 8), so we decided to write up our impressions.

The draft House health insurance bill fails to correct the features of Obamacare that drove up health insurance and medical care costs and mainly just tweaks Obamacare’s financing and subsidy structure.

The bill focuses on protecting those who gained subsidized coverage through the law’s exchange subsidies and Medicaid expansion, while failing to correct Obamacare’s misguided insurance regulations that drove up premiums for Americans buying coverage without government subsidies.

 

The draft bill leaves Obamacare’s costly insurance regulations in place and attempts to offset those costs with the same basic approach.

Approximately 22 million individuals currently receive subsidized health insurance coverage through the exchanges (8 million) and the Medicaid expansion (14 million). For them, Obamacare’s higher insurance costs are offset by the law’s subsidies.

About 25 million Americans with unsubsidized individual-market coverage (10 million people) or small-employer plans (15+ million people) are the ones who most need relief from Obamacare that can only be supplied by repeal, and they probably don’t care about or for replacement. Their experience of Obamacare has basically been “all pain, no gain,” as they have been subjected to significant premium increases and coverage dislocations with no offsetting subsidies.

Unfortunately, the draft House bill provides no meaningful relief for that group of middle-class Americans who are most adversely affected by Obamacare and are most supportive of repeal.

The draft bill leaves Obamacare’s costly insurance regulations in place and attempts to offset those costs with even more subsidies.

The draft bill’s new Patient and State Stability Fund is particularly problematic. It would provide grants to states of up to a total of $100 billion over the nine years, 2018-2026. What are the significant problems with this new program? They’re substantial.

  • It substitutes new funding for old Obamacare funding without adequately addressing the misguided Obamacare insurance market rules and subsidy design that made the exchanges a magnet for high-cost patients. Those Obamacare mistakes created an insupportable burden on the individual insurance market by concentrating expensive patients in only that small portion of the total market.
  • Like Obamacare, it doesn’t actually reduce premiums, but rather uses subsidies to mask the effects of Obamacare provisions that drove up premiums in the first place.
  • It creates a new entitlement for states.

Furthermore, without a resulting reduction in unsubsidized premium levels, future Congresses will likely face pressure from states and constituents to extend and expand the program. It will become a creeping Medicaid-like drain on resources that will destroy medical care access in this country. Under the Medicaid expansion, the federal government reimbursed states 100 percent of the cost of expanding Medicaid to able-bodied adults, with federal support eventually declining to 90 percent. These are able-bodied people who earn a living (in Alaska, up to $52,000 a year for a family of four) and their medical care is paid for by the taxpayers.

Yet, states continue to receive significantly less federal assistance (50 percent to 75 percent, depending on the state) for covering the more vulnerable populations (such as poor children and the disabled) that the program was intended for. That policy was both inequitable and unaffordable.

The draft bill does not correct that inequity, but rather reduces the enhanced match rate from 95 percent to 80 percent. The better approach would be to allow states to immediately cap expansion population enrollment, while also setting federal reimbursement for any new expansion enrollees at normal state match rates.

Such changes would likely limit the addition of new individuals to the program, and also substantially reduce the size of the federal revenue loss that expansion states will incur when the program terminates. That is because a significant share of current enrollees can be expected to leave the program for other coverage during the transition period.

Yet another policy mistake is the failure to take the first step toward providing more equitable tax treatment of health insurance.

The House version drops a proposed cap on the unlimited tax exclusion on employment-based health insurance contained in an earlier version, while retaining the so-called “Cadillac tax”—the 40 percent excise tax on so-called “high-cost plans”—and delaying its implementation until 2025.

Congress should kill this punitive excise tax and replace it with a cap on pre-tax funding so as to encourage employers & workers to evaluate the trade-off between higher health care spending and higher cash wages, to rethink how much of total employee compensation should be devoted to health benefits.

While the Cadillac tax would force employers to alter the health benefit plans that they provide their workers, no such effect would result from the cap on the exclusion. It would instead limit the amount of employer health benefits that constitute pre-tax income to workers, which would make the tax treatment of employer-sponsored health benefits consistent with the tax treatment of other benefits (such as retirement savings plans, group life insurance, and dependent care) offered by employers.

Workers would still be able to use after-tax income to purchase additional coverage, just as they can with other employer benefits, and the employer would still be able to offer a plan whose value exceeds the level of the cap on pre-tax funding.

This bill misses the mark primarily because it fails to correct the features of Obamacare that drove up health care costs. Congress should continue to focus on first repealing the failed policy of Obamacare and then act to offer patient-centered, market-based replacement reforms. Stop making patients into a group where things are done to them and put them back in control of their own health care.

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