• From the archives: Patients’ Choice Act

    Paul Ryan‘s speech on Tuesday outlined the balance of his “replace” strategy to go along with the Medicare and Medicaid reforms passed in the House Budget. A House Budget Committee spokesman confirmed via email that they are not introducing new legislation, but that Ryan’s efforts will be built upon the Patients’ Choice Act, introduced into the 111th Congress on May 20, 2009. Some of my blogging about the PCA (many links) is here and here. I wrote the following column in the Raleigh, (N.C.) News and Observer on July 24, 2009 about the Patients’ Choice Act. I think it holds up pretty well 26 months later as outlining the key issues with the PCA; I will blog more about them in the future.


    Sen. Richard Burr, R-N.C., is a co-sponsor of the Patients’ Choice Act, the major Republican health care reform alternative in Congress. It has yet to be “scored” by the Congressional Budget Office (CBO), and important details are unclear. However, this Act would represent a consequential change by repealing the tax exclusion of employer-paid insurance premiums and replacing it with tax credits. The Act differs in many ways from the Democratic bills in Congress, but there are some points of potential compromise.

    The Act would provide an advanceable, refundable tax credit ($5,710/ family or $2,290/individual) that non-elderly individuals would use to purchase insurance. States would arrange “health care exchanges” through which private insurers would voluntarily offer plans that would be mandated to provide a benefit package similar to what Congress enjoys.

    The plan would increase insurance coverage (how much is unclear) and likely result in an increase in deductibles of those covered. This is because the amount of the tax credit is less than half the current average premium ($13,000 family; $5,000 individual) of a private insurance plan. As premiums fall, deductibles rise, exposing individuals to more of the actual cost of their care. This aspect of the Act has the potential to reduce use, and therefore costs.

    Employers could still pay premiums on behalf of their employees, but this would be taxable income. If a high-deductible plan costing less than the tax credit is chosen, the balance is placed in a Health Savings Account (HSA). Families can put $5,950/year ($3,000 for individuals) into a HSA and the money can be used to pay for care or insurance premiums. Individuals would be more involved in arranging their own insurance under this plan.

    The biggest question is how the state insurance exchanges would work. There is no individual mandate to purchase insurance, but the Act envisions states developing automatic enrollment provisions whereby persons would be signed up for high-deductible plans when they did things like renew a driver’s license, unless they opted out.

    This “soft individual mandate” is important because the plan bans health insurers from denying coverage based on pre-existing conditions, so you need a way to get healthy people into the insurance pool.

    Because the tax credits can be used to buy plans both inside and outside of the state-based exchange, there is a danger that only the sickest patients will seek coverage via the exchange, since coverage cannot be denied. If this happened systematically, it could result in death spiral whereby only poor risks are included in exchange-based plans. However, the Plan notes that exchanges “shall develop mechanisms to protect enrollees from the imposition of excessive premiums, reduce adverse selection, and share risk.”

    While the devil is in the details, this vagueness provides an opportunity for compromise, as the risk adjustment provisions for setting premiums from the Kennedy-Dodd Senate HELP committee bill (on which Burr sits) could fill in the blanks and are noncontroversial. These provisions allow for the consideration of family structure, actuarial value of benefits, geographic area and age only in setting premiums (premiums couldn’t vary more than 2 to 1, oldest to youngest).

    Both plans ban exclusion on the basis of pre-existing conditions. And if auto enroll procedures are aggressive, there may only be semantic differences between Burr’s approach and the individual mandate which is included in all Democratic bills.

    The cost of the tax credits in the Patients’ Choice Act alone is likely to be larger than the amount saved by repealing the tax exclusion for employer-provided insurance. And a big question is how many persons would be insured by the Act. These two crucial pieces of information will only be available after the CBO scores the bill. The CBO is playing the role of umpire in health reform, judging all bills in terms of their cost to the federal treasury and impact on insurance rates.

    Several provisions in the Patients’ Choice Act would reduce the plan’s cost to the federal government, but these costs would mostly shift to states. The most notable such change is the proposed block-granting of the federal share of Medicaid’s long-term care coverage of the elderly and disabled, which might reduce the federal cost by up to $600 billion over 10 years.

    However, this would either increase state costs, or necessitate changing how care is provided to such persons, with the impact on access and quality of care being unclear. The plan includes several other provisions, such as changes in how Medicare Advantage plans are paid, means-testing Part D prescription benefits and a modest malpractice reform.

    The most intriguing aspect of the Act is the creation of a Health Services Commission, to be run by five commissioners appointed by the president and confirmed by the Senate. The purpose of the commission is to “enhance the quality, appropriateness, and effectiveness of health care services through the publication and enforcement of quality and price information.”

    A systematic look at the Medicare program (treatment coverage decisions, payment approaches, quality improvement strategies) that was insulated from Congress in a manner similar to the military base-closing commission would be a good first step toward addressing cost inflation in Medicare in a comprehensive and reasoned manner. Lessons learned from Medicare could then be applied more broadly to the health system.

    Any such effort will undoubtedly be called rationing by those wanting to kill it, and quality improvement and cost-effectiveness by those arguing for it. Whatever we call it, we must begin to look at inflation in the health care system generally and in Medicare in particular.

    • In order for families to obtain insurance for $5700, the deductibles are going to have to be very high. I am guessing in the $15,000-$20,000 range. At that level, many families earning below the median income will not be able to afford fairly common procedures. This will be especially true for those in their 20s and 30s, who have not had time to save much.

      This gets us back to an important first principle. What do we intend to do about those unable to pay? Do we deny care? Do we cost shift onto those who can pay? I think the wishful answer is that prices will drop so that people can afford care, but that has not been happening in the past. Why would it change now? I do not see how this works w/o significant subsidies, which would turn the PCA into the ACA.


    • @steve
      Meta level PCA and ACA are cousins, which is why in July 2009 I thought a deal could happen, but of course I was thinking in policy terms. The political rhetoric has never matched the policy reality. Keep in mind that PCA was introduced ~1 month before the Commerce Committee reported out the first version of HR3200. Some are saying “it is very different’ and I say ok mark it up in the commerce committee and/or Ways and Means and see what CBO says about it. Esp fascinated to see how they would operationalize the soft mandates that would be necessary to make this fly. I am going to write about all of this. Most people don’t seem to know about the PCA, and esp that Paul Ryan (and Coburn!) co-sponsored it before HR 3200 was passed out of a single committee..

    • Thanks Don. I read your posts on the PCA and will be interested in the updates.


    • Biggest positive: it’s the first Republican proposal in longer than I can remember that doesn’t begin and end with malpractice reform.

      Biggest negatives: As the earlier commenter noted, if there aren’t subsidies beyond the flat tax credit for lower/middle income households they’ll end up underinsured at best.

      How to make the “soft mandate” work: Why not follow Part D in instituting penalties for those who pass up coverage and only enroll later when they’re sick? It would just be a tough balancing act to make the penalties severe enough to encourage the healthy to join now, but not so severe that nobody could afford to join later. An of the wall idea: reform bankruptcy law to make it hard to discharge medical debts if incurred while you did not hold a minimum creditable insurance policy (and had income sufficient that having held such a policy at the time would be deemed reasonable).

      • @Richard Hirth
        Hey. I asked one of the sponsor’s policy people back in summer of 2009 about why there was so little on medmal and he said they really wanted to address the real problems and wanted to move things ahead. Then the country lost its collective mind during August 2009…..I don’t think ending the tax exclusion will pay for even these level of credits, so obviously they need more revenue and then it morphs into the ACA. Your ideas for soft mandate patterned on Part D makes sense, and you could also have an annual open enrollment, or just allow underwriting if you don’t get into coverage by a certain point. The policy person I was talking with in Summer 2009 was interested in auto enroll procedures when you get a drivers license (up to states) and things like that which might actually be quite effective (allow opt out). Linking bankruptcy laws to having minimum coverage is an interesting idea. If we could get to the point where we had some general agreement that we were going to cover everyone we could muddle it through on the policy. Now of course the rhetoric is toxic. Again, I wish they would mark up the PCA and get it scored

    • Wow, a tax credit of $5,700 to pay for the health care coverage for a family of four that is now $15,000 on average. What a deal.

      That Paul Ryan is even taken seriously is an indication of just how ignorant the press is on this issue. See this post here


      This type of program may well be adopted in 2013 by a Republican Congress and Republican President. The question is what will be devasted more, the health care of hte public or the health care industry?

      • I’m by no means a fan of Rep. Ryan’s plan, but by way of defense of it (yes, I can play devil’s advocate quite well), consider this:

        (1) Employers relieved of providing coverage will, over time, increase wage compensation commensurately. So the total new funds available for coverage is well beyond the $5,700 tax credit (for workers of firms that currently offer and pay a contribution toward coverage).

        (2) The idea (theory) is that once individuals are fully aware of how much health insurance really costs them, they will demand more efficient and lower cost plans. Thus, the tax credit and additional wage income will go even further.

        Having said that, I could easily argue the other side of this debate. I’m quite happy to have it with myself, but I’m sure others will help me.

        • Austin’s logic of how it would work if it worked is correct. The next step for PCA to move beyond fantasy is for the House of Representatives to mark the bill up, fill in the many details and see what CBO says about the bill. Key would be their assumption about what would happen to wages and how effective the soft mandates would be at getting people enrolled. Gonna write about this more clearly going forward. Bottom line is that PCA needs to be finished and scored

    • An America where most people have high-deductible policies may or may not be less healthy. There has been much research on the behavorial and genetic inlluences on public health.

      However, there is a big economic danger embedded in high-deductible insurance.

      Clinics and hospitals will see far less traffic. And they will stop hiring and even initiate layoffs.

      As documented by Michael Mandel and others, the health sector has helped to prop up the American labor market for the last 20 years.

      The real estate bubble also provided good jobs that were non-offshorable. When that bubble burst, unemployment shot up by at least 4%.

      The same thing would happen with universal high-deductible coverage. There is anecdotal evidence that it is starting to happen already.

      In other words, the Ryan bill might start to cure the disease of health care inflation.

      However, the cure might kill us economically.(and that will hurt public health!)

      • @bob hertz
        many steps required to get the ‘patients choice act’ or any other high deductible plan that covers many persons. As you note, one way to look at health care is it is the only part of the economy that never has a recession, so we are caught in a bit of a paradox. Also, I don’t think high deductible plans will slow cost inflation as much as many think all else equal because of the skewed nature of health care spending; once you blow through the deductible if it is true catastrophic coverage there is no incentive to slow spending….and you would go through even a huge deductible in one hospitalization almost certainly. The Goldilocks principle (not too hot, not too cold, but just right) is hard to identify and even harder still to reach.

    • I hate to admit to being so dumb, but how does “The Act would provide an advanceable, refundable tax credit ($5,710/ family or $2,290/individual) that non-elderly individuals would use to purchase insurance”? I’ve taken losses the last couple years and pay no taxes. How will a tax credit pay for insurance? Sorry but someone help this dumb guy out.