The following is jointly authored by Aaron and Austin
For years now, we have heard that those opposed to Obamacare had a plan to “repeal and replace” it. They’ve certainly been working on the “repeal” part. In fact, some House Republicans are willing to shut down the government, if not risk U.S. default on its debt obligations, if Obamacare is not repealed. So, we know what they’re against, but what are they for. We’ve not heard a word about “replace”.
That’s not terribly surprising. Reforming the health care system to cover more people and to reduce the rate of growth of health spending is hard. The Affordable care Act (ACA), love it or hate it, was designed to do these things. It reforms the individual insurance market through exchanges and provides subsidies to those with low to moderate incomes to help them purchase insurance. It also includes some reforms aimed at lowering the rate of growth of health care spending, though it is not yet clear to what extent it will do so. The law was designed to balance its costs (coverage expansion) with reduced health care spending (Medicare payment cuts) and new revenue (taxes).
The law’s opponents have claimed it costs too much, will result in rationing, and limit freedom. Today, a group of House conservatives presented their version of a replacement plan, endorsed by the Republican Study Committee. In short, it throws poor Americans under the bus.
The centerpiece of the plan is a universal, standard tax deduction of health insurance premiums, up to $7,500 for an individual and $20,000 for a family. This would level a playing field that is uneven today.
Today, only insurance purchased through work is tax deductible. People who don’t get insurance through their jobs don’t get a deduction.
There are two problems with the House plan though. The first is that it will obviously cost a lot of money. How much is not clear, but it won’t be insignificant. How will that be paid for? The second is that a tax deduction is much more valuable to someone who makes a lot of money than someone who makes little. But people with large incomes aren’t the ones who need help affording coverage. It’s those at the lower end of the socioeconomic spectrum who need the most assistance. Because of their low marginal tax rates, a tax deduction is of very little help.
Sick Americans would receive very little help under the plan too. One of the ways the ACA helps the sick is by eliminating the ability of insurers to refuse to cover them (guaranteed issue) or to charge them more for being ill (community rating). The House plan weakens the guaranteed issue protection by extending it only to those who have continuous coverage. If you dropped (or were forced out) of prior coverage, you may not be able to get back in the market.
For sick Americans, it replaces the ACA’s protections with a high risk pool in which premiums are capped at 200% of what healthy people pay in the rest of the market. To help offset the cost, the proposal sets aside $25 billion over 10 years. Still, sick people will pay very high premiums. If they become poor due to loss of work from their illness, they still have to pay those high premiums, or go uninsured.
The plan includes a number of provisions that would encourage and expand the use of health savings accounts (HSAs). These are personal accounts that can be used to buy health care services or pay cost-sharing tax free. Again, the favorable tax treatment is of very little value to low income Americans. Moreover, low income Americans don’t have a lot of money to put aside for their future health care use. HSAs might be a helpful step. But they alone won’t help everyone.
The rest of the proposal is a grab bag of old ideas that cannot work well as sketched out, won’t do very much, or are wasteful giveaways. For example, allowing insurers to sell policies across state lines would invite a “race to the bottom.” In time, all insurance would originate from states with the least regulation. The policies will be cheaper. But they’ll also be skimpier. They’ll be great if you’re young, healthy, or wealthy enough to afford to fill in the coverage gaps. They’ll be terrible if you are older, have a chronic condition, or, again, if you’re low income.
The plan would reform medical malpractice by capping damages. However, studies show, malpractice suits doesn’t contribute as much to higher health spending as people think.
Finally, the plan includes giveaways to the wellness industry, increasing the amount by which plans can increase premiums for those who don’t meet health standards. This is unlikely to do more than make sick people pay more for coverage. It would also permit gym memberships and nutritional supplements to be purchased tax free, up to a cap. These are giveaways to the fitness and supplements industry, as well as to people at the higher end of the socioeconomic spectrum who are more likely to go to gyms and use supplements anyway.
There are some other provisions, including removing government support for comparative effectiveness research, but these are the high notes.
The Affordable Care Act is intended to help people who don’t have insurance, especially those who are less than healthy, get it. The House proposal is intended to make insurance cheaper and easier to get if you are healthy.
We understand that putting together a health plan is challenging. Nothing good comes without limitations and costs. That’s true of the House plan as well as the ACA. But if you’re committed to coming up with a way to expanding coverage while preserving the private insurance market, at least the ACA follows an established model. It happens to be how Massachusetts did it. It’s how Switzerland did it. And it’s how the conservative Heritage Foundation suggested doing it in 1989.
The House is claiming it has a new way. But to us it only looks like a way back to the same problems that plague the system today.
