President Barack Obama loves the false talking point that critics of the Affordable Care Act have no alternative proposals.
In truth, there have been many such proposals, advanced by individual Republican presidential candidates, congressional working groups, and think tanks. The political problem for Republicans is that they haven’t been able to rally as a party behind a single proposal that could be easily presented to the electorate.
House Rules Committee chairman Pete Sessions (R-TX) and Senator Bill Cassidy (R-LA), who is a medical doctor, have been building support for a reform bill with a simple, straightforward premise: replace ObamaCare’s maze of expensive, ineffective mandates and subsidies with a universal tax credit for health insurance. The bill’s other features are designed to maximize the power of competition in the insurance market, making it attractive for consumers to buy private-sector coverage – and for the private sector to sell quality products at reasonable prices, without massive taxpayer subsidies and bailouts.
The Sessions-Cassidy bill had a highly successful public debut this month, at a meeting of the Repeal Coalition – a group of activists, policy experts, and Congressional aides specializing in health care issues. With lessons learned from the failures of both ObamaCare and previous efforts to repeal it, the new bill is tuned up and ready for the 2016 election race.
The Sessions-Cassidy plan is based on the work of John C. Goodman, president of the Goodman Institute for Public Policy Research.
Goodman explained that a great deal of the Affordable Care Act’s unwieldy bureaucracy, expensive subsidies, and perverse incentives would be erased by the introduction of a $2,500 tax credit for each adult to purchase insurance, along with the removal of the restrictions and mandates currently forcing ObamaCare premiums into the stratosphere.
This would create powerful incentives for insurance companies to offer competitive products pitched at the $2,500 price point, allowing customers to buy insurance with minimal out-of-pocket expense. The tax credit would be vastly easier to administer than ObamaCare’s labyrinthine mandates, and far more effective at extending coverage to the uninsured, whose numbers remain far higher than the Affordable Care Act’s designers predicted.
The current regulatory environment treats consumers like a problem, and health insurance as a burden, which young and healthy people are expected to shoulder, by paying for absurdly expensive and comprehensive policies. The insurance industry is panicking because the “young healthies” are refusing to buy those policies, even when they are fined heavily for refusing to comply, through the notorious individual mandate. Meanwhile, unhealthy customers are proving to be far more expensive than ObamaCare anticipated.
Goodman predicts “ninety percent of the uninsured will be insured” if his proposal is embraced, because more people will see reasonably priced insurance policies as an attractive purchase, and the industry will view them as reasonably profitable customers. Employers would no longer view health insurance as a curse to be avoided, by reducing employee hours and downsizing staff.
One intriguing aspect of the tax-credit proposal is the way it handles the remaining “hard-core uninsured.” ObamaCare has proven very unsuccessful at this – emergency room visits increased after the Affordable Care Act went into effect, for reasons policy experts are still trying to get a handle on. For many American voters, the cost of treating uninsured patients in emergency rooms, which was passed along to the insured through higher premiums, was a major reason for accepting ObamaCare’s mandates.
Goodman explained that the Sessions-Cassidy proposal has a simple and elegant method for handling the cost of the hard-core uninsured: the unclaimed tax credits from people who don’t buy insurance will fund a system of local “backstop” institutions for uninsured patients who cannot pay their bills for emergency care, and are not covered by Medicaid.
As for Medicaid, the current expansion would be left largely intact, although Goodman stressed the importance of decentralizing Medicaid through block grants to the states. He anticipated the competitive appeal of private insurance, with more “doctors, facilities, and access,” would engineer a desirable shift away from Medicaid into the more inexpensive private plans, as prices came down to meet the $2,500 tax credit threshold.
The higher cost of caring for less healthy enrollees is handled by another innovative proposal – although, as Goodman pointed out, it’s actually a time-tested feature of the Medicare Advantage program, so it’s not an elaborate theory awaiting a brutal collision with reality, as so much of ObamaCare was.
As Goodman puts it, ObamaCare was designed on the theory that “only sick people pay attention to networks, and the healthy buy on price.” In other words, healthy consumers are primarily interested in how much their coverage will cost, paying relatively little attention to details such as the size of the provider network. That’s why ObamaCare’s premiums are so often controlled by restricting access to providers.
Conversely, Goodman explained, insurance companies have strong incentives to “attract the healthy and avoid the sick,” because healthy customers are vastly more profitable. The Affordable Care Act addressed this with mandates requiring coverage for sicker patients without commensurate cost increases, forcing insurers to lose money (a lot of money, as it turns out) on enrollees with existing conditions, and make it up with exorbitant premiums for healthy customers.
In the Sessions-Cassidy proposal, “health status risk adjustments” are employed to make “sick enrollees as desirable as healthy enrollees,” without the Affordable Care Act’s combination of mandates and subsidies. In essence, each enrollee is covered by a separate insurance policy to cover the cost of major changes in health status – i.e. developing a serious, costly medical condition.
The system would be far more transparent than the current approach, which attempts to hide the cost of covering less healthy patients in the thick fog of jacked-up premiums and taxpayer subsidies. Also, as Goodman pointed out, health status risk adjustments are mostly a business affair between insurance companies – they pay each other, keeping both consumers and the federal bureaucracy out of it.
A further benefit would be the end of strict regulations for buying insurance during certain enrollment periods, which Goodman noted have become a major irritant for ObamaCare customers, and the source of much confusion during tax/penalty calculations at the end of the tax year.
With a universal tax credit for everyone, and health status risk insurance, there would be no reason not to allow people to switch insurance whenever they wish, no reason for insurance companies to push sick customers away, and very little difference between the individual and group insurance markets.
De-nationalized and de-regulated insurance exchanges for the individual market would be far more competitive, and pleasant, marketplaces than the current ObamaCare exchanges – which are increasingly offering only a single provider option for customers, where they haven’t collapsed altogether, due to insurance companies exiting the system.
Goodman has long been an advocate of health savings accounts, and they are an important feature of the Sessions-Cassidy proposal, allowing consumers to save up to $5,000 per year toward out-of-pocket expenses. HSAs have proven to be popular choices when available to consumers, and they inspire competition in much the same way as the universal tax credit would, giving providers powerful incentives to compete on cost and quality.
Also, they would go a long way toward addressing consumer complaints about the enormous deductibles and co-payments of Affordable Care Act policies, which make it difficult for many enrollees to actually use their benefits. Is it truly honest to sell people heavily-subsidized insurance plans that provide no real benefit until huge out-of-pocket payments have been made – creating an illusion of “coverage” that shatters the moment serious illness strikes?
No one likes to get sick. The Affordable Care Act works from the premise that no one wants to buy health insurance, and no one really wants to sell it, either. The whole dreary marketplace is a prison for both providers and consumers, overseen by government wardens who ensure desirable behavior with subsidy carrots and mandate sticks.
ObamaCare defenders have been simply astonished by the ineffectiveness of both the carrots and sticks. The level of resistance to every aspect of the system is far beyond what they anticipated, a failure concealed mostly by the gigantic expansion of Medicaid… which is really only a stopgap measure, given the financial realities of Medicaid programs, and the unsatisfactory experience of both medical providers and patients under that system.
The Sessions-Cassidy plan isn’t just a “fix,” although part of its sales pitch will be the relative ease of implementing it, with some aspects of the Affordable Care Act left running for the convenience of their beneficiaries. This is a paradigm shift, a reinvention of health insurance as a product that is desirable to both buy and sell.
It’s not truly “fair” to anyone for the costs of insurance and medicine to be hidden in the thick stew of taxes, regulatory costs, and subsidies. Put a good deal on the table, with honest sales pitches from competing vendors, and let free people decide how they want to spend their money… with a little help from a simple, transparent, universal tax credit that won’t require 22,000 pages of regulations, an army of IRS agents, and a horde of Health and Human Services bureaucrats to administer.