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More dealing needed on Ryan health bill

March 24, 2017

Remember how the Democrats did it. They created Obamacare behind closed doors. There was no real pubic vetting. No real attempt to make sure the pieces fit together in a sensible way. And no possibility of a single vote from the other party.

The House Republican Leadership seems enamored of that approach. The latest GOP replacement plan was announced last Monday after weeks of secrecy. The two relevant committees began their markup two days later – with no hearings, no vetting, no CBO score and no amendments.

Overview. This much we know for sure: the bill will repeal about $1 trillion in Obamacare taxes on the rich and the special interests. And because that revenue is not replaced, as many as 15 million people 14 million people are likely to lose their health insurance.

The Republican tax credits (although smaller than what we have now) are the same amount – regardless of income – up to $75,000 (individual) and $150,000 (couple). Also, the variation in subsidy by age does not match the variation in cost by age. That means the overall structure tends to favor the young over the old and higher income over lower income enrollees, relative to Obamacare. Nate Cohn in The New York Times shows that the people who will be the most hurt by Republican reforms are Trump voters! Surprisingly, in the nine red states that expanded Medicaid, Medicaid enrollees favored Trump over Clinton.

Obamacare was supposed to be about health reform. The GOP replacement doesn’t even pretend to do that. It does not lower costs. It insures many fewer people. It does not stop the race to the bottom in the exchanges that is so harmful to the chronically ill.

Instead, the GOP plan seems designed to make the individual market work better. That means helping Obamacare work better. For all the apparent differences, the Republicans are just as committed to the managed competition model as the Democrats were.

The GOP plan will make it harder for individuals to game the system by remaining uninsured while they are healthy and buying insurance after they get sick. Also, risk pools and reinsurance will segregate the costs of expensive patients from the general pool so that premiums can be lowered for the healthy.

Yet, in their rush to legislate the Republicans didn’t carefully think all of this through. Health insurance expert Robert Laszewski asserts flatly that GOP approach “won’t work.” As far as market stability, he says, “the scheme may even be worse than Obamacare itself.”

Here are some other features.

The Good. There are three positives: (1) a full throated Republican endorsement of refundable tax credits, (2) expansion and liberalization of Health Savings Accounts and (3) the rejection of a Republican Cadillac tax.

I believe my colleagues and I can claim some credit for all three. Tax credits for health insurance are like school vouchers. We are not going to deny children an opportunity to go to school and we are not going to allow peole to go without health care. So, our choices are to empower the customer or empower the bureaucracies. Although we have been promoting tax credits for health insurance for 25 years, the concept is still controversial in some Republican quarters.

Hard to believe, but virtually every other right of center think tank favors a Republican Cadillac tax — Heritage, AEI, Cato, Americans for Tax Reform, etc. Think how that would have looked: lowering taxes on the rich and the powerful and replacing them with taxes on working families! At our urging, this extremely politically damaging idea was apparently removed at the last minute. AEI is clamoring to bring it back.

The Bad. The Ryan health plan ignores half a dozen very good health reforms that would empower individuals, expand choice and encourage competition in the marketplace. Including them would have been easy. The legislative language already exists in the Sessions/Cassidy health replacement bill.

Missing: Roth HSAs. It is well known that when tax subsidies are in the form of a fixed sum credit, the appropriate savings account is a Roth account, not an ordinary HSA.

Missing: HSAs for the Chronically ill. Evidence shows that many chronic patients, with minimal training, can manage their own care better than traditional doctor therapy. If they are willing to manage their own care, patients should have the opportunity to manage the money that pays for that care and reap the financial rewards of doing so efficiently.

Missing: Limited Benefit Insurance. Low-income, healthy families don’t need insurance with no life time limits. What they need is insurance that gives them access to the health care system with reasonable deductibles and copayments and that protects their income and assets – regardless of the size of the medical bills.

Missing: Free Market Risk Adjustment. To stop the race to the bottom, health plans must not be allowed to dump their most costly enrollees on other plans. When people switch health plans, the original insurer must top up the premium to the new insurer to make the enrollee financially attractive.

Missing: Portable Insurance. All employers should be able to do what only small employers can now do: choose between individual and group insurance for their employees and choose the tax regime as well: a tax exclusion or a tax credit.

Missing: A Workable Safety Net. Some portion of unclaimed credits should be made available to safety net institutions to take care of the uninsured. Under an integrated system, money would follow people and the level of safety net funding would expand and contract with the number of uninsured.

The Ugly. The Ryan health plan throws good money after bad by repeating the Obamacare mistake of spending all the reform money in what has become the most dysfunction part of the system – the individual market. By election day (2018), this market will be in worse shape than it is now and if Republicans tinker with it and do nothing else they will own it. The alternative is to allow the tax credit to be used in the group market where premiums are lower and coverage is better. From 5 to 6 million employees and their dependents could be newly insured in this market by Election Day. Republicans could then claim credit for that and at the same time blame Obamacare for the contrasting deterioration in the individual market.

Art of the Deal? During last year’s election, the House Leadership trotted out a health reform that looked very much like the current proposal. This was at the very same time Candidate Trump was promising a reformed health care system in which everyone would be covered and no one would be left behind. It appears that Paul Ryan has budged very little and Donald Trump has budged quite a lot.

http://bit.ly/2mZMyvJ

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