Tuesday, February 10, 2015

A Detailed Analysis of the Republican Alternative to Obamacare

House Energy and Commerce Chairman Fred Upton along with Senate Finance Chairman Orin Hatch and Senator Richard Burr have outlined what is, at least for now, the Republican alternative to Obamacare.

Republicans will now argue they have a better health insurance reform plan and that Obamacare should be repealed and replaced by it––particularly if the Supreme Court plunges the new health law into chaos by throwing the subsidies out in 37 states.

They will have an uphill battle. Not because these Republicans don't have a lot of good ideas, but because they have put a list of big and complicated changes on the table. Lots of people may not like Obamacare but Republicans have now really muddied the waters with a huge take it or leave it alternative that will have plenty of its own reasons to give voters pause.

My sense is that voters will end up liking parts of both Republican and Democratic ideas. They might ask a reasonable question: Why can't we take the best from both sides?

If Democrats would just admit Obamacare needs some pretty big fixes, and Republicans would be willing to work on making those fixes by putting some of these good ideas on the table, the American people would be a lot better off.

In fact, I am hopeful that this is eventually what will happen once Obamacare's failings become even more clear (particularly the real premium costs) and both sides come to understand that neither will have a unilateral political upper hand.

See my recent op-ed on how to fix Obamacare here.

Let's take an in-depth look at the Republican alternative, "The Patient Choice, Affordability, Responsibility, and Empowerment Act." 

It's key provisions include:
A Full Repeal and Replacement of Obamacare

No Individual Mandate to Buy Health Insurance or an Employer Mandate to Offer Coverage

Consumer Protections - Republicans would retain the popular consumer protections in Obamacare including no lifetime limits, coverage for children to age 26 on their parent's plan, and guaranteed renewability of coverage. Republicans would increase the difference in rates in the individual market between younger and older people by repealing the 3:1 age band rating limit and replace it with a 5:1 age band ratio––but allow states also set their own standards. This would reduce costs for younger consumers but increase costs for the older buyers. So, the Republicans would create a new set of losers (older buyers) but increase the incentive for younger people to buy.

A Return to Pre-Existing Condition Limits - The most contentious provision will be the one that deals with pre-existing health conditions. The Republicans would guarantee insurability only so long as a person remained continuously insured for at least 18 months. If person fell out of coverage, while they could sign-up again during regular open-enrollment periods, they could be underwritten––subject to higher premiums, benefit restrictions, or not covered at all.

Default Enrollments - Republicans would allow states to create a default enrollment system for those eligible for tax credits as a means to reduce the number who would otherwise remain uninsured. Still, an individual would be able to opt out of the system and choose to go uninsured––no individual mandate.

High Risk Pools for the Uninsured - People who lost their continuous coverage guarantees would have access to state-run high risk pools with no assurance as to cost or coverage levels in those plans. Because these pools are filled with the very sickest people, prior state experience with these government-run pools has always led to higher costs, limited benefits, and even caps on access because of chronic underfunding from states. It is ironic that Republicans would propose a government-run insurance plan they would have to argue would be adequately funded when government funded insurance plans like Medicaid are never adequately funded.

Affordable Insurance Policies - Republicans would argue that the number of those who would be excluded from coverage because of pre-existing conditions would be very small while Obamacare makes the mistake of creating a very expensive regulatory monster for everyone in pursuit of coverage for all.

The Republicans are proposing the elimination of benefit mandates and downsizing guaranteed insurability with their "continuous coverage" provision. These things will make insurance policies arguably cheaper by substantially reducing the costs that Obamacare increased with its mandates and guaranteed insurability provisions.

With the cost of policies cheaper, they would point out that their tax credit system would virtually assure everyone of being able to buy some kind of plan for the value of just the tax credits. They ask a valid question: Why would anyone let himself or herself become uninsured under the Republican plan?

They have a point. But stuff happens and it isn't hard for voters to worry they could get caught out without coverage and no manageable, or at least desirable, way back.

Tax Credits to Buy Coverage - Tax credits would be available for those in the individual health insurance market, those working for businesses with fewer than 100 employees, and those working for larger employers that do not offer coverage.

Tax Credits Only Up to 300% of Poverty - The tax credits would be available for those making up to 300% of the federal poverty level (Obamacare subsidies extend to 400%). Lots of people between 300% and 400% of poverty would lose their tax credits. In 2015 a single person at 300% of poverty earns $35,310 and at 400% of poverty earns $47,080.

Flat Amount Tax Credits By Age - Unlike Obamacare's sliding scale of subsidies based upon income, the Republican proposal would create flat tax credits based upon three age brackets. These credits would increase each year at the annual increase in the Consumer Price Index plus 1% (CPI+1%).

Here are the proposed credits for people making up to 200% of the poverty line (for example, $23,540 for a single person and $48,500 for a family of four):

It is very difficult to compare these tax credits to the sliding scale subsidies available under Obamacare–– a program with more benefit mandates and different age rating rules and likely different deductibles and co-pays. Republicans will argue their health plans will cost less and have lower out-of-pocket costs (I think that's valid). But people will naturally compare the Obamacare subsidies on an apples to oranges basis and it won't often look good.

For example, at 200% of poverty a family of four in Alexandria, Virginia making $48,500 a year, with the parents age 34, and with two kids would pay no more than $3,024 per year in net Obamacare premiums. Using the current Obamacare lowest cost Silver plan premium the same family would pay $5,191 after the Republican advanceable tax credit.

Now, if Republicans can convince this family their new Republican health insurance policy would cost substantially less and the benefits would be all the family really wanted, they would have a good argument.

Different ages, family composition, income levels, and location will produce different outcomes that I am sure advocates and critics will use to come up with one study and example after another to make their arguments further complicating the Republican's ability to make voters comfortable with their plan. For example, moving to a different age bracket, a family with the parents age 45 in Alexandria would pay out only a net of $2,318 after the Republican tax credit for the existing lowest cost Silver Plan.

I think you can now see the Republican challenge in trying to convince people they have a better plan.

Again, I believe Republicans would have been much better taking the Obamacare baseline people have now and showing them how they could have made it better.

No More Obamacare State and Federal Insurance Exchanges - The state and federal insurance exchanges would be eliminated and consumers would instead purchase from the traditional private market––direct from insurers or through brokers and agents.

No Limits on the Kind of Insurance Policies That Could Be Offered - Health plans could offer any health plan they chose to sell and consumers chose to buy arguably enabling lower priced plans to be offered including plans whose cost could well come in under the level of tax credits available. Carriers could also offer plans across state lines. Critics will point to the history of health insurance plans using benefits to "cherry pick" healthy people and offering "substandard" policies as well as the loss of the generous benefit mandates that are now in Obamacare.

Capping the Tax Exclusion on Employer-Provided Health Insurance - The consumer's tax exclusion for employer provided health insurance would be limited as a way of discouraging high cost plans, that most analysts believe lead to more health care inflation, to a maximum of $12,000 for a single person and $30,000 for a family––to be increased annually at no more than the rate of increase in the Consumer Price Index plus 1% (CPI+1%).

By comparison, in 2018 Obamacare will tax plan sponsors 40% of the amount they pay for benefits that exceeds $10,220 for a single person and $27,500 for a family––the "Cadillac" tax.

Democrats can hardly criticize this proposal since they are effectively capping employer-sponsored health plan costs at a level just below the Republican limits.

Moving Toward Defined Contribution Health Insurance - By capping the tax exclusion and offering defined tax credits to those under 300% of the poverty level and, importantly, limiting future increases of both to no more than the increase in the Consumer Price Index plus 1% (CPI+1%), the Republican proposal would increase these federal benefits annually but do so in a limited way that would reduce future federal budget costs and likely health care inflation. But, this would also shift more risk for the future cost of health care to the consumer.

Advocates argue that such cost shifting would encourage consumers to make more efficient choices and lower overall health care costs.

Democrats also put limits on how fast Obamacare's premium subsidies will increase in future years that could arguably increase the Obamacare subsidies by less than the Republican's CPI+1% limit.

Medical Malpractice Reform - The Republican plan would implement medical malpractice reforms that would cap awards for non-economic damages and attorney fees as well as support state experimentation in alternative dispute resolution systems.

Repealing the Medicaid Expansion - Instead states would get a block grant ("capped allotment") generally equal to the value of the Medicaid payments they received prior to the passage of Obamacare, which would be increased each year at CPI+1%––benefits for pregnant women, low-income children, and low-income families.

Republicans will argue that states would have the flexibility on how they fashioned a plan to cover these people and therefore be able to make the system more efficient and sustainable. By limiting the annual payment increase in the federal contribution to the states, the federal deficit would be decreased and the risk for adequate funding would be passed off to the states that would in turn have greater control over what their Medicaid benefits would be and how they would be provided.

Democrats will point to these hundreds of billions of dollars in future federal deficit reductions (Medicaid growth is not now capped as the Republicans would do at CPI+1%) as cuts to programs for the poor leaving states on the hook.

Democrats also need to put a plan on the table for how they would control the unsustainable costs of Medicaid.

Empower Poorer Consumers by Giving Them Mainstream Health Plans - With the Obamacare envisioned universal expansion of Medicaid to all of those making less than 138% of poverty (and so far adopted by 27 states) repealed, Republicans would instead offer the advanceable tax credits to those making less than 300% of poverty and not covered by a large employer plan. They argue that these low income people would instead be able to buy a mainstream commercial plan superior to the chronically underfunded Medicaid plans that now offer fewer and fewer providers willing to take Medicaid.

The Republican plan also does not make clear how their Medicaid "capped allotment" benefits for the poor would dovetail with their subsidies for mainstream health plans. Prior to Obamacare, many states offered Medicaid to only the very poorest adults.

Just how far the Republican tax credits would go in being able to pay for mainstream plans with deductibles and co-pays low-income people could afford will be critical to how effective this proposal would be.

For example, a family of four in the 18 to 34 age bracket making up to $30,313 a year (125% of the poverty level) would be offered an advanceable tax credit of $4,290 a year. As a reference, the current lowest cost Silver HMO in Alexandria, Virginia costs $9,076 for a family of four with the parents age 30. Even if Republicans were able to substantially reduce Obamacare's current health insurance costs, the premiums would still not be realistic for this family––nor would the usual deductibles these commercial plans offer.

As low-income families make these comparisons, Republicans will be challenged to convince people to make the leap toward believing their plans will be far cheaper, the subsidies adequate, and any co-pays and deductibles affordable.

Republicans have argued that their tax credit would enable consumers to buy at least a catastrophic (big deductible) health plan for the value of the tax credit. Maybe. But what value is a big deductible health insurance plan to people who don't have a lot of money?


And, therein lies the Republican challenge––convincing people that their complex health insurance reform ideas provide people with more health insurance security than the problematic and complex Obamacare plan does. Take it or leave it––ours or theirs.

Again, I think Republicans would have been far better off taking a big gulp and accepting Obamacare as the baseline in health insurance public policy and then use many of their ideas to tell the American people how they could make it work a lot better.

After all, isn't that what most people really want?


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