Make GOP Plan’s Tax Credits Count for Direct-pay Patients and Doctors

Published March 16, 2017

The ObamaCare substitute bill currently backed by House Republican leaders would increase the incentives and means for individuals to buy health insurance, naturally creating a disincentive for patients to obtain low-cost healthcare from direct-pay providers who have left the inefficient insurance system.

As House Speaker Paul Ryan (R-Wis.) has accurately explained, the American Health Care Act (ACHA) would subsidize the purchase of health insurance by establishing tax credits for people who buy insurance and transferring portions of those tax credits to insurance companies. Any portion of the credit left over after insurance companies have been paid would be deposited in an untaxed Health Savings Account (HSA), from which patients could draw to pay medical expenses.

The mostly age-based tax credit would be $2,000–$4,000 per insurance purchaser, and up to $14,000 per family, for individuals with an adjusted gross income (AGI) of up to $75,000 and married couples with an AGI of up to $150,000. Households with greater incomes would receive smaller credits.

This financial assistance for insurance buyers is substantial. Yes, the ACHA’s formula for calculating premium subsidies differs from the Affordable Care Act’s (ACA). But by and large, the same people enjoying federal taxpayer-funded premium assistance would continue to get significant help — in some cases more help under the GOP plan — and opponents are wrong to claim otherwise.

Unfortunately, the tax-credit incentive ACHA promises health insurance customers is a disincentive to obtain healthcare more efficiently. By substantially rewarding people for buying insurance, the bill would effectively penalize people for paying their doctors directly.

In addition, AHCA aims to dissuade people from ever leaving the health insurance market for competitive alternatives, by mandating insurers charge a 30 percent premium penalty to customers with more than a 63-day lapse in coverage, even if these patients do not have an expensive preexisting medical condition.

The AHCA premium penalty would replace the ACA individual mandate, which herded individuals and families toward the health insurance market by fining them annually up to $2,085 or 2.5 percent of their income, whichever is higher, for going uninsured. Despite this disincentive, patients and doctors started ditching the insurance system in record numbers to obtain healthcare more cheaply as ObamaCare regulations drove up the price of health insurance, paying the fine or claiming an exemption.

Under ACHA, uninsured families would miss out on up to $14,000 worth of insurance and leftover HSA deposits. The prospect of missing out on this sum could prove a powerful deterrent to patients otherwise inclined to skip middleman insurers and pay their doctors directly. This would effectively drain the healthcare and insurance swamp of an organism it desperately needs: patients willing to shop around for providers offering the best cash price for quality care.

Naturally, direct-pay patients include people who cannot easily afford insurance, not merely uber-rich patients, as insurance enthusiasts claim. More than 625,000 self-pay patients belong to healthcare sharing ministries (HCSMs), which cover members’ expensive medical costs far more affordably than insurance. HCSM members are exempt from ACA’s individual mandate and tax penalty but do not appear exempt from AHCA’s premium penalty.

Thousands of other direct-pay patients have “direct primary care” memberships, paying doctors $80 monthly on average for virtually unlimited 24/7 access to care for 80 percent of their medical needs, and massive discounts on the remaining 20 percent. (For more information, see The Heartland Institute’s “10 Health Care Reforms for States.”)

If the AHCA credit deters patients from remaining or becoming direct-payers, this will in turn deter direct-pay providers from opening or continuing to operate direct-pay practices.

Basing the AHCA credit solely on one’s insured status would essentially subsidize practices that use insurance as a payment mechanism. This would put efficient, direct-pay providers at a competitive disadvantage versus insurance-based practices whose inefficient models appear competitive only because they are subsidized by taxpayer-supplemented health insurance. The AHCA insurance-based credits would thus unwittingly subsidize inefficient, insurance-based practices over more efficient, direct-pay practices.

Insurance should not be a subsidized intermediary to access care. Better ideas are depositing tax credits directly into patients’ HSAs and passing House Resolution 365, allowing patients to use HSA funds for direct primary care. These actions would cause a robust market of cost-effective, patient centered-care to emerge as insurers and providers compete for patient-controlled dollars.

Thus, truly empowered patients could choose the exact level of healthcare and coverage they want, whether by paying insurance premiums or paying doctors directly. Patient choice of this kind would give credit where credit is due.

[Originally Published at the Hill]