The Latest on the Republican Alternative to Obamacare

Published January 28, 2014

Consumer Power Report #404

The latest post-Obamacare reform proposal, put forward yesterday by Senators Tom Coburn, Richard Burr, and Orrin Hatch, is likely to become the Obamacare alternative from the perspective of Republican Senate candidates and the like. It’s also the most realistic and centrist proposal we’ve seen yet in the post-Obamacare era, modest and moderate to the degree that I would not have been surprised, absent Obamacare’s existence, to see a few centrist Democrats to support it.

It should be viewed, therefore, as not a free-market ideal by any measure, but as a positive step in the right direction and a realistic approach designed to transition away from Obamacare and into a more market- and patient-friendly direction.

Here’s Philip Klein on the replacement:

On the one hand, they wanted to provide some sort of assistance to many of those who are benefiting now that Obamacare is in place. But, on the other hand, considering the backlash against the sweeping nature of Obamacare in general and Obama’s specific broken promise that Americans could keep their health plans if they liked them, the proposal isn’t as bold and disruptive (in a free market direction) as it may have been in a pre-Obamacare world.

John Davidson critiques the plan at The Federalist today.

Indeed, much of the Coburn-Burr-Hatch proposal seems to be as much a reaction to the new reality of ObamaCare as it is an effort to correct the failures of our pre-ObamaCare system. In doing so, it makes concessions to the various assumptions behind the ACA: tax credits for the purchase of individual coverage should be means-tested, preference for employer-sponsored coverage should be preserved, and states should automatically enroll those who don’t sign up in the interests of “universal coverage.” (This last provision comes with the big-government concession that if they so choose, individuals can “affirmatively opt-out” of coverage they were forcibly enrolled in.)

This approach waters down the free-market elements of the proposal, which would nevertheless go a long way toward making insurance more affordable–even if they are weaker than previous conservative proposals for the sake of being less disruptive. By deregulating the exchanges, for example, individuals receiving tax credits under the Coburn-Burr-Hatch plan could make their health care dollars go much further–especially the young and healthy, who would likely choose the kind of low-cost, high-deductible plans ObamaCare has regulated out of existence.

Likewise, if Medicaid were converted into block grant or capped allotment funding, and control given to the states, some Republican governors might be open to the idea of expanded eligibility, albeit with different criteria than originally called for in the ACA. The Coburn-Burr-Hatch plan, in fact, would allocate funds to states based on the number of people below 100 percent of the federal poverty level, which would amount to a sizeable expansion of Medicaid in many states–but on much more favorable terms.

For more on the legislative proposal, you can read a column from Coburn, Burr, and Hatch here. Here’s the response from Avik Roy, who says it’s the most credible plan yet. Yuval Levin likes it. From the left, we have Donald Taylor’s reaction. And the Washington Post‘s Sarah Kliff says people won’t love it like they love Obamacare. Patrick Brennan has more on the details.

From my perspective, this plan illustrates the tension between those on the Right about where to go with the health policy debates in the future. Should the starting point be the pre-Obamacare environment? Should it be transforming some aspects of Obamacare into more market-friendly vehicles? Or should we go in an altogether new, more revolutionary direction, and aim at the broader challenge of the Great Society single-payer programs we already have?

In all likelihood, these tensions will be resolved only once the 2016 Republican nominee is chosen, as he or she will be the one who frames the issue in 2017 – the first point at which real change can happen.

As a sad postscript to this proposal: In the course of discussing it today on TV, Sen. Coburn – who is battling cancer and will resign at the end of the year – announced he had in fact lost his own cancer specialist because of Obamacare. The requirement to change plans had removed him from the care of the doctor he’d been seeing. This is one more reminder of the human cost and disruptive impact of Obamacare’s approach, and another indication of how much is left to be done to correct the problems in our systems of care and insurance.

— Benjamin Domenech


IN THIS ISSUE:


TEN PRINCIPLES OF A MARKET-ORIENTED HEALTH CARE SYSTEM

1. Establish tax fairness. About 156 million Americans get their health insurance through an employer. The tax system is the primary reason that employer-based system survives, when almost all other types of insurance are bought and paid for by individuals. Employer money spent on health insurance is excluded from employees’ income. Giving that tax break directly to the individual, rather than having it flow through the employer, would create a level tax playing field.

President George W. Bush proposed ending the tax exclusion and giving everyone a standard deduction: $7,500 for an individual, $15,000 for a family. As a presidential candidate, Senator John McCain proposed giving workers a refundable tax credit, $2,500 for an individual or $5,000 for a family. Both approaches would have gone a long way toward implementing tax fairness because everyone, including the self-employed and employees without employer-provided coverage, would get the same break.

2. Expand consumer-driven options like HSAs. The primary reason Americans spend so much on health care is that comprehensive health insurance insulates them from the cost of care. Health Savings Accounts (HSAs), in combination with a high-deductible health insurance policy to cover major accidents or illnesses, allow workers and/or their employers to deposit money in a tax-free account owned and controlled by the individual. Patients use their HSA money to pay for allowable smaller and routine medical care and medications, but they keep it if they don’t use it, giving them a reason to be value-conscious shoppers in the health care marketplace.

Several studies have demonstrated that HSAs lower health care spending without any negative impact on patients’ health. Obamacare reduced the number of allowable HSA expenditures; those restrictions should be reversed to allow the widest possible use of HSAs.

3. Cap the tax deduction for health insurance. The current health insurance tax break is unlimited, encouraging employees, and especially unions, to try to get the most comprehensive coverage they can get, which has the unintended consequence of increasing health care spending and use. Capping that tax break–as the standard deduction and tax credit discussed above would do–would encourage people to choose high-deductible coverage, which would dramatically lower total health care spending.

SOURCE: Human Events


NEVADA’S AILING HEALTH INSURANCE EXCHANGE

Like every morning in the last five years, last Friday started just like any other for Gary Smith.

For the 61-year-old Fernley resident, this meant sitting down for breakfast and taking his diabetes medication. With his supply of the drug Janumet gone, however, Smith feared he would be unable to take his second daily dose that evening.

“This morning was my last dose,” Smith said last week. “I’m all out.” …

One month since enrolling, Smith is one of several Nevadans who were unable to get insurance cards in January despite paying through the Nevada Health Link insurance exchange website. The program – which blamed a glitch for Smith’s problems – could not provide an exact number of how many Nevadans were affected, only saying that it affected “a small group of people.” …

More than halfway through January, Smith had yet to get his insurance card. To make matters worse, the glitch also changed his monthly insurance bill. Instead of being charged the discounted rate of $150 per month under the Affordable Care Act, Smith was being charged the full unsubsidized amount of $749.

“Not only did I not get a card, they also billed me for the entire insurance amount without the tax credits that I qualified for,” Smith said. “They already charged $150 on my credit card. This means I’m paying for insurance that I can’t even get.” … Meanwhile, Smith ran into issues with pharmacies such as Costco, Scolari’s and Walmart when he tried getting a prescription for his diabetes medication filled with just his Nevada health exchange ID.

“If you come in with a valid prescription and don’t have an insurance card, they will not accept your Nevada Health Link ID,” Smith said. “They won’t even bill me, I would have to pay for any prescription on the spot. That means I would have to pay $850 instead of $200 for a month’s worth of medication, and I don’t have that kind of money just lying around.”

SOURCE: National Review


THE MESSY NATURE OF MEDICAID WAIVERS

In their waiver applications, states often claim that their modifications will not cost more thanks to new efficiencies they will achieve to save money. States have also moved money from the funds they received from the federal government for uncompensated health care under the argument that improving Medicaid coverage would reduce the number of uninsured people who show up at hospitals in need of care.

Granting waivers is at the sole discretion of the secretary of HHS, but as Matt Salo, executive director of the National Association of Medicaid Directors, said, the budget neutrality requirement gives the secretary a lot of leeway. “Cost neutrality is kind of in the eye of the beholder,” Salo said. “Anybody knows that a five-year projection is fraught with imperfections.”

States can, with permission, backtrack on changes they made in previous waiver applications, and, of course, they can simply let earlier changes expire when the waiver does. One state’s waiver doesn’t necessarily mean that another state can win approval to do the same thing, although they often do.

In granting Iowa and Arkansas their recent waivers, HHS indicated that it would be friendly to similar proposals from other states, but only a limited number of them. In part, Salo said he suspects that is because of HHS lack of capacity to handle many waiver requests at once. “I don’t think HHS has the physical bandwidth to negotiate with 50 different states over 50 different Medicaid programs,” he said.

“The waiver process is cumbersome, and it is difficult and it is time-consuming,” said Vern Smith, the one-time director of Michigan’s Medicaid program who is now a principal manager with Health Management Associates, a health policy consulting and research firm. The process usually takes months, sometimes longer. It is mainly a process of negotiation between the state and HHS.

According to Smith, states usually don’t file their applications until they have already largely reached agreement with HHS, and applications that were negotiated usually result in waivers.

SOURCE: Stateline


RICK PERRY AND HEALTH CARE REFORM

Numerous studies, which the Left routinely ignores, show that patients on Medicaid often fare worse than the uninsured. A University of Virginia study looked at more than 893,000 major surgical operations from 2003 to 2007 and found that Medicaid patients were 97 percent more likely to die before leaving the hospital than the privately insured and 13 percent more likely to die than the uninsured.

The Manhattan Institute’s Avik Roy has done fine work compiling studies that show just how much Medicaid harms the poor. The most damning of such studies came last year from researchers at Harvard and MIT, who found no difference in health outcomes between Medicaid patients and the uninsured.

The background of this particular study is important, because it represents the gold standard when it comes to this kind of research. In 2008, Oregon discovered it couldn’t afford the Medicaid expansion program it undertook in 2002, so it set up a lottery for Medicaid enrollment: 30,000 names would be randomly selected from a waiting list of 90,000. This gave researchers a control group of uninsured against which to measure the effects of being on Medicaid. No study like it had ever been conducted on Medicaid patients, and many on the Left (and in the media) were hopeful it would prove once and for all that Medicaid improves health and, by extension, save lives.

Alas, their hopes were dashed. After two years, researchers found no measurable difference in the health outcomes of the two groups. This surprised a lot of people because the researchers measured things like blood pressure and cholesterol levels – metrics that should show improvement over a two-year timeframe.

What they did find, however, is that Medicaid enrollees consumed much more health care than the uninsured, and that their emergency room use increased by 40 percent. This latter finding, published last week in the journal Science, undermines the oft-repeated claims of expansion proponents that enrolling more people in Medicaid will reduce emergency room visits and thus save local tax dollars.

SOURCE: The Federalist


GENDER EQUITY AND OBAMACARE

Much has been made here and elsewhere about how young people are subsidizing older people under the Affordable Care Act. While there is a substantial element of truth to this contention, at least young people generally get to become older people. So, if the ACA were to last for decades, one could derive a small bit of comfort by viewing the arguable inequity as instead amounting to younger purchasers under the ACA just financing the health care they will receive at subsidized rates as they enter their 50s and beyond. The analogy doesn’t work terribly well because unlike something like a long term life insurance policy in which a similar “subsidy” exists, there is nothing that forces those insured later in life to have insured earlier on. But at least youth is a “burden” that most of us share.

A closer look at the evidence, however, shows that the major determinant of whether someone is subsidizing another or being subsidized under the ACA is gender. As shown here, gender is more important than age for purposes of ACA subsidization. And, for most of their adult lives males subsidize women under the ACA. Since gender is largely immutable, males never get the money back. While there are many factors that bear on whether this system is fair, the extent of subsidization is large enough to be worth considering.

… For each adult age (21–64) and each gender, I show the subsidy (positive or negative) the person receives under the ACA. The pink line shows the subsidy for women; the blue line shows the subsidy for men. Subsidization is the difference between the expected costs the person incurs and the person’s premiums under the ACA (without consideration of any government premium subsidies) normalized by dividing the difference by the person’s premiums. Expected costs are calculated based on research by the Society of Actuaries and available in Excel data format from this web site. Premiums are calculated based on data provided by the Kaiser Family Foundation following its study of the ACA. To make sure that the units of cost used by Kaiser and the Society of Actuaries match up, I apply a multiplicative correction factor to the premiums to ensure that the total level of subsidization is zero assuming that the estimated distribution of uninsured all enroll in ACA plans at an age-independent rate. Use of more complicated assumptions about enrollment patterns, such as incorporation of the apparent fact that most of those purchasing policies in the individual Exchanges already had insurance, would result in a different correction factor but should not alter the basic conclusions of this post about cross-gender subsidization.

SOURCE: ACA Death Spiral


CMS PROPOSES SIGNIFICANT CHANGES TO MEDICARE PART D

CMS proposes a dramatic change in its interpretation and application of two interrelated statutory provisions: that establishing Sponsors’ obligation to contract with “any willing pharmacy,” and the provision giving Sponsors the flexibility to create tiered pharmacy networks for which a lower cost-sharing is imposed for Part D drugs dispensed at certain network pharmacies.

Since the Part D Program’s inception, CMS has interpreted these two provisions as requiring Sponsors to include in their pharmacy networks any pharmacy willing to meet the Sponsors’ standard terms and conditions. Sponsors could, however, contract with a limited number of “preferred” pharmacies pursuant to alternate terms and conditions, including assignment of a lower cost-sharing obligation for covered Part D drugs. Many of the existing preferred pharmacy arrangements reflected a pharmacy’s willingness to accept lower payment rates from Sponsors or other terms in exchange for the increased customer volume resulting from the lower cost-sharing status.

CMS proposes to require Sponsors using a tiered pharmacy design to develop two sets of contracting terms and conditions – “standard” and “preferred” – for every type of similarly situated pharmacy. Every pharmacy would have the opportunity to contract under the preferred terms and conditions under CMS’s proposal, thus eliminating Sponsors’ ability to develop exclusive arrangements with select business partners. Moreover, any pharmacy offering preferred cost-sharing would be required to meet a negotiated price “ceiling” established by the Sponsor, and this ceiling price must be less than the lowest negotiated price (the “floor price”) established by the Sponsor for covered Part D drugs dispensed by pharmacies with standard cost-sharing status.

SOURCE: Lexology