Price’s Empowering Patients First Act Gets Better with Age
(A similar version of this Health Alert was published by Forbes.)
You’ve got to give credit to Congressman Tom Price, MD: He introduced his first post-Obamacare bill as early as 2009 and has reintroduced an updated version in every Congress since then. The latest Empowering Patients First Act (H.R. 2300), introduced this month, is the fourth iteration.
Many critics complain Republicans in Congress have taken too long to develop an alternative to Obamacare. However, President Obama is running the show until January 2017. It is responsible for Congressional Republicans to take all the time and space they need to develop their alternative for the next president’s consideration.
A fully baked repeal and replacement bill today would serve no purpose, while doing nothing until a president committed to patient-centered health reform takes office risks a confused mess of lobbyists’ priorities thrown together by politicians who barely know what they are doing – a Republican Obamacare, in other words.
The most important improvement is a universal tax credit, adjusted by age, to every American who chooses to buy individual health insurance: $1,200 for those aged 18 to 35, $2,100 for those between 35 and 50, $3,000 for those over 50 and $900 per child. Dr. Price’s previous bill had tax credits, which were not adjusted by age, but by income. Of course, Obamacare’s tax credits phase out by income, which causes very high effective marginal income tax rates at certain income thresholds.
According to the Congressional Budget Office (CBO), this creates a disincentive to work that will lead to 2.5 million fewer full-time equivalent jobs once Obamacare is fully implemented. Dr. Price’s previous bill did not impose effective marginal income tax rates as harmful as Obamacare’s, but any phasing out of a benefit will have this effect to a degree. Allowing anyone to claim the same tax credit without fear of being penalized for increasing his working hours is very positive.
The tax credit differs from, for example, Senator Cassidy’s proposal. Dr. Cassidy’s tax credit does not adjust with age. A tax credit that does not adjust with age should allow the average young person to buy a policy with a very low premium and save the rest of the tax credit in a Health Savings Account he can use to pay premiums that will increase as he ages. (Current Health Savings Account balances cannot usually be used to pay premiums.) Adjusting the tax credit for age does not depend on the young beneficiary’s taking full responsibility for this saving. Politically, it is probably easier to sell.
The bill also gives Medicaid beneficiaries more choice. That is, if a Medicaid beneficiary would prefer to take a tax credit instead, and use it to buy individual insurance, he could do so. Whether many would actually make this choice is an open question. Nevertheless, it is a move in the right direction. The National Center for Policy Analysis has proposed that federal Medicaid funding itself be replaced by a tax credit that, if not used by the individual, goes to a safety-net facility in his community.
Dr. Price’s bill restores the responsibility for health insurance regulation to states, including eliminating the guaranteed issue, community rating and annual open enrolment features of Obamacare. This creates the political problem of allowing insurers to underwrite individuals for pre-existing conditions, the outlawing of which is Obamacare’s single most popular provision.
Dr. Price would hedge this by extending HIPAA continuous coverage protections to the individual market. Before Obamacare, people with continuous coverage in the employer-based market could not be underwritten if they switched jobs or entered the individual market after leaving a job. However, when people who had individual coverage switched insurers, the new insurer could charge higher premiums or exclude coverage for pre-existing conditions.
This reform would incentivize individuals to buy barebones coverage when they are healthy and switch immediately to more generous plans when they become sick. Anticipating this, insurers would tilt towards offering only barebones plans in the individual market. This problem is similar to what has occurred in Obamacare. Thus, Dr. Price’s proposal would implicitly invite states to consider new regulations in the individual market, to overcome this effect.
Risk pooling in U.S. health insurance is fraught with unintended consequences and Obamacare’s “three R’s” (reinsurance, risk corridors, and risk adjustment) have clearly not addressed the challenge. Effective public policy that eliminates the risk of people being underwritten for pre-existing conditions is a monumental challenge and allowing the states to experiment with ways to address it is the best way to find a solution.
Dr. Price’s fourth version of the Empowering Patients First Act, which has 63 co-sponsors, shows there is a lot of serious work being done by many in Congress to replace Obamacare with a reform that works for patients.
“This reform would incentivize individuals to buy barebones coverage when they are healthy and switch immediately to more generous plans when they become sick.
Anticipating this, insurers would tilt towards offering only barebones plans in the individual market.”
Insurers can protect against adverse selection while also offering meaningful coverage, over time.
In an individual policy, benefits could build monthly, providing significant coverage over 3 to 5 years.
A separate policy through a different insurer would insure the catastrophic risk.
This cannot be done with one insurer.
There must be 2 distinct, separate entities at risk, providing more comprehensive coverage, in the beginning.
Don Levit
I hesitate to be too predictive about the consequences, because Americans have considered their employers insurers of first resort for so long. A very small proportion of people sought coverage in the individual market for long periods.
“Before Obamacare, people with continuous coverage in the employer-based market could not be underwritten if they […] entered the individual market after leaving a job.”
Only if they purchased so-called HIPAA plans, which were considerably more expensive than underwritten plans available to low-risk individuals.
Price’s plan as outlined would severely undercut traditional employer-based group plans. Some might say “Good riddance” but I’d like to see the alternative in place and functioning before pulling the plug.
I like parts of the plan, but have my usual concerns about the rest. What exactly is the purpose of the tax credit? I doubt that the cost to society of taking care of uninsured 18-year-olds comes to $1200 per person, so how do you justify the excess?
If the thinking is that the 18-year-olds will save the tax credit to pay for higher premiums incurred in later years, then Social Security and Medicare must have it exactly backwards. Instead of taxing workers 15 percent of income to pay for those programs, this approach would give them a comparable amount in tax credits that they would then save for their own retirement and old-age health costs.
Exactly: This is not the way the American welfare state works. On the other hand, with retirement income, we have it both ways.
The nanny state taxes our wages to fund Social Security, but allows us IRAs, 401(k)s, et cetera to allow us to save ourselves.
In health care, we don’t really even have that accommodation yet.
Market forces Market forces.
I read plenty about how insurers will compete, but htat is not the market.
The market starts with healthcare professionals being allowed to set their fees, be transparent and get paid by the patient, WITHOUT the third party intruders, otherwise known as Insurers, Government and Pharmacy benefit managers. I am sure I am leaving more out.
I want to see a plan voted on that allows a true free market between doctor and patient and put the govt and insurers where they were many decades ago, outside the exam room and reimbursing the patient.
There will be no reduced healthcare costs unless doctors and hospitals are allowed to set open and transparent fees and compete on cost and efficacy.
So I hope Dr. Price will explain how his plan allows this true free and open market with the insurers as a background, instead of vice versa.
Thank you. That is an excellent point. When we talk about housing, we don’t talks about homeowner’s insurance first, and expect that a competitive market in homeowner’s insurance will lead to good housing policy!
Extending continuous coverage through HIPAA was not so wonderful even when it was law.
I left a corporate plan in 2006, and had some health problems. I dutifully contacted several insurers to buy my guaranteed issue continuous coverage plan.
None of the insurers actually offered such a plan. The demand for such plans was tiny and they were terrible money losers.
Dr Price has some good ideas, but as you suggest he is naive about the insurance industry.
It must vary from state to state. In California in 2009, I looked at HIPAA plans from Blue Cross and Kaiser. They were available but premiums seemed to run 30-50% higher than COBRA.
My long-held belief is that a tax credit for COBRA and HIPAA coverage would increase the number of purchasers for whom those options made sense, thereby reducing the average risk for those pools. And if not– if take-up remained low– then cost to taxpayers of offering the tax credit would also remain low.
In a general sense, that is Senator Sasse’s proposal to respond to a King v. Burwell decision for the plaintiffs.
thanks Bart.
30-50% higher than COBRA would have been pretty stratospheric. Many, many persons who needed individual coverage after a layoff probably gave up and stayed uninsured.
I know I am kind of a broken record on this, but the individual market can be brutal to those over 55. None of the moderate solutions that I read about seem to offer much help to this group.
I agree with the drift of your piece. There’s a lot of good in Dr. Price’s bill (especially the HSA reforms in title 1). But I would add that the bill is marred (in titles 4 through 10) with a lot of cronyist doctor-pork, including an unconstitutional federal medical malpractice reform scheme:
http://www.usnews.com/news/the-report/articles/2015/05/22/house-budget-chairmans-health-care-cronyism-and-fair-weather-federalism
Accentuate the positive! Eliminate the negative!