Senator Johnson Introduces King v. Burwell Alternative

Johnson2Senator Ron Johnson (R-WI) has introduced the Preserving Freedom and Choice in Health Care bill, which he frames as a response to the Supreme Court deciding for the plaintiffs in King v. Burwell. This lawsuit seeks to force the administration to obey the law by not paying tax credits to health plans that operate in states using a federal health insurance exchange (i.e.

Victory for the plaintiffs would cause massive disruption in health insurance in the 36 states using because beneficiaries’ premiums would increase significantly. Up to nine million people would experience this effect.

It is necessary for Congress to have an alternative to Obamacare ready in case the Supreme Court decides in favor of King because President Obama will immediately propose an amendment to change the law to accord with how he is executing it. That is, let tax credits flow through It would be a very simple amendment – just a few sentences. The risk of Congress panicking and simply voting for that amendment, and finally surrendering to Obamacare, is unacceptable.

Other Congressional Republicans have proposed bills. However, Senator Johnson has moved the ball forward in the Senate by gathering 29 co-sponsors. Senator Johnson’s bill does not repeal and replace Obamacare, nor does he claim that it does. It is a bridge, or transition, to a post-Obamacare health reform. This is also necessary because the bill Congress passes in the wake of the Supreme Court stopping tax credits to millions of people must be one the president will sign without too much complaint.

The bill would restore the Obamacare tax credits in the 36 states, but only through August 2017, and only to people who are already enrolled. People who have not yet enrolled would be frozen out of Obamacare (unless they moved to a state with a state-based exchange).

It also repeals the individual and employer mandates to maintain coverage. Further, it eliminates the federal government’s power to define essential health benefits. It also specifies that people with employer-based benefits can maintain those benefits through December 2017.

The bill embraces both individual choice and political reality. Whether President Obama would sign it, under pressure, I cannot say. Nevertheless, a few things would improve the bill without necessarily making it less acceptable to the president.

First, Senator Johnson is right to restore insurance regulation to the states. However, “essential benefits” are not really what is driving up the cost of health insurance in exchanges. The single biggest factor is the age band of 3:1. This means an insurer cannot charge a 64-year old more than three times as much as a 19-year old. A more accurate age band would be about 5:1. Before Obamacare, this regulation was also within states’ power. Section 1201 of Obamacare gives this power to the U.S. Secretary of Health & Human Services, who dictated that it be 3:1. This power should be returned to the states.

Second, the confusion about exchanges is at stake in King vs. Burwell derives from the very existence of government-run exchanges. The government should no more run a health-insurance exchange than the Department of Transportation should run a car dealership. People should be able to buy health insurance from any broker or agent they prefer, in person or online, and claim their tax credit directly from the IRS.

These two items are easy lifts because they simply make the federal government stop what it is doing. A third and fourth item are heavier lifts, but they could add to the bill’s popular appeal, which might influence the president.

Third, Obamacare’s risk mitigation mechanisms (risk adjustment, reinsurance, and risk corridors) motivate insurers to recruit the healthy and shun the sick. Two of these three expire in 2017. So, a bill that anticipates transition to a new reform in 2017 should at least contain language inviting the relevant authorities (especially the National Association of Insurance Commissioners) to re-visit the question of risk mitigation.

Fourth, Obamacare tax credits reduce the incentive to work. A transition to a flatter structure of tax credits that eliminates the marginal income tax “cliffs” in Obamacare would benefit people in ways beyond health insurance by expanding opportunities to work.

Congressional Republicans just might be on the path to a successful response to the Supreme Court finally striking a significant blow to Obamacare.

Comments (30)

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  1. Kathleen Goryl says:

    While “essential benefits” may not be driving up healthcare costs, they are driving up religious freedom lawsuits. Please note that contraception, sterilization and other such “benefits” are against the Catholic faith. (Please see Professor Janet E. Smith, PhD and expert in the arena of contraception. The information on the environmental facts around contraception are quite compelling, as is the other information she provides about contraception. As I understand it, the administration compelled employers to offer contraception to reduce unplanned pregnancies and abortion. Yet, per Dr. Smith’s research, contraception does not achieve these goals. In fact, it does just the opposite. See
    Please note these key points:
    1) Government “Accommodations” I believe there have been 8 “accommodations” to the HHS mandate so far. None have accommodated the objecting parties’ key objection. If the goal is to accommodate these parties, would it not make sense to ask them if the “accommodation” actually accommodated them? The USCCB submitted comments to DHHS during the comment period objecting to this mandate during the regulatory comment period. Were these comments read?While I do not speak for them, it is my understanding that the criteria for sexual act is that it be “unitive” and “procreative”. Contraception does NOT meet the latter criterion.
    2) If the goal is to reduce unplanned pregnancy and abortion, why is Natural Family Planning not allowed? I believe this would meet the objecting parties’ needs. (Is not the government compelled to use the least restrictive means?) Why did the government take a “defined benefit” approach? Why did the government not use a “defined contribution” approach? This also would have seemed to meet the objecting parties’ criteria. What about health savings accounts (without any benefit requirements)? Would these not also meet the objecting parties’ criteria? (Even now, I believe there can be a peaceful and reasonable resolution to this HHS mandate issue.)
    3) Government data indicate our population is BELOW REPLACEMENT RATES. How can the government demonstrate a “compelling interest” to require employers and others to provide contraception and sterilization benefits/services when we are not even replacing our current population? (Please see source from USDHHS Center for Disease Control, prev. National Center for Health Statistics, National Vital Statistics System, National Vital Statistics Report, Vol. 62 #9 Dec 30, 2013 Birth: Final Data for 2012 by Joyce A. Martin MPH, Brady E. Hamilton PhD, Michelle JK Osterman, MHS, Sally Curtin MA and JT Matthews, MS Division of Vital Statistics)
    Please also see data from the World Health Organization’s population growth trends that note “high income countries are expected to have flat or declining population growth”. WHO further echoes this decline in the Total Fertility Rate for the US in its 2011 and 2012 statistics. In 2012 USDHHS CDC documents the declines in the number of births, general fertility rate and total fertility rate (TFR). The General Fertility rate declined to 63/1000 in women aged 15-44 “a historic low for the U.S.” The report documents the TFR has declined for each of the last 5 years. “The 2012 TFR remained below “replacement ” – the level at which a given generation can exactly replace itself (generally considered to be 2100 births/1000 women.) The TFR has been generally below replacement since 1971.
    Demographic Bomb-a talk by Steven Smoot at the World Congress on the Family in 2009 also bears out this same conclusion regarding population statistics. (The latter is in the talk that also notes that it is “individual consumer spending that drives the economy for it represents over 70% of GDP”).
    4) Preventive Care? Since when did contraception become “preventive care”? “The US Preventive Services Taskforce, an independent volunteer panel of national experts in prevention and evidence-based medicine” does not include contraception in their published recommendations. Further, contraception is associated with increased risks of breast Cancer (which –as well as STDs– are the focus of 2 taskforce published recommendations).
    I believe, pray and offer these comments so that our government and the objecting parties can come to a fair and just TRUE accommodation that respects the faith of those that are objecting to this mandate.
    (I believe the contraceptive mandate, abortion funding/benefits and same sex marriage are all against the Catholic faith.)
    Thank you for entertaining these comments.

    • Allan says:

      “Preventive Care? Since when did contraception become “preventive care”?

      I know this sounds strange, but some people on the left treat pregnancy today and earlier like a disease state.

    • Thank you. But how can the government prevent Natural Family Planning (if I understand you to mean the rhythm method)?

  2. Ron says:

    There is another important add-on to any fix. HHS has decided that employers CANNOT help to fund individual health insurance policies with pre-tax dollars. Under 2002 IRS interpretations, a Health Reimbursement Arrangement (HRA) is an insurance policy. Hence, it does not meet the essential benefits package and other ACA requirements. It therefore can not be a standalone option to fund insurance.

    Defining HRAs as non-insurance for ACA purposes is ONE LINER that would open the flood gates for small employers (where the working middle class uninsured are the greatest) to provide assistance to workers who want to purchase individual portable insurance. In addition, HRAs defined as non-insurance would dramatically expand the defined contribution (DC) model and promote the growth of private exchanges for purchasing health insurance.

  3. Beverly Gossage says:

    Why not continue the subsidies until the end of this year? That would give carriers the three months needed to prepare new plans and reopen those that were previously filed with the state. The last three months would give people time to apply for them.

    I agree that relieving states from the benefit plan requirements and the rate banding would help to reduce costs, but the greatest cost driver is guaranteed issue. I guess you are saying that removing that piece would not be signed by the president. We should at least try for it.

  4. Bob Hertz says:

    John, I wonder if dropping the 3:1 age rating will just change one problem for another.


    I sell Blue Cross insurance in MN. The rate for a silver plan for a 25 year old is $167. The rate for a 63 year old male is $484.

    Without the ACA regulations, the rate for the 25 year old might drop to $100 a month. The rate for the 64 year old might rise to $600 a month.

    And yet the 64 year old (in some Republican alternatives) would get no federal help if his income exceeded about $33,000 a year.

    So you would have someone earning $3000 a month faced with a premium of $600 a month.

    Is that progress? I am not so sure.

  5. Val says:

    I have no hope that we will ever again have healthcare freedom. All that seriously needed attention was the pre-existing conditions provision in the individual market. Instead of addressing that, the politicians conscripted us into this massive, corrupt government scheme. Eighty-five percent were happy with their insurance arrangements. Now, 100% have been forced into this intrusive mess.

    A 64-year-old man could buy a high-deductible plan for $218 in 2010.* Now, the highest deductible available carries a hefty $864 premium. Of course, he now gets free oil changes and tuneups, but all he wanted was to protect himself from catastrophic loss. He is no longer allowed to buy real insurance.

    A 25-year-old could have protected himself from a catastrophic loss for only $35/month.* Now, it’s around $300, at a minimum. Add to that the cost of a tax preparer to compute and re-compute his tax return when he tries to get some of that free Obamacare money.

    I don’t want tuneups and oil changes. I don’t want maternity and abortions and birth control. I want only to protect myself from a serious loss. I want to buy pure insurance. I want government out of my healthcare.

    *Premium prices are from my zip code

    • Jimbino says:

      What you need is Medical Tourism in Argentina, Mexico, Costa Rica, Brazil and, newly, Cuba. You will get superior treatment at 1/3 to 1/2 the cost.

      Just refuse to participate in Obamacare, which is easy if you have the sense to manage your IRS deductions or hire someone who does.

  6. Bob Hertz says:

    good points, Val. The new ACA insurance does not even pay for very many oil changes.

    The old individual market was indeed OK for the 63 year olds in good health and with several thousand dollars in savings.

    But that market did not serve those with chronic illnesses, and those who had no money for high deductibles in case they did get sick.

    That group deserves assistance (I was one of them until I turned 65).

    • Val says:

      If that 63-year-old had an HSA since he was 25, contributed to it faithfully, shopped wisely and paid cash for care, he would have significant funds by age 63. The only ones who might not be prepared would be those who were too sick and too poor to fund the HSA/insurance combo. Society carries them anyway.

      In fact, I propose that everyone have an HSA and use insurance only for catastrophic events. Of course, prices would have to be transparent so we could shop and choose well.

      Carry the same system right into Medicare. Let the patient make his own decisions with his own money instead of the government trying to figure out what constitutes “quality” and what treatment he can have.

  7. Bob Hertz says:

    I agree with you in theory. The challenge is in making HSA’s more widespread. I don’t remember the exact numbers, but about half of today’s 63 year olds do not have $40,000 in savings for anything, including health care.
    (besides – and this is a small point — I do not think that HSA’s even existed when today’s 63 year olds were 25.)

    As for Medicare, I would adapt your theory as follows:
    give each senior a $1500 or $2500 health care debit card and scrap Plan B altogether. There would be no doc fix because patients would pay their doctors directly.
    If a doctor was charging a patient more than $2500 a year, one could be suspicious of price gouging.
    (Part A would stay as is for hospital care.)

    • Thank you. That is a good idea except that very sick patients also consumer a lot of medical care by physicians. So, there has to be insurance for that.

  8. Dick Choad says:

    Why does the ruling class limit the number of insurance policies,companies, coverage, selling across state lines? Why limit competition among insurance providers?

    • John Fembup says:

      Dick, an insurance company domiciled in, say, Connecticut, that really wanted to sell insurance in, say, Alabama, will already have a network in Alabama. Or, if not, it won’t really want to sell insurance in Alabama because it’s too expensive to build a network in Alabama; and without a network it won’t have a product to sell.

      But that line of thinking is a distraction because “selling across state lines” is a cliche that doesn’t mean what it seems to mean. The cliche deceives and misleads. It’s misleading because the insurer may not want to sell in Alabama where it has no network; but it would love to sell Alabama-level benefits in Connecticut where it DOES have a network. But it can’t do that. Why not?

      Because state insurance regulation forces the company to sell only the coverage that Connecticut “mandates”. If Connecticut mandates coverage for types of expenses many Connecticut residents don’t want or need, too bad – people must buy them anyway. That is – or should be – an avoidable cost.

      Every state exercises this kind of legal monopoly power. The number of mandates and their impact on the cost of insurance varies a lot among the states. And wherever the extent of coverage varies, the cost of the insurance varies , too.

      In our example, Alabama requires fewer mandates than Connecticut. But today Connecticut residents cannot purchase a policy that contains only the Alabama mandates. Such a purchase is blocked at the “state line”. But if otherwise, people could choose a less-costly policy. But they can’t.

      I suggest that modifying federal law could require that any policy approved in any state, be available for purchase in any state. This idea WOULD NOT require any insurance company to build a new network anywhere. It WOULD require each state to approve a new set of policies – i.e., those containing only the mandates of other states. That would reduce insurance cost for many consumers.

      Is this such a radical idea? I think not. For example, drivers’ licenses in one state are accepted in every other state. So are marriage licenses, etc., etc.

      That’s why I think the term “buying insurance across state lines” is a cliche and a distraction. What’s really needed is something that would expand our choices in our own state.

      (Keep in mind that the cost of medical care is by far the biggest factor in the cost of insurance. The ability to purchase a policy with lesser benefits will reduce one’s insurance cost, but would not reduce the cost of medical care. Still, I think this idea is worth considering because it can reduce insurance cost; it would do this by permitting people more choices to buy lesser benefits.)

  9. Bob Hertz says:

    Dick, as a veteran of the insurance industry let me comment as follows:

    An insurance company today is lost without creating a network. For a Minnesota insurance company to create a network in Pennsylvania would be a monstrously time consuming and expensive task.

    Insurance companies also have to work hand in glove with state regulators. A Minnesota company will have full time lawyers just working with the Minnesota bureaucracy. It would again be expensive to tackle another state.

    As for competition:

    Insurance companies used to be very competitive in trying to attract healthy risks. And they would be again without ObamaCare. This would be very good news for 30 year old men with good habits and no ability to get pregnant.

    The challenge of health insurance is that no companies would compete for unhealthy persons. We solve that in Medicare essentially by spending $600 billion a year and also by risk adjustments in Medicare Advantage.

    The ACA tried to solve this for persons under age 65 by insurance regulation. This runs the risk of death spirals, so the ACA applies an individual mandate and other pricing rules.

    The ACA may have done this wrong. But competition alone will not solve the pre-existing conditions problem either.

    • I am going to agree with Mr. Hertz on this one. First, we observe that health insurers enter and exit markets every year based on their own business strategy. There is really no barrier to entry for an insurer domiciled in one state to enter another state.

      Second, there are fundamental differences in cost structure that policy will not change. Sure, Utah had fewer mandates than New York, but if a policy approved in Salt Lake City was somehow to be allowed to be sold in Manhattan, it could not be priced at the same premium because the cost of delivering care is different.

      Indeed, if you look at differences in premiums on the New York Obamacare exchange by rating region (of which there are over thirty), you will see huge differences based on ZIP code. They all weigh equally under NY mandates, of course.

      • John Fembup says:

        John you may be correct. I’d only re emphasize that

        (1) I don’t argue that ithe chief barrier to new market entry is difficulty to obtain a license or meet other purely regulatory requirements. I do argue that without a good network (e.g., pricing based on discounted fees; agreement to u.r. protocols) an insurer won’t have competitive products to sell. I think the difficulty and cost to build and maintain such networks has become the chief barrier to new-market entry.

        (2) I don’t argue that New Yorkers would get pricing based on Utah costs. I do argue that New Yorkers would get a new coverage option – reflecting the lesser Utah mandates instead of New York mandates. That “Utah option” would of course be priced to New York costs. But the “Utah option” premium based on New York costs would still be less than current New York policies – because of the lesser mandates.

        • John Fembup says:


          (3). I don’t even argue that ending the monopoly of state-imposed benefits mandates would somehow induce more insurers to sell “across state lines”. After all, an insurer that really wishes to do that today can almost always rent an existing network in another state if it decides that’s a better strategy vs. building its own network.

          I do argue that many consumers could save premiums if insurers were freed from state mandates where they are already operating. A given insurer may not want to sell in Utah where it has no network; but it would love to sell Utah-level benefits in New York where it DOES have a network. Today, it can’t do that. As a result consumers in New York have fewer choices and many are obliged to pay for coverage they may not want. This does not seem sensible to me.

          • We’d need the individual, not the employer, to choose his health plan.

            • John Fembup says:

              Agree – expanding individual market choices is the goal. (Although the kind of changes I suggest would also affect the small-group markets).

  10. Bob Hertz says:

    Thanks John. My reading in this area suggests that most mandates add only 5 or 10 per cent to the cost of an average policy. This includes mandates for maternity, mental health treatment, drug coverage etc.

    Whereas the requirement of guaranteed issue adds at least 20% to policy cost.

    Most of the Republican alternatives to the ACA still maintain guaranteed issue in all states. For this reason I am skeptical that these alternatives will really work.

    This is a tough issue and I do not have all the answers.
    My gut feeling for a long time has been that if Republicans could commit $30-$50 billion to high risk pools that maybe we could move back to real underwriting.

    • Thank you. I have always tried to point out that there is the total cost of a mandate and the marginal cost of a mandate. For example, cost for cancer treatment is expensive. However, I would not buy health insurance that does not cover cancer treatment. So, if the government mandates cancer coverage we can say it is a mandate that increases premiums. But most people would want it anyway.

      When you get to specific treatments, then it becomes challenging to measure because health insurance is a very imperfect contract. What is “medically indicated”? It depends upon the doctor and the patient.

  11. John Fembup says:

    “most mandates add only 5 or 10 per cent to the cost of an average policy.”

    Or maybe more. Depends on the state doesn’t it? Especially if one state’s base premium is a lot less than another’s. In that case, the same 10% would have different dollar values.

    Regardless, I’m saying there’s no good reason to keep an insurance environment that traps consumers inside legal monopolies, obliging them to spend an extra 5% or 10% (or whatever) for coverage they don’t want or need.

    But there is ample reason to pursue a reasonable alternative that could reduce the overall cost of insurance in some states by that 5% or 10% – or whatever amount it is.

    • Thank you and I agree. However, if someone says “I don;t want coverage for cancer” and gets a very low discount with that exemption, when they get diagnosed with cancer they cannot just say “I want it now.” It is a part of the whole debate over guaranteed issue and community rating.

  12. Kathleen Goryl says:

    Natural Family Planning (NFP) is NOT the rhythm method. Please refer to Janet E Smiths research as well as the Couples to Couples league in Cincinnati for further information on NFP. The former notes that when properly used, NFP has the same effectiveness as the pill. It may be greater, if one factors in the failure rate with oral contraception. (It would be wonderful if your IT team could take a look at this posting interface so that those commenting can actually review their full comments, spellcheck them and do a final review before posting them. I can not see the first part of this message to edit it properly before it posts.)

    • Thank you. I think it may be because your initial comment (with respect) was very, very long. Was there an even longer version? We rely on commenters to proof their own comments before hitting “enter.”

      I regret I am not up do date on NFP. I am old enough that when I was concerned about such matters it was the rhythm method. I am glad to learn that we have better methods now.