by Katherine Restrepo
Director of Health Care Policy, John Locke Foundation
Health care is huge (yuge) this year. Huge. And it will continue to be a contentious topic of discussion for years to come, as Americans are not only waiting to see what the final Republican health care alternative looks like, but also when and how it will impact their lives.
The current political forecast shows Congress working towards a budget resolution for the year ahead. As part of that budget resolution, Republicans will be using ‘budget reconciliation’ to their advantage in efforts to speed up a repeal and replace of the Affordable Care Act (ACA).
If you’re wondering what this budget reconciliation business is all about, it’s part of the budget resolution process that allows Congress to direct one or many committees to craft legislation to change an existing law’s taxing, spending, or debt limit provisions. If Republicans stay the course, their “repeal and replace” plan will come out of two budget reconciliation bills in 2017. The first bill will repeal the federal health law’s taxing and spending provisions (think Medicaid expansion and health insurance subsidies) by 2019, while the second outlines tax reform and other fiscal components that are a part of a finalized Republican health reform plan that will ideally phase-in by 2019. This strategy gives Congress two years to figure it out.
If a conservative health plan is going to get to President Trump’s desk, Republicans need to use budget reconciliation. It is the vehicle to repeal and replace the ACA incrementally. Securing a Senate simple majority (51 votes) – enough to withstand any filibustering – is the first and necessary step through the reconciliation process to partially gut the ACA. Otherwise, a sweeping ACA repeal requires 60 Senate votes, and that’s just not politically viable.
Republicans have received a lot of criticism for allegedly not having a cohesive plan, particularly once the “repeal and replace” mantra went viral. While there have been plenty of alternatives proposed over the past decade, debating policy nuances gets a little divisive. For example, should Republicans issue refundable tax credits to help people pay for private health insurance plans, or should health insurance be deducted from taxes instead? Philip Klein, commentary editor of the Washington Examiner, explains in his book, “Overcoming Obamacare”:
In reality, it is the subject of fierce debate on the right, a topic so controversial that it can quickly turn a meeting of normally mild-mannered conservative health policy wonks into a bloody scene from Game of Thrones… what really makes this debate so heated is that it’s a proxy for a much larger philosophical debate over how much of a role the government should be playing in expanding access to health insurance.
The top two contending proposals that have received the most media headlines over the past few months are HHS Secretary-elect Tom Price’s, “Empowering Patients First Act” and Paul Ryan’s House GOP plan. Both are similar in many ways, while there are some notable differences.
On Tax Credits…
Both Price and Ryan call for refundable tax credits to be distributed to people who do not have health insurance benefits through their job. The credit amount would vary based on age, helping patients offset the cost of health insurance in the non-group market. Price’s plan breaks down the age-credit distribution for individuals:
Because these tax-credits are refundable, people would still receive them even if they do not have any tax liability. This also means that they would assist those who fall in the current ‘gap’ population in states that have not expanded Medicaid, that is, people who do not currently qualify for the state’s traditional Medicaid program nor earn enough to purchase a heavily subsidized health insurance plan on the ACA’s Exchange.
Price and Ryan take the concept of tax credits a step further in different ways. Price’s plan allows for patients to opt out of government programs like Medicare, Medicaid, TriCare, or Veterans Affairs coverage in exchange for a credit. Even people who have job-based insurance can switch to the credit to shop for health insurance themselves. Meanwhile, Ryan’s plan specifies that, if the credit exceeds the cost of the health plan, the remaining balance can be deposited into one’s health savings account, tax-free accounts in which patients or their employer can contribute funds to be used for every day medical expenses like over the counter drugs.
Speaking of health savings accounts (HSAs), both plans allow generous expansion of HSAs. HSAs are a true representation of consumer-driven health care because they make patients more cost-conscious over their health care dollars.
Current HSA law limits annual contributions to $3,400 for an individual and $6,750 for families, and patients can only open up an HSA account if it’s tied to a high-deductible health plan. Price’s plan seeks to incentivize more patients to open up HSAs by having the government provide a one-time tax-credit contribution of $1,000 for new account holders. Meanwhile, it seems as if Ryan’s plan would allow for HSAs to be paired with health plans that aren’t just considered “high-deductible” under the IRS, and patients and employers could deposit funds equivalent to their plan’s total out of pocket spend. Both plans propose that recipients of government health insurance programs also contribute to this tax-preferred account. More HSA holders, combined with higher contribution limits, will only drive more health care price transparency and force downward pressure on out of pocket health care costs.
On Insurance Reform…
In order to restore the individual market’s unsustainable risk pools, Price and Ryan call for moving an estimated 500,000 people nationwide who have pre-existing conditions from the ACA’s exchanges to federally funded high-risk pools. These pools would be administered by states and would offer multiple plans. While Ryan’s plan preserves the federal health law’s pre-existing condition clause, it is unclear whether Price’s plan does, given that patients are left to access a health plan through a state’s high-risk pool if they are denied coverage by an insurer or if their premium quote is more expensive than the state’s high-risk pool plan.
Redirecting people who are burdened with expensive illnesses to federally funded high-risk pools opens up innovation in the traditional individual insurance market and allows insurers to offer less expensive products. Less stringent insurance regulations could encourage healthier people to sign up for coverage in lieu of mandates. From a cost perspective, it is estimated that these risk pools will cost between $16-20 billion annually (based on 2012 calculations). This pales in comparison to the $56 billion in subsidies spent just this year under the ACA. Both proposals also permit multiple small businesses or people affiliated with a specific organization to form their own risk-pools.
At the end of the day, Republicans want patients to have more say over their health care decision making. An effective transformation of our health care system should focus not just on coverage, but also more cost-effective access to health care services. Both of these goals can be achieved when patients are the true customers of health care.