There are plenty of Republican proposals to replace ObamaCare. I have recently compared several of them (see archives). As Republicans try to coalesce around one plan there are many questions worth asking.
John C. Goodman, the father of Health Savings Accounts (HSAs), poses seven questions that should be asked to find the best plan:
- What happens to the dollars that currently subsidize private insurance?
Low-income families not eligible for Medicaid are receiving government subsidies to purchase private health insurance on the ObamaCare exchanges. In 2016 the tax subsidy for employer-provided health insurance was $300 Billion per year. There are about 150 million Americans on these plans so the tax subsidy is approximately $2000 per person or $8,000 for a family of four.
However, the subsidy is greater for families in higher-income brackets. In fact the top fifth of the income distribution gets about six times the subsidy as the lowest fifth. A solution to this inequality is a refundable tax credit that would give everyone regardless of income the same tax subsidy. The Sessions-Cassidy Plan does this. The Paul Plan tries to equalize the tax treatment through universal deductions on income and payroll taxes but this will have less impact on low-income families who don’t pay income taxes.
Two plans keep all of the revenue that funds ObamaCare subsidies in the individual market (Sessions-Cassidy and Sessions-Collins). These funds come from special interests, like insurance companies and pharmaceutical companies, who agreed to be taxed or take lower fees in return for the increased volume of business ObamaCare would bring them.
- Does the plan impose a Cadillac tax?
The “Cadillac tax” refers to the provision in ObamaCare that punishes expensive health insurance plans by imposing a 40% tax to discourage abuse of the tax subsidy for health insurance. Several of the Republican plans retain a version of this tax (Ryan, Price) despite its unpopularity in both parties. Every Republican in the House is on record opposing this idea.
- Does the plan ignore the employers?
ObamaCare spending has focused on the individual market and largely ignored the employer-provided market. Despite this, premiums are spiraling while quality and access to care are plunging. The Ryan Plan, Price Plan, and Sessions-Collins plans continue this trend.
ObamaCare has left about 30 million Americans uninsured, largely because the cost of the premiums is prohibitive and/or the deductibles make the insurance unusable. To improve on this situation, Sessions-Cassidy creates a tax credit that employers could use to help employees enroll in a group plan that would give them access to lower premiums and deductibles with better coverage.
Senator Rand Paul’s Plan allows workers to take up to $5000 in tax credits for contributions to an HSA but this would certainly favor higher income families. He has many others incentives for expanding HSAs in his plan.
- Does the plan equalize subsidies in the group and individual markets?
ObamaCare threatens employers who buy individual insurance for employees with a $100 per worker per day fines. Sessions-Cassidy eliminates this problem by offering a universal tax credit that is available in both markets.
The Paul Plan gives individuals who purchase their own insurance a deduction that is comparable to the tax subsidy they would have received if they and their employer purchased the same plan at work with pre-tax dollars. That’s great if you pay taxes and can take the deduction – but many low-income workers don’t pay taxes.
- Does the plan promise universal coverage?
Sessions-Cassidy Plan is the only one that purports to offer universal coverage by giving everyone, regardless of income, a universal tax credit. The amount would be enough to purchase a basic private insurance policy, even if they are eligible for Medicaid. Other plans admit to covering fewer people than ObamaCare (Ryan, Price),which may make them politically unacceptable even though they may improve coverage and lower costs compared to ObamaCare.
- Will the plan stop the dysfunctional race to the bottom in the exchanges?
All the Republican plans will deregulate the exchanges, allowing more flexibility in designing and selling insurance policies. This will lower costs and the price of premiums. But they don’t prevent insurance companies from dumping the sick in favor of the healthy. Sessions-Cassidy prevents this practice by forcing the old insurance carrier to compensate the new carrier for the increased costs of covering sick patients. This is called health status risk adjustment. With this provision, insurance companies will no longer have an incentive to seek the healthy at the expense of the sick.
- Will the plan maintain a reliable safety net?
The expansion of Medicaid by ObamaCare threatens to bankrupt our large community hospitals because these patients use their emergency rooms for primary care 40% more than the privately insured or uninsured population. That’s because Medicaid patients have reduced access to care since providers aren’t paid reasonable fees. To prevent this, Sessions-Cassidy coordinates safety net spending with the tax credits for private health insurance by insuring that revenues for these institutions rise and fall with the size of the uninsured population they care for.
Goodman clearly believes the Sessions-Cassidy Plan solves more problems than any other Republican proposal. To be sure, he helped design this plan for Rep. Pete Sessions (R-TX) and Senator Bill Cassidy (R-LA). However, his thorough knowledge of the issues and long experience in healthcare economics should be respected and studied by all those in Congress who wish to provide Americans with the improved healthcare system they deserve.