The new Republican-controlled Congress is on the move to replace ObamaCare. The best evidence of this is the new revised Patient CARE Act revealed this week by Senators Richard Burr (N.C.), Orrin Hatch (Utah), and Rep. Fred Upton (Mich.).
The original Patient Choice, Affordability, Responsibility, and Empowerment Act or “Patient CARE” plan was proposed by Senators Tom Coburn, Hatch, and Burr. With the retirement of Senator Coburn, the new plan added Rep. Upton and may be referred to as Burr-Hatch-Upton or Patient CARE II.
With Republicans in control of Congress, the chairmanship of critical Congressional committees is in Republican hands. Senator Hatch is Chairman of the Senate Finance Committee; Rep. Upton is Chairman of the House Energy and Commerce Committee. These key lawmakers now control two of the most important health care committees in Congress.
Much like the other alternative proposals I have discussed in recent posts, their plan calls for refundable tax-credits to purchase private health insurance. The important difference in their plan is that the tax-credits will be means-tested. That means the size of your tax credit depends on your income.
The Patient CARE Act calls for a sliding scale of tax-credits by income and age beginning at under 200% of the Federal Poverty Level (FPL) and declining until it ceases at 300% of FPL. (In 2015 the FPL for a childless adult is $11,770; therefore 200% is $23,540 and 300% is $35,310. For a family of four, FPL is $24,250; 200% is $48,500 and 300% is $72,750.) These subsidies are unchanged in Patient CARE II.
New Changes In Patient CARE II
What’s different is the tax break for employer-sponsored health insurance. This plan seeks to level the playing field for individuals who do not benefit from the tax-exemptions the government gives to employer-sponsored plans. It caps the amount employers can spend on health insurance before taking away the tax-exemption. The original Patient CARE Act placed a threshold at “65% of an average plan’s cost.” This threshold was tied to inflation: Consumer Price Index plus 1 percent (CPI + 1).
When this proposal was scored, it increased federal tax revenue by $1.1 Trillion over ten years. The new version reduces the new tax revenue to avoid being labeled a huge tax increase.
The new plan caps the value of the employer tax exclusion at $12,000 for an individual and $30,000 for a family; again the threshold will grow at CPI +1. This change raises the tax-credit for individuals and families – and largely leaves employer-sponsored coverage intact. By comparison, the ObamaCare “Cadillac tax”, which begins in 2018, calls for a 40% tax on insurance plans costing greater than $10,200 for individuals and $27,500 for families.
Comparison of Plans
Avik Roy, writing in Forbes, compares the new Patient Care Act plan with the old one. He says the value of the tax credits under the new plan is 26% higher than the old plan. For example, under the old plan, a 40-year-old making less than 200% of FPL would receive a tax credit worth $2,530. Under the new plan, the tax credit goes up to $3,190.
This will undoubtedly lead to more people being covered by the new plan than the old plan. Stephen Parente of the Center for Health and Economy scored the old plan and found it would cover 3 million more than ObamaCare in 2020. These changes could significantly increase these numbers.
This graph dramatically shows the increased tax credits available in the Patient CARE II plan of Burr-Hatch-Upton in 2015. With more people insured under this plan and greater subsidies for poor and middle-income families, this revised plan becomes politically attractive to both Republicans and Democrats. Furthermore, it can no longer be characterized as a “huge tax increase” like the old plan.
Medicaid and Medicare Reform
There’s more to like. Unlike some other ObamaCare replacements, this plan addresses entitlement reform. It repeals the expansion of Medicaid, allowing individuals instead to use these tax credits to purchase private insurance. It also converts the Medicaid program into a “per-capita cap” – providing block grants to states much like those first proposed by President Bill Clinton.
Burr-Hatch-Upton caps non-economic damages and limits attorney’s fees in medical liability cases. These measures have been shown to reduce malpractice claims in states that have implemented them such as Texas. If enacted, they would lower the cost of defensive medicine, which has been estimated to exceed $60 Billion per year.
Lastly, this new plan calls for price transparency for hospitals accepting Medicare and removes barriers that currently restrict interstate insurance purchases. This reform has been estimated to reduce health insurance costs by 9 percent.
Roy considers this Burr-Hatch-Upton plan a model GOP health-reform plan that could have an impact on how the Supreme Court opines in its upcoming ObamaCare case, King v. Burwell. Next post I will compare and contrast Roy’s own plan, called Transcending ObamaCare, with the Patient CARE Act.