In Part I of this post I described in general terms the Republican plan to replace ObamaCare as put forth in a bill sponsored by Rep. Pete Sessions and Sen. Bill Cassidy known as the Sessions-Cassidy plan. Today I will discus how this plan improves on ObamaCare.
The Sessions-Cassidy ObamaCare Replacement Plan
The Sessions-Cassidy plan represents a different approach to healthcare reform than ObamaCare. Here is a comparison of the different approaches:
ObamaCare (the Democratic approach) is a defined benefit approach. It established first all of the benefits they wanted people to have (such as free contraceptives, free mammograms, no life time limits, etc.) and then added up the costs. Then they determined how much the government would pay of those costs. Anything over that amount fell to consumers to pay.
Realizing that many Americans would not want to purchase insurance and that would drive up the costs for everyone, Democrats insisted on an Individual Mandate. With that approach, 33 million were left uninsured, not to mention those who have insurance but cannot afford to pay the high deductibles.
Sessions/Cassidy (the Republican approach) takes a defined contribution approach. They give people a tax credit and then let competition in the marketplace determine what people will be able to buy for that amount. The credit is approximately equal to the federal government’s contribution to privately administered Medicaid. If the state chips in its share of Medicaid money, low-income families should have access to private insurance plans for only a few dollars a month.
Economist John C. Goodman explains the differences: “The Republican plan has a floor – below which no one will fall. That floor can be expected to look like Medicaid and in some cases maybe even like VA care. It will not be the most desirable plan around. But unlike ObamaCare, everyone potentially will be insured. Everyone will have access to basic care.”
Therefore the Sessions-Cassidy plan solves the problem of achieving universal coverage. Only those who choose not to participate will be without coverage.
The Sessions-Cassidy plan obliterates the unfair tax treatment of health insurance we have lived with since World War II ended. Everyone will get the same tax credit, regardless of where the insurance is obtained – at work or in the marketplace.
Everyone will get their tax subsidy up front – subsidizing the basic costs of healthcare insurance – without encouraging more expensive plans as the current system does. (This eliminates the need for the “Cadillac tax” that was written into ObamaCare to discourage expensive plans.)
Since employers have no incentive to provide more expensive plans, Goodman says this will result in higher take-home pay for employees. He calculates an increase in take-home pay of $2000 a year or more on average. (Employers will have more money to increase employee pay when they are spending less on healthcare.)
Therefore the Sessions-Cassidy plan solves the problem of controlling costs. With no incentives to spend more, employers will have more to spend on wages.
ObamaCare created perverse incentives for insurers and consumers that resulted in people gaming the system (ObamaCare Rules Encourage Gaming the System) to lower their costs. Insurers tried to attract healthy patients with low cost, poor benefits plans while discouraging sick patients with high costs up front.
With the Sessions-Cassidy plan, when high cost patients leave one plan to enroll in another, the originating plan will have to top up the enrollee’s premium so that the receiving plan gets actuarially fair compensation. With this approach, the sick and the healthy will both be attractive to insurers. Some plans are expected to specialize in the treatment of such chronic conditions as cancer and heart disease and will aggressively compete for these patients. Medical records will travel with patients as they migrate from plan to plan, unless they object.
Therefore the Sessions-Cassidy plan solves the problem of pre-existing medical conditions. Insurers will have no disincentive to accept patients with pre-existing conditions because they will be fairly compensated by the last insurance carrier.
The Sessions-Cassidy plan represents the best ObamaCare alternative ever proposed and should become the center of a Republican plan to repeal and replace this failed healthcare legislation. In subsequent posts I will get into more of the details to explain how this plan solves the many problems that exist today with The Affordable Care Act.
(Next post I will discuss the details of the Sessions-Cassidy plan.)