Analyzing the House GOP Replacement for Obamacare | Citizens Against Government Waste

Analyzing the House GOP Replacement for Obamacare

The WasteWatcher

On June 22, 2016, Speaker of the House Paul Ryan (R-Wisc.) announced the House of Representatives Republican plan on healthcare reform, one of a series of six proposals called “A Better Way.”  This is the first time the House Republicans have coalesced around one plan to replace the Affordable Care Act (ACA), more commonly referred to as Obamacare.  The Better Way also includes reforms to Medicare and Medicaid.

For many years, both prior to and after passage of the ACA, Republican members of Congress have offered a variety of plans to replace Obamacare and improve healthcare delivery.  All of the proposals, including the new consensus document, empower individuals and utilize free-market forces to provide more choices and lower costs.

Because the healthcare proposal is a blueprint, rather than legislation, of how the House Republicans would like to reform healthcare, it is open to suggestions and improvements.  The 37-page document starts as follows: “Americans deserve an accessible and affordable health care system that promotes quality care and peace of mind.  It should empower patients and support innovation.  Sadly, that is not the system we have today.  Obamacare has limited choices for patients, driven up costs for consumers, and buried employers and health care providers under thousands of new regulations.  It forced people into expensive plans they did not want and put the government in charge of one of the most personal decisions families will ever make.”

The Republican proposal is built on the following five principles:

Repeal Obamacare:  House Republicans have no interest in repairing the ACA, declaring it cannot be fixed because of its special interest handouts, tax increases, and stifling mandates and regulations.  They remind citizens of how President Obama promised that healthcare premiums would decline by an average of $2,500 per family, per year; instead, they have risen.

The plan points out how Obamacare has had a negative effect on the economy, with more Americans working part-time because they are unable to find full-time work.  New data also shows a decline in the average hours worked per week for low-wage earners to just below 30 hours per week.  This is due to the Obamacare mandate that employers must provide insurance to their employees who work more than 30 hours, and if they do not, the employers are fined.

The ACA also expanded Medicaid to able-bodied adults, which had already strained state budgets and provided inadequate access to care for low-income families, the elderly poor, pregnant women, and the disabled.  This problem will only get worse as the federal government scales back its Medicaid expansion contribution from 100 percent to 90 percent funding in 2020 and beyond.

In addition to ACA’s structural problems, the administration has ignored the law’s requirements, by missing deadlines and delaying statutory requirements, making unauthorized payments, and forcing mandatory payment models to large segments in the Medicare population without congressional approval.

Provide all Americans with more choices, lower costs, and greater flexibility:  The Republicans seek the creation of a “consumer-directed” health care system instead of Obamacare.  This will be accomplished by putting the purchasing power in the hands of consumers to encourage real competition among insurance companies.

The proposal calls for an expansion of health savings accounts (HSA), which are tax-advantaged savings accounts for health expenses that can grow in value.  An HSA takes care of ordinary medical charges with tax-free dollars and is combined with a high-deductible health plan for catastrophic expenditures.  HSAs have proven to lower healthcare costs because the individuals are in charge of their healthcare choices and can shop around for the best deals.

One interesting proposal would allow small businesses to band together to offer health insurance to their employees, or permit pooling by individuals within other organizations such as trade associations, alumni societies, and other groups to help their members purchase insurance.  By allowing a variety of pooling mechanisms, individuals could come together and have improved bargaining power for lower rates, just as corporations and unions do today.

Probably one of the more controversial aspects of the plan is the tax treatment of health insurance.  For example, for those who have no access to job-based health insurance, the plan would provide a universal, advanceable, refundable tax credit for families and individuals to purchase health insurance.  In other words, even if someone did not pay any income taxes, he or she would receive the credit.

Some free-market advocates believe that a uniform tax credit is simply another entitlement program, while others think the amount should be means-tested because a uniform amount may not be enough for those that have severe illnesses or have a low-income job but make too much to qualify for Medicaid.  Still others believe that means testing would deter people from seeking better employment.  Others have argued that “large” HSAs, which allow for increased contribution limits, could be utilized to purchase routine healthcare and insurance.  But many believe the large HSA would only help middle-to wealthy-income individuals and families.

The plan also addresses the tax treatment of those individuals who receive health insurance from their employer.  Instead of taxing expensive plans (those that exceed $10,200 for an individual or $27,500 for a family) as Obamacare does in 2020, the Republican plan would instead cap the tax exclusion.  Currently, when employers pay their employees’ health insurance premiums, the employees are not taxed on that benefit.  Capping the exclusion would create more parity between those in the individual market and those in the employer-sponsored market.  The Republicans say most Americans would not be affected by the cap, and that the designs of health plans would change to avoid hitting the threshold, while compensation would be shifted to more take-home pay.

In any case, it is clear the tax treatment of healthcare will undergo a lot more debate before anything is implemented.

Protect our nation’s most vulnerable:  The Republicans recognize that some features of Obamacare are popular.  Their replacement plan would maintain protecting people from being denied access to health insurance due to a pre-existing condition.  The plan would adopt provisions for the individual market that are already seen in the group market.  For example, as long as a person in the individual market maintains continuous insurance coverage, he or she would not be charged more than standard rates when facing a serious medical issue, and would be allowed to renew or change their coverage with this protection.  Plus, the plan would also utilize robust high-risk pools to give financial help to people with pre-existing conditions that could find themselves priced out of the market.

Children would also be allowed to stay on their parents’ plan up to the age of 26, but the Republican plan would change the age-rating ratio.  Currently, Obamacare does not allow an older person’s individual plan to be more than three times as expensive as a younger person’s plan.   The Republicans argue that his policy has driven up rates, particularly for young, healthy people, driving them away from purchasing insurance.   The Republican plan would instead adopt a 5 to 1 ratio that was being used in most states prior to implementation of ACA, but would allow states the ability to expand or narrow the ratio.

The plan would protect life and conscience rights.  Healthcare providers, including employers, would not be forced to provide or pay for a service that goes against their conscience, such as abortion services.

The Republican plan would reform Medicaid, which serves some of the nation’s most vulnerable patients.  Because of the expansion of Medicaid under Obamacare, the federal government spends more on this program than Medicare.  The program utilizes approximately one in every four dollars in state budgets.   The federal government provides a higher percentage of matching funds for Medicaid expansion patients, who tend to be able-bodied adults, compared to disabled patients or children that utilize traditional Medicaid.  This encourages states, when facing budget constraints, to cut services from such Medicaid patients.

The plan would bring “Medicaid into the 21st Century” by giving states more flexibility and power in running the program, such as requiring able-bodied individuals to seek jobs or participate in education or training programs in order to receive aid.  The federal government would offer either a per capita allotment or a block grant, depending on the state’s circumstances.

Protect and preserve Medicare:  The plan would strengthen Medicare Advantage (MA), which allows seniors to receive their benefits from a private healthcare plan.  Currently, just under one-third of seniors utilize MA plans.  Because the private plans compete with one another, they provide more choices and better service for beneficiaries.  Obamacare cut funding to the program in 2010 and House Republicans are promising to make immediate reinvestments to MA, believing the cuts have reduced the program’s ability to meet seniors’ needs.

Fee-for-Service (FFS) Medicare is based on the old 1960s Blue Cross/Blue Shield model of healthcare delivery.  The Republicans propose structural changes to FFS Medicare by combining Parts A and B into a single premium with a unified deductible.  The policy would institute a maximum out-of-pocket cap on the amount of money a beneficiary pays each year and thus would create parity between FFS Medicare and MA.  In addition, Medicare Savings Programs that cover Part B monthly premiums would be combined into one program.  It is hoped these reforms would make FFS less confusing, help to coordinate care, and discourage overuse.

Most significantly, Medicare would eventually be transformed into a fully competitive market-based model.  Beginning in 2024, beneficiaries would be given a choice of staying in the traditional FFS Medicare or enrolling in a new “premium support” payment program, similar to how Medicare Part D or the Federal Employees Health Benefit Program (FEHBP) both operate.  Both Part D and FEHBP utilize private plans that compete on price and benefits, and have been very successful in keeping costs down and satisfaction high.  The payments would be adjusted so the sick would receive higher payments if their condition worsens.

The Better Way plan would repeal the Center for Medicare and Medicaid Innovation (CMMI) and the Independent Payment Advisory Board (IPAB), two programs created in the ACA, which CAGW wrote about in the February, 2016 Waste Watcher.   CMMI has practically unlimited power to test and evaluate various Medicare payment models with little transparency and its decisions are not subject to judicial review.  IPAB has a board of 15 unelected bureaucrats that have the ability to cut Medicare spending if it should exceed a certain amount.  While the IPAB cannot make changes to beneficiary cost-sharing, eligibility, or benefits, it can cut funding to providers.  This would result in de-facto rationing because providers would be reluctant to take on more Medicare patients.  Furthermore, it has its own form of legislative power that can only be reversed by a super majority in both chambers of Congress within a limited time frame.

Spur innovation in healthcare:  Chronic diseases, such as Alzheimer’s, take a huge toll on families as well as the nation’s economy.  The House of Representatives passed the 21st Century Cures Act in an attempt to accelerate the discovery and development of new treatments and cures for diseases like Alzheimer’s.  The Act contains reforms to modernize clinical trials of new therapies, speed up the Food and Drug Administration’s approval process, and remove barriers and regulatory uncertainty for new technology, such as medical apps for smart phones.  The House Republican plan will build on these ideas with steady funding for basic research at the National Institutes of Health and encourage more collaborative research among different healthcare settings across the country, while protecting patient privacy.

Some conservatives are calling the House Republican plan “Obamacare Lite,” because it adopts several provisions in the ACA.  The overall impact of the plan would take power out of Washington, D.C. and return health insurance oversight to the states, while putting more purchasing power in the hands of individuals to have the kind of healthcare they want for themselves and their family.  These much-needed changes to the healthcare system will allow Americans to have greater control of their healthcare dollars while spurring choice and competition, which will provide a good result for everyone.

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