Monday, January 27, 2014

A Credible Plan To 'Repeal And Replace' Obamacare Sits in the Senate

This is from Avik Roy at Forbes, My comments in [ ]: 

... Coburn-Burr-Hatch retains some popular Obamacare provisions

CBH would repeal Obamacare, and replace it with a set of more market-oriented reforms. One key point right at the start: the authors “believe our proposal is roughly budget neutral over a decade.” That is to say, for all the reconfiguring it does to the health-care system, it doesn’t substantially reduce the deficit. It may modestly reduce the amount of federal spending and taxation. The Senate trio aims to have their proposal fiscally scored by an outside group of economists, most likely Doug Holtz-Eakin’s Center for Health and Economy.

While the plan would repeal Obamacare, it would preserve some of the law’s most popular features, such as its ban on lifetime limits on insurer payouts, and its requirement that insurers cover adult children younger than 27. It would replace Obamacare’s premium hike on young people, known as age-based community rating, with a more traditional 5:1 rating band. [That still softens the blow on older folks a bit as most actuaries agree that the purely data-driven difference should be 6:1. But is it much better than Obamacare's 3:1 ratio].  

It wouldn’t maintain Obamacare’s individual mandate, nor its requirement that insurers offer coverage to everyone regardless of pre-existing health conditions. Instead, the plan would require insurers to make offers to everyone who has maintained “continuous coverage,” while aiding states in restoring the high-risk pools that served those who insurers won’t otherwise cover. Subsidy-eligible individuals who failed to sign up for a plan would be auto-enrolled in one priced at the same level as the subsidy for which they qualified.

... It would encourage medical malpractice reform by “adopting or incentivizing states to adopt a range of solutions to tackle the problem of junk lawsuits and defensive medicine.” It would strive to expand price transparency and the supply of physicians.

Means-tested tax credits for the uninsured, funded by the employer tax exclusion

Most importantly, the CBH plan would make substantial changes to the tax exclusion for employer-sponsored coverage, in order to fund subsidies for the uninsured. “Our proposal caps the tax exclusion for employee’s health coverage at 65 percent of an average plan’s cost” today, and then grows the cap at the rate of the Consumer Price Index—a common measure of inflation—plus one percent (CPI+1%).

The revenues gained from this change would then be used to offer tax credits for the uninsured, so long as their incomes were below 300 percent of the federal poverty level (FPL). Importantly, the subsidies are structured on a sliding scale so that those at 300% FPL get a smaller subsidy than those below 200% FPL. In addition, the subsidies increase as you get older; an individual aged 18-34 would get a subsidy of $1,560, whereas one aged 50-64 would get $3,720: 2.4 times what the young’uns get. The size of the subsidies would grow, again, at CPI+1%. (Obamacare offers subsidies to those below 400% of FPL.)

Patient CARE Act subsidies

This is a substantial improvement from previous “repeal and replace” plans, that offered a uniform tax credit to every American, regardless of their prior health or wealth. The CBH plan aims to let younger pay lower premiums, but subsidize those premiums at a lower level. Similarly, the subsidy level is means-tested. 

This structure, though described as a “repeal and replace” plan, is remarkably similar to the one that Obamacare uses. What are the key differences? The CBH plan would grow its subsidies and tax exclusion cap at a higher rate than Obamacare does—CPI+1% vs. CPI+0% for Obamacare. ...

Milder Medicaid reform using per-capita caps

Finally, the plan would reform Medicaid using an approach first proposed by Bill Clinton, and endorsed by former Democratic Senate Majority Leader Tom Daschle: per-capita caps. Under the per-capita cap approach, the federal government would give states a fixed amount of money per person enrolled in Medicaid. It would be up to the states to use that money in the most cost-efficient way possible.

In some ways, it’s a milder form of block-granting. There are a number of pitfalls in the per-capita cap approach, as I discussed in a September 2012 article for Forbes.

Per-capita caps aren’t problem-free. Without other fiscal controls, states might enroll an unexpectedly high number of people into Medicaid, further straining the budget. In addition, Medicaid patients are highly heterogeneous, with the elderly and disabled costing more money than, say, children…Urban Institute researchers noted that “a single aggregate cap would create incentives to add low-cost enrollees such as children,” and that even dividing patients into broad categories could lead to gaming.

An attractive feature of CBH is that Medicaid enrollees could take the dollars allotted to them in the per-capita cap and spend it on a regular private-sector insurance plan. [This is a great feature and really offers a happy medium between free market thinkers and single payer solutions.]. Indeed, CBH could be improved if this became universal: that is to say, instead of giving states the Medicaid money, give it directly to poor people to buy the coverage of their choice with an auto-enroll feature. [Agreed.] ... 

The bottom line is this. The Coburn-Burr-Hatch plan is a serious, constructive, and pragmatic one. Precisely for those reasons, it won’t satisfy the purest Obamacare haters for whom there is not a single provision in the law worth retaining, nor those who think the health care system was just fine as it was [or proponents of government healthcare]. And it won’t drastically shrink the scale and scope of federal spending on health care, at least in the near term. ...