If the Supreme Court strikes down the entirety of the Affordable Care Act, or if Republicans succeed in doing it themselves in 2013, whats the path forward for health care reform? Many of us have speculated on the topic. (I express some thoughts here; Paul Starr has a useful take from the liberal side.) Now, a new plan has come forth, backed by one of the most influential Tea Party groups, that contains some intriguing and original ideas for bringing cheaper health care to more people.
Two weeks ago, Paul Broun, a Republican congressman from Georgia, put forth his own bill for replacing Obamacare: the “Offering Patients True Individualized Options Now Act,” or OPTION Act. “I started this process before the Affordable Care Act was ever passed into law, to try to give an alternative [that would] literally lower the costs of healthcare for everybody,” says Rep. Broun, who doubles as a primary care physician back in his northeastern Georgia Congressional district. “I wanted to draft a bill that would free people up, without all the government intrusion.”
Significantly, Brouns bill is backed by FreedomWorks, one of the most prominent Tea Party organizations. (FreedomWorks was formed by the merger of two older free-market groups, Citizens for a Sound Economy and Empower America.) ”We looked at it and said, ‘Wow, this is tea-party health reform,” says FreedomWorks health policy director Dean Clancy. “No mandates. No new bureaucracy. No ‘universal coverage. No federalism violations. Just more freedom for patients. Everythings optional. You really can ‘keep your coverage if you like it!”
So, what does the OPTION Act do, and would it serve as an adequate replacement for Obamacare?
Brouns bill is divided into five parts: (1) repealing Obamacare; (2) changing the tax treatment of health expenditures; (3) Medicare premium support; (4) reforms of EMTALA, the federal mandate that forces emergency rooms to care for people regardless of their ability to pay; and (5) allowing people to purchase insurance across state lines, and small businesses to band together to purchase lower-cost association health plans (AHPs). “Its 51 pages,” says Broun. “Its a very simple bill that lowers costs for everyone. Plus, we cover those who cannot afford it by putting in a policy to help the uninsured get care.”
The bill doesnt directly address Medicaid, as Broun has co-sponsored another bill, the State Health Flexibility Act, that converts Medicaid into a series of block grants for the states.
Brouns version of Medicare premium support
Brouns approach to premium support differs in certain ways from the one in Paul Ryans Path to Prosperity. Ryans approach, which he developed in collaboration with liberal Sen. Ron Wyden (D., Ore.), only applies to people who are 55 years or younger, leaves seniors the option of sticking with traditional fee-for-service Medicare, and uses “competitive bidding” to determine the level of premium support that each retiree would use to buy health insurance.
Brouns approach, on the other hand, would go into effect immediately. It contains no “public option” to remain in the traditional Medicare program. The reforms only apply to Medicare Part A, the hospitalization component of Medicare. And its premium support levels are calculated by a formula: 120 percent of the sum of the average premium and average deductible for individually-purchased insurance in a given area.
Another important element of the Broun plan is that it would allow seniors to opt out of Medicare, and seek out their own insurance instead. Its not clear that an opt-out provision is compatible with the premium-support formula that Broun has conceived. You might worry that healthier seniors would be the ones who would choose to opt out, leaving sicker retirees on Medicare. Because premium-support payments would be tied to rates in the individual market, those payments might not keep up with the rising costs of caring for a sicker pool of patients.
“I am not at all worried about adverse selection from an opt-out,” says Clancy, “because Medicares subsidy and government-bailout guarantee make it simply too good to pass up for virtually all seniors. There was no adverse selection problem before 1993,” when the Clinton Administration unilaterally instituted a rule preventing Medicare beneficiaries from opting out of the program. “Its just plain un-American to trap people in a monopoly government health insurance program, when the private sector could easily meet their needs and better than the bureaucracy can do.”
Making all health spending tax-deductible
The OPTION Acts most significant reforms affect the tax treatment of health expenditures. As Ive often written, the biggest inefficiency in the American health-care system is that the tax code discriminates against people who seek to buy health insurance for themselves.
Brouns bill seeks to change this, in several significant ways. First, Brouns bill makes all health expenditures tax-deductible. That is: under his plan, the tax treatment will be the same whether you get insurance through your employer, you buy it on your own, or you choose not to buy insurance and instead pay directly for your care.
Brouns plan would revolutionize the insurance market, by incentivizing companies—particularly smaller ones and startups—to pay their workers directly in wages, and let those workers decide how to pay for their own care. It would eliminate the problem of pre-existing conditions, because individuals would be able to stay on their insurance plans when they change or lose their jobs.
Dramatic improvements to health savings accounts
The OPTION Act would also make significant changes to health savings accounts. In 2012, Americans with self-only coverage are allowed to deposit $3,100 tax-free in a health savings account. Individuals with family coverage can deposit $6,250. Brouns plan increases these limitations to $10,000 and $20,000, respectively.
The current laws regarding HSAs, which were part of George W. Bushs Medicare drug-benefit law, require HSAs to be associated with a high-deductible health plan, which must have an annual deductible between $1,200-$2,400 for individuals, or out-of-pocket expenses of $6,050-$12,100 for family coverage. The OPTION Act eliminates the requirement that HSAs be attached to high-deductible health plans, allowing all Americans to save money for a rainy day tax-free.
You might ask: whats the point of HSAs if you can deduct any and all health expenditures? The point is that HSAs still encourage people to save money for future health expenses. The experience of Singapore has shown that HSAs are a far more cost-efficient way to pay for care than buying comprehensive insurance. They reduce “moral hazard” because, with HSAs, a patient has financial incentives to stay healthy, relative to traditional insurance.
The OPTION Act also introduces HSAs to Medicare, by allowing Medicare beneficiaries to contribute to an HSA, and allowing individuals to roll their pre-retirement HSAs over to Medicare.
The expenses involved in end-of-life care remain a big part of the discussion among health wonks. Left-of-center policy types might have gotten burned by the “death panels” charge, but under their breath, they continue to advocate government restrictions on access to wasteful care for people who are nearing death.
Brouns plan takes the opposite approach. Under OPTION, individuals would be able to pass HSAs on to their descendants, giving them an incentive to avoid wasteful health spending, because they can pass the savings on to their spouses and children.
Intriguing reforms for charity care
One of the most interesting aspects of Brouns initiative is its reforms of charity care. As the health wonks among you will know, a federal law called EMTALA forces hospital emergency rooms to treat anyone, even illegal immigrants, irrespective of their ability to pay. As a result, emergency departments suffer from overcrowding, and time wasted on dealing with non-emergency conditions, especially on behalf of those on Medicaid and those without insurance. This “free rider” problem, in turn, is the (rather shaky) justification for Obamacares individual mandate.
“If you go to any emergency room in this country,” says Broun, “you find it full of people who dont have a real emergency. Illegal aliens in particular are using the ER in that capacity. Its a tremendous financial burden for hospitals. Rural hospitals in particular are going out of business because of the EMTALA law.”
The OPTION Act includes two significant reforms to our charity care system. First, it gives physicians a tax credit (i.e., a subsidy) of between $2,000 and $8,000 a year for engaging in charity care, depending upon the amount of charity care they offer. “Today, I could be put in jail for giving charity care to a Medicare patient for free,” explains Broun. “What were doing is were taking all of those regulations out of the system.”
Second, it would allow emergency rooms to turn away patients, under EMTALA, that dont have actual emergencies. “I had the experience of what every ER physician sees in this country,” says Broun, “which is people who arent having emergencies using the ER. They should be seeing their regular doctors.” This simple reform could do a lot to ensure that uninsured people with actual emergencies would get treated faster, with better outcomes, than they do today.
Limitations of the OPTION Act
There are three caveats to Brouns initiative. The first is that it doesnt have a CBO or JCT score. Typically, the Congressional Budget Office and the Joint Committee on Taxation dont bother to score legislation that doesnt originate from a member of the House Budget or Ways and Means Committees. Broun sits on neither. Getting an estimate of the bills fiscal cost, given its substantial changes to the tax code, would be critical to assessing its fiscal feasibility. “Were asking outside groups to score it,” says Broun.
Second, while the bill achieves the important goal of equalizing the tax treatment of employer and non-employer health spending, it does so by expanding Americans incentive to spend on health care relative to other things. Its widely thought that this massive subsidy of health spending drives up the cost of health insurance, and thereby makes insurance less affordable.
Third, its not clear how many people would gain insurance coverage as a result of Brouns plan. A CBO analysis could provide one useful estimate of that kind. The OPTION Act would doubtless expand coverage, because the “young invincibles” who currently eschew costly, government-mandated insurance would be able to gain care through consumer-driven health plans and tax-deductible out-of-pocket spending.
From FreedomWorks standpoint, this is a feature, not a bug. The Tea Party group wants health-reform efforts to “focus on reducing costs and expanding freedom, not on expanding coverage.” But for those who regard universal coverage as a worthy policy goal, Brouns efforts may be seen as insufficient. The remaining uninsured population will provide single-payer agitators with a rationale to continue their quest.
The way forward for Brouns reforms
Despite these limitations, the OPTION Act contains some original and promising ideas for improving our health-care system. It would dramatically expand insurance options for those who cant afford gold-plated, comprehensive insurance. It would encourage more people to combine health savings accounts with high-deductible, catastrophic insurance coverage: by far the most cost-effective approach to health insurance. It would make important reforms to the badly-designed EMTALA law, improving our system of charity care, and incentivize seniors to pass their health-care savings on to their families, instead of spending every last cent on end-of-life care.
Given that the most important aspects of Brouns plans involve changes to the tax code, it will be important for Brouns work to gain the attention of Rep. Dave Camp (R., Mich.), the Chairman of the House Ways and Means Committee. Camp and his colleagues are responsible for formulating tax policy, in the way that Paul Ryans Budget Committee is responsible for spending policy. If Camp incorporates Brouns ideas into his budget, well be able to gain some insight into how much theyd cost the Treasury, and how much they might expand coverage.
The OPTION Act may not be a cure-all for the ills of American health care, but it does offer a number of useful and original reforms that would make health care cheaper and more accessible. More people should take a look at it.
Original Source: http://www.forbes.com/sites/aroy/2012/04/07/the-tea-partys-plan-for-replacing-obamacare/