Burr, Coburn, Hatch Reform Plan

Republican Senators Richard Burr, Tom Coburn and Orrin Hatch released “The Patient Choice, Affordability, Responsibility, and Empowerment Act” today. I am going to call it PCARE. A few quick thoughts/highlights as I am running today (more later):

  • It acknowledges gravity, while making changes. While PCARE talks of repeal of the ACA, it locks in a good deal of the structure of the ACA, and addresses changes from that new status quo. For example, no lifetime limits (sec 201) is retained from the ACA, as is keeping people up to 26 on their parents health insurance, while the current 3-to-1 age banding premium regulation is replaced with 5-to-1 (now a 64 year old could not be charged more than 3 times what a 20 something could be charged;now they could be charged 5 times as much). Winner 20-somethings, loser 60-somethings. Eventually they say they plan to allow States to set these rules with a looser federal touch, meaning a state could decide to stick with the 3-to-1 premium banding by age, for example. I want to hear more about guaranteed renewability and related insurance market regulations as the 2nd full paragraph of page 2 is a bit slippery. For example, it contains this quote: “Insurance companies would also be banned from making unfair coverage terminations of health coverage.” (emphasis mine). What might “fair” ones be?
  • Continuous coverage provisions could provide lots of incentive for people to sign up. Section 202 seeks (I think) to replace the ban on pre-existing conditions as a forever standard with an “everyone has a chance to come in once” and then continuous coverage provides you with protection once you do so. This is more along some of the earlier individual mandate logic of responsibility.
  • Subsidies to buy private insurance (or health care directly) are pared back to 300% of poverty level. Down from the 400% of poverty max in the ACA, and the credit could be used to pay directly for health care under PCARE. They have dropped the Patients’ Choice Act flat tax credit for singles and families and gone to an age banded structure, with the table below being for those at 200% of poverty.

ScreenHunter_02 Jan. 27 14.31

Duke’s employer sponsored plan costs about $1,450 per month, so the tax credit for my age ($6,600) is less than half of that. At my income there would be no subsidy (as with the ACA), but the no subsidy level now will be around $35,000 for singles, and $65,000 for families. These credits will finance catastrophic levels of coverage compared to what most now have, but of course advocating catastrophic coverage with people paying more is a policy approach. Lets see if they own up to what this will purchase. I would love to see a comparison of OOP and premiums of what these subsidies will finance as compared to the ACA. However, this could mute some of the incentive to move out of employer sponsored coverage to exchanges that tax treatment of ESI changes proposed will kick off (see below). [update: a data driven comparison really is needed; Larry Levitt via twitter was pointing out many details will have to be clarified to allow this].

  • Transition to capped Medicaid amounts given to States. The Medicaid section (301, p. 5-6) covers lots of complicated territory and many more details are needed. However, I am going to grant the benefit of the doubt and say lets talk more about this. The parts of what they write that I like include acknowledging the distinct “sub programs” within Medicaid and the fact that they are not the same and do not have the same needs. The part I like the least is that for the dual eligibles and the disabled, the acute care financing stays the same, while providing a capped amount for the long term care costs of such persons to be given to the States, with the States retaining the responsibility for the remainder of the long term care. This locks in the two-payers problem with these sickest people in the nation, while shifting LTC burden to states. I am willing to listen here, but would rather Medicare federalize the acute care side of the duals if they want to shift LTC responsibility to states (there is lots of policy in that last sentence, I will clarify later).
  • Medical Malpractice reform. This is not a great place for federal intervention, and that has always been a problem for Republicans. However, their writing about it puts back in play a piece that has always been one of the political stepping stones to a health reform deal (I wrote this in 2009). The latest issue of Health Affairs has lots on Medical Malpractice, an issue that went nearly completely away for several years, which was a sign Republicans didn’t want a deal. It coming back means some of them want one. I included Medical Malpractice and patient safety (two sides of the same coin) in my white paper on N.C. Health Reform that I put out two weeks ago. Most of the action here will be state level.
  • Title VIII of PCA is dead. This makes me sad.What a strange chapter of health reform was the appearance of unelected boards in a Republican bill one month before the first version of HR3200 was passed out of the Commerce committee, and then unelected boards became such a rallying cry for Republican opposition to the ACA. It was also hilarious how none of the sponsors would own up to it being their idea, but I digress.
  • Cap the tax exclusion of ESI at 65% of an average plan’s costs and grow at CPI+1%. Sign me up; let’s replace the caddy tax in the ACA with this. I’ve written about this over and over. Keep in mind that this will be quite dislocating for employer sponsored health insurance. That is where I want to go down the road, but 3-5 Million people with cancelled indy policies just about ground health reform to a halt in November/December with an assist from a screwed up website. 165 Million people have employer sponsored health insurance, most of them have no idea that get tax free income from it, but all of them will be sure that they deserve it, once they find out they are going to lose some of it.
  • Sponsors/Politics. Interestingly, Bur and Coburn lost Paul Ryan and Devin Nunes in the House as co-sponsors (these 4 co-sponsored the Patients’ Choice Act). Burr and Coburn introduced the Seniors Choice Act in 2012, and those Medicare-specific reforms are not contained in today’s-released PCARE. Do they still support Seniors Choice Act? Senator Hatch last year introduced his own bill with a mix of things (his Medicaid ideas seem to have come through most clearly in PCARE). My political analysis goes two ways on this. First, if members of the House co-sponsor then people like me say mark up the bill and get a CBO score since they control the House, and they don’t want to do that (and Dems aren’t going to mark this in the Senate). It is a definite advantage to have a plan that is not subjected to such scrutiny. At the same time, when there is a deal someday, it seems almost certain to pop out of the Senate, just like the fiscal cliff deal did. Not sure when that will be, but this is a step towards that day, and I welcome it.

About Don Taylor
Associate Professor of Public Policy at Duke University and author of Balancing the Budget is a Progressive Priority. On twitter @donaldhtaylorjr

20 Responses to Burr, Coburn, Hatch Reform Plan

  1. Bob Hertz says:

    Capping the exclusion at 65% will draw a lot of fire, as you suggest.

    An employee who receives $15,000 in employer contributions to insurance will have to bring $5,250 into ordinary income.

    In the high marginal brackets and high tax states, this will be a tax increase of about $2,000 a year.

    Yes, this increase will hit Democratic government workers and some union members……but it will also hit a lot of senior corporate employees who are stalwart Republicans.

    Also, in theory this could cause a recession. Taking $2000 out of the incomes of millions of families would pretty much cancel Christmas.

    Was the Coburn group forced into this by their ideological resistance to raising income tax rates?

  2. Brad F says:

    Don,
    I want your take on the following:

    Experience rating with hi risk pool vs community rating.

    Distinct angles approaching same problem, and my guess will be, in the end, direct costs will be the same.

    The $ distribution (or the shell game getting us there) will look different, ie, how the taxes to pay for each will have distinct attributions–some more politically feasible than others, but in the end, we all pay equally.

    Can you say a few words about efficiency? Does one approach have a theoretical advantage or its more less filling, tastes great? Would a dispassionate analyst want one over the other in an ideal system?

    Brad

    • Don Taylor says:

      Brad
      the high risk pools we have don’t really work well. However, I think you are asking if you imagined moving to a state level pool, would we be better off with community rating in an exchange v 5 -to-1 or whatever standard. I think the Employer Sponsored community risk approach is primiarily an efficiency argument. You could underwrite premiums, but there are admin costs to assign the correct premium. The key is the pool has to be large enough. So, if you had enough people in the exchange, them community rating would be fine (or at least its fine in ESI).

      The Burr, Coburn, Hatch plan caps tax exclusion at 65% of the national premium, and then updates this at GDP = 1% point. This means that over time, more plans will be capped unless health care grows only 1% point faster than GDP. This should have downshifting effect of amount of insurance ESI provides. This would be expected to have the effect of breaking down the job/insurance link as employees figure out how much their health insurance costs. However, the relatively low subsidiy available per income offered should reduce the incentive for employees to want to move that way.My point is, the smaller the private exchange market, the harder to get to community rating I think.

      On efficiency grounds, I don’t see how community rating not best, or at least truncated age banding like ACA. The above is more quick intuition than a careful theoretical take on your question, but in insurance, everythng is better with a bigger risk pool.

      Don

      • Bob Hertz says:

        Having been a participant in the Minnesota High risk pool, I would suggest that the pools can work OK if they get enough state money. Most states have been very stingy in the funding. Of course if a state rejects the Medicaid expansion because it might mean higher taxes in 3 years, then it will also reject a high risk pool that needs money today.

        I am shall we say not too impressed by the voters who in many cases get Medicare or employer coverage themselves, but resist spending a nickel of tax money on anyone less fortunate.

        Finally, you mention that Coburn Two caps the tax exclusion at 65% of the national premium.
        That is even worse for Cadillac plans than I thought.

        If I read this right, say that an employer pays $18,000 for family coverage. If the national average is $15,000, then almost $8,000 would be additional taxable income.

        You say that plans will be capped. I don’t quite follow that. Are you saying that employers will hammer away at plan generosity until the premium falls to $10,000?

        Government employees will go nuts and string up Republicans if this ever gets to the floor of Congress.

      • Don Taylor says:

        Bob
        I think one of biggest issues with high risk pools is willingness to fund. In one sense, if the exchanges are adverse selection train wrecks v how premiums were done (I suspect won’t be so bad, but it is an empirical question), then you just created essentially high risk pools, but with more folks in them.

        I think the cap of tax exclusion is good policy, but I agree the outrage will make the 3-5 M indy policy cancellations look mild. I am saying that once employers start having to pay taxes on some of the value of their health insurance (If the cut off is $10,000 and you have plan with $18,000 in premiums then $8,000 is taxed at your marginal rate), they are going to start asking lots of questions and that will lead to pared down options, and will start very interesting convos. “can I take more in salary?” and the like….the Labor Econ Ph.D. seminar version is that all the premium paid by employer should be just compensation….employer should not care what form. We shall see, and I suspect it will vary by industry. I would expect that to drive folks out of ESI….CBO says so in a simulation they did in Nov 2013 of a similar plan http://www.cbo.gov/budget-options/2013/44903 in their options series.

        The details of this will be brutal for Republicans, just as they are for Dems. The details are simply brutal if you wade in with a reality based policy that seeks coverage expansion, that pays attention to cost, and seeks to improve quality.
        Don

      • Bob Hertz says:

        Initially I do not think people will be driven out of employer insurance. For one thing, an $18,000 family health policy is still a great deal even if it costs you $2000 in taxes.

        But I think the goal of the Coburn team is to have more employers offer a combination of high deductible insurance and a funded HSA.

        In their view, an army of consumers with funded HSA’s has two very important long term effects:

        a. pressure on medical costs from people spending their own money

        b. at least some of HSA-holders will reach retirement with a significant private account. This would allow Medicare to go to a high-deductible format also.

        (I am a kind of poster child for this. I had low deductible family insurance at several jobs from 1976 to 2011. Other than childbirths, I was lucky and my family had few claims. If my employers had offered an HSA and paid for the HSA, I would have a large medical fund right now.)

        As is typical with American health policy, this is kind of a left handed ju-jitsu way to go after cost control, and to reduce the financial pressure of social programs when the recipients of those programs live so long.

        Other nations might be more direct about this. If they want to lower health care prices, they pass laws to lower the prices — and not depend on patients to be the kamikazes of cost control, taking their chances by rejecting pricey care.

        And if they need more savings for old age, they mandate savings.

        But we are who we are, I guess.

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