OP-ED

No Alternative: An Analysis of the GOP Plan

Congressional Republicans have been blasting away all summer at the Democrats’ health reform legislation. But they might face heavy blowback if more Americans took a close look at two ambitious health reform bills sponsored by GOP lawmakers.

While the GOP plans include some worthy ideas, they have fatal policy flaws at their heart, largely related to insurance risk selection. Plus, they’re vulnerable to many of the same big-government political attacks leveled against the Democratic proposals. That may be the reason Republican lawmakers aren’t talking up their plans at the stormy health care town hall meetings they’re hosting across the country.

The two bills – the Patients’ Choice Act (PCA), sponsored by Oklahoma Sen. Tom Coburn and several House Republicans, and the Health Care Freedom Act of 2009 (HCFA), sponsored by South Carolina Sen. Jim DeMint – have a fair amount in common, though DeMint’s bill is the more conservative and deregulatory of the two.

More surprisingly, each bill shares some features with the Democratic proposals – including health insurance exchanges, subsidies for the uninsured to buy coverage, insurance market reforms, accountable health organizations, and a national rulemaking commission. The sad part of the nasty, mendacious political debate this summer is how little Republicans and Democrats have focused on those big areas of agreement.

Despite his bill, DeMint has said that he wants to turn health reform into President Obama’s “Waterloo” and “break him.” On the hustings, he has spoken little about his own proposal. Similarly, Coburn didn’t mention his plan when a sobbing woman at an Aug. 24 town hall asked for his help in getting insurance coverage for her brain-injured husband. He coolly told her that government is not the solution and people needed to take care of their neighbors.

Yet Coburn’s PCA opens with a critique of the current U.S. health care system that could have come from Obama. “The health care system in America is broken,” the bill summary says. “Costs are rising at an unacceptable rate… and 47 million Americans worry what will happen to them or their children if they get sick… Universal access to affordable health care for all Americans should be guaranteed.”

So the Republicans agree on the problems. But how do they propose to solve them?

Refundable Tax Credits

To expand coverage, both GOP bills would give people refundable tax credits to buy private insurance. The PCA would offer all individuals $2,300 a year and all families $5,700, while the HCFA would give $2,000 and $5,000 only to individuals and families without job-based coverage.

The PCA would finance these subsidies by eliminating the current tax exclusion for employer-paid health coverage. The HCFA would finance the subsidies by repealing the financial industry bailout program and requiring prompt repayment of those loans, though that would only be a one-time moneypot.

There are a number of political and policy problems associated with these provisions. First, the subsidies would cover less than half the cost of the average, comprehensive, employer-provided plan today; they might barely cover the premium for a high-deductible, catastrophic policy, leaving people exposed to steep out-of-pocket costs. And the subsidies wouldn’t be means-adjusted except for the poorest families who qualify for Medicaid. So a family earning $40,000 a year would receive no more help paying their premiums, deductibles and copayments than a family earning $200,000.

Both GOP proposals say they want Americans who are happy with their employer-provided plan to be able to keep it. But watch out for the T-word. It’s not clear what would happen under the PCA if workers got a refundable tax credit and for the first time faced taxation of their health benefits.

Younger, healthier employees might well take the tax credit and buy their own relatively cheap individual policy, leaving employer plans with older, sicker workers who are more expensive to cover. That might lead employers to drop their benefit plans, forcing less healthy Americans into the individual market where coverage would be costlier and harder to get.

And let’s not forget it’s always dicey for a Republican to support a new or higher tax, as John McCain learned last year and George H.W. Bush found out in 1992. How many Republicans in Congress would really vote for this?

Insurance Market Reforms

With their refundable tax credit in hand, under the PCA individuals and families could buy a private policy through state-run health insurance exchanges. Benefits offered in the exchange would have to be comparable to those in the Federal Employees Health Benefits Program. An independent board would adjust payments to plans based on the health status of their enrolled population, so there would be no incentive to cherrypick healthier subscribers. And plans in the exchange would have to offer coverage to all comers, regardless of age, health status, or preexisting conditions. That  sounds good on the surface.

But health plans would be highly unlikely to participate in the voluntary exchanges under those terms. As the health insurance industry made clear to the Obama administration, its strict condition for agreeing to accept everyone without preexisting condition exclusions or waiting periods is that all Americans must be required to buy insurance. Otherwise people could buy coverage at the point when they know they need care, which is a completely non-viable business model for health insurers.

But unlike the Democratic legislation, the PCA would not mandate everyone to have coverage. “If individuals do not want health insurance, they will not be forced to have it,” the bill summary states. No mandate, no serious health plans offering affordable premiums will play.

The HCFA bill, which would not establish health insurance exchanges, has an even more problematic approach to ensuring that everyone has access to an affordable plan. It would allow interstate sales of health insurance with widely varying benefit levels, theoretically giving people more plans to choose from. To insure people with pre-existing medical conditions, the federal government would give states block grants to create “innovative” coverage models, such as state high-risk pools.

But state regulators, Blue Cross Blue Shield plans, and consumer advocates long have opposed interstate sales of health plans because of the history of fraud, abuse, and consumer ripoffs with such plans. Such a system also could encourage cherrypicking of younger, healthier subscribers, driving up the cost for less healthy people. And states’ experience with high-risk pools has shown they don’t provide quality, affordable coverage and they require heavy public subsidies.

Health Services Commission

The Republicans have warned darkly about supposed Democratic plans to establish a national board that would “dictate” and “ration” medical care. The White House and House Democrats have agreed on language to establish an independent Medicare payment reform commission. But no board to limit care or coverage exists in any of the Democratic bills.

Surprisingly, the PCA would establish a five-person Health Care Services Commission, appointed by the President and modeled on the Securities and Exchange Commission, to publish and enforce standardized health care quality and price information. It would be assisted by a 15-person Forum for Quality and Effectiveness. The commission’s job would be to improve the quality of care by disseminating information on effective care and on the costs of care.

The Commission would have authority to require health care providers to comply with the guidelines and standards, wielding the threat of civil monetary penalties and exclusion from federal health programs for non-compliance.

Now, there’s certainly a good policy argument for a strong federal board to oversee quality and cost improvement efforts. But what would Betsy McCaughey and Sarah Palin — who generated a firestorm of controversy with their unfounded charges of government-dictated care and Obama death panels – have to say about Sen. Coburn’s powerful medical commission? I’d like to see Coburn field those questions at his next town hall meeting.

Medicare and Medicaid Changes

Another major Republican attack line on the Democratic bills is that they would cut Medicare and sharply limit care for seniors, ignoring the significant coverage enhancements the Democrats are offering. But the PCA offers its own radical cost-saving nostrums for Medicare and Medicaid, including higher premiums for wealthier seniors.

In 1995, the GOP-controlled Congress passed a Medicare overhaul that would have capped spending and given seniors vouchers to buy a private plan. The bill, vetoed by President Clinton, would have transformed Medicare from a defined benefit to a defined contribution program, placing seniors at risk of rising out-of-pocket costs.

The PCA resurrects that model for poor people on Medicaid, and lays the groundwork for the same type of program for Medicare.

It would give Medicaid-eligible families a debit card worth up to $5,000, on top of their refundable tax credit, to pay for private insurance and out-of-pocket health costs. The combination of the tax credit and debit card still would not cover the average cost of a comprehensive health plan.

For Medicare, the PCA would establish a system of competitive bidding among private Medicare plans, rather than having the government set payment rates for each geographic area. Beneficiaries would pay no premium for the lowest-bidding plan in each area that met program standards. Plans would set their benefit packages accordingly. The clear purpose is to expand private plans and shrink traditional Medicare.

Competitive bidding is a worthwhile idea. But it would require close regulation of the quality, adequacy of benefits, and affordability of the plans being offered, and tight scrutiny to prevent insurers from cherrypicking healthier subscribers. Plus, federal reimbursements would have to remain adequate to prevent seniors from facing rising costs.

Politically, however, the health insurance industry has strongly resisted Medicare competitive bidding in the past. And this model could readily be portrayed as an effort to squeeze care for seniors.

Finally, the PCA would save $30.6 billion over 10 years by making Medicare-eligible individuals earning more than $85,000, and couples earning more than $170,000, pay more for their Part B and Part D premiums. The bill calls this “reducing government handouts to wealthier Americans.” While there are good arguments for greater means-testing of Medicare benefits, how will the Republicans’ base of older voters respond?

The Republican bills show that thoughtful conservatives recognize there are major problems with the current U.S. health care system — and that addressing those problems requires difficult political choices and big changes in how Americans get coverage and care. Their proposals need to receive the same public scrutiny as the Democratic proposals are getting, so the American people can see there are no easy answers.

Let’s hope that over the next few months, Republican lawmakers publicly acknowledge the tough issues they’ve tried to grapple with in their own proposals, and join with Democrats in a more constructive process to pass needed reforms.

Harris Meyer is a veteran health policy journalist based in Yakima, Wa. He’s a past winner of the Gerald Loeb Award and the National Institute for Health Care Management journalism award.

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Henry MassingalePatriciaGretaMargalit Gur-AriePeter Recent comment authors
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Henry Massingale
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I wish to also give a great big thank you to the People of this site for helping FASC Concepts to become the largest web site in the USA and is fast becoming a leader for a honest Health Care Reform. and at the same time to bring a reform into our Government where a Unity is lost for a Leadership. Preexisting Conditions To help cover the sick and the poor is a FASC Concept that states that to build a Health Care Forum within our Government Institution is a Peoples right to do so and this is Protect Under… Read more »

Patricia
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I recently came across your blog and have been reading along. I thought I would leave my first comment. I don’t know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.
Patricia
http://dataentryjob-s.com

Greta
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Greta

Democrats have complete control. Republicans cannot offer bills that the democrats do not allow them to offer. They offered hundreds of amendments which were voted down and the press did not report each of them most of which would have had strong polling support of the american people.
So if they pass this mess and the economy blows up big time and unemployment rises, there is only one party to hold accountable.

Nate
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Nate

seeing as they get 2/5ths of the service for only half the cost they could do better. They do turn out some beautiful women though so I would be willing to try it. I’ll back my bags and engage in some submursive research and let you know how good it is.

Margalit Gur-Arie
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Margalit Gur-Arie

Don’t be so hard on yourself Nate. I was laughing…
My deepest apologies to the Aussies… again. BTW, how do you feel about the healthcare system down under? It seems to cost about half as ours…..

Nate
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Nate

Depending on the size of the client and exactly what we do we charge our self funded clients $10-$20 Per Employee Per Month(PEPM). If they buy PPO access and UR services add another $5. Carriers charge roughly $50 to perform the same work. Fully insured plans pay roughly 3% state premium tax. Premiums I see run around $300 single and $800 family. Premium tax alone runs $9 to $24 PEPM. Government pays administrators roughly $21-$24 Per Member Per Month which is almost twice what we pay, groups average a little over 2 members for each employee. They get a fraction… Read more »

archon41
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archon41

We’ve certainly got a lot of players trying to belly up to the trough. Nate, I seem to recall hearing you say somewhere that you have had some involvement with self-insured employers. I read that 55% of employees who have employer-provided group health insurance are covered under their employers’ self-insurance plan. In trying to get a handle on this “administrative costs” issue, it occurred to me to wonder if the savings realized by these self-insurance arrangements would not provide a reliable clue to the savings a govermental insurer might be expected to realize. I’ve haven’t happened upon any persuasive data… Read more »

Nate
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Nate

thats why I usually don’t try to be funny margalit, only I end up laughing. Your cold hearted attack on the aussies was the rare exception.

Nate
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Nate

i was sarcastically saying the bills being proposed with premium subsidies and public options are not attempting to contain cost or improve care. Your right that nothing that would actually improve cost and care is dependent on what is in the reform bills, the reform bills use them to justify the public option more handouts.
In another post I mentioned how some states already have successful co-ops and we don’t need a federal bill costing a trillion dollars to copy those. But the left hopes they can use them as an excuse for a trillion dollar bill.

archon41
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archon41

I really don’t care what the “insurance industry” supports.
Not sure I follow the drift of your first paragraph, Nate (I’m a little slow) but I wonder if effective “cost-control” systems will not inevitably lead us to a hornets’ nest: “interference in professional judgment.”

Peter
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Peter

“It is not readily apparent why an analysis and evaluation of provider practices, and the development of cost-control systems, should be dependent on embracing the “public option” and massive premium subsidies.”
archon41, the insurance industry supports “massive premium subsidies”, as opposed to massive premium controls. I’m actually for single-pay, but if a public option gets us there then that’s ok. This money driven system will not rein itself in and only big stick budgets and price controls will get it close to cost sanity.

Nate
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Nate

if all you really care about is the trillion of dollars an HC takeover would give you doing an analysis and evaluation of provider practices, and the development of cost-control systems for free would suck. These politicians in DC doing all this work “on our behalf” deserved to be richly paid. If you look at the history of reform going back to 1965 or even to 1906 when the Democrats first started proposing taking over healthcare it really is clear they never cared about improving healthcare just controlling the money. Their 2009 solutions are exactly the same as their 1906… Read more »

archon41
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archon41

One drop of Chateau Latour all around! Except for Pete. He’s sacrificing for the Greater Good.
It is not readily apparent why an analysis and evaluation of provider practices, and the development of cost-control systems, should be dependent on embracing the “public option” and massive premium subsidies.

Nate
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Nate

Gary, Single payer overhead is not lower on apples to apples basis, if you do less you can spend less doing it, that doesn’t mean it is cheaper. Medicare is far more expensive then private insurance to administer as proof that single payer is not cheaper. While it is nice to budget savings from preventive care no study or trial has ever shown actual savings. Preventive care improves health not finances. In fact, by helping people live longer you actually increase the amount of health care they consume so you in fact increase cost. Most people believe the improved life… Read more »

Greg Pawelski
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Greg Pawelski

DrWonderful. That’s exactly what Joe Paduda is referring to! These people who are fighting against health care reform better not complain when they can no longer afford their health insurance, or their employer can no longer afford offering health insurance, and the economy continues to sink under the weight of health care costs.