American Health Care Reform Act

Summary
Since the passage of the Affordable Care Act in 2010, there has been significant controversy, along with numerous attempts to repeal or reform the law. Much of the controversy at least appeared to be partisan squabbling, some significant and substantive reform did emerge from the noise. One such attempt at reform was the American Health Care Reform Act.

 

Overall, the bill makes some modest improvements in expanding plan diversity, increasing interstate competition, reducing defensive medicine, and shoring up price transparency. These good reforms probably will not have a significant enough impact on cost, but they will help improve choice and knowledge in the health care system. A brief analysis of each title can be found in the discussion section.

 

Beyond the full repeal of the Affordable Care Act, the single deduction, and the state-based risk pools make the bill’s major provisions problematic. The deduction certainly offsets the cost of most premiums, but by rising with CPI-U, it’s not rising with health inflation. Another concern is that it favors the individual market (similar to the ACA) over employer-based coverage. Making health care portable is important but a “silver bullet” solution remains elusive. As for the high-risk pools, they should pilot the provision first to see potential pitfalls such as long waiting periods, high-cost sharing requirements, and limits to certain care and services.

 

Additionally, the bill should include measures that reform federal health entitlements and further reduce existing government involvement in health care. In terms of Medicare, there should be new cost-sharing requirements, a limit to Medigap coverage, reform or repeal of the “doc fix,” and an ability to negotiate for lower drug prices. For Medicaid, there should be language about coordinating dual-eligible care, reform the federal reimbursement scheme of price controls, and pilot a block grant version.

 

Outside of major entitlements there are three other reforms that should be considered:

  • Redesigning the FDA and general drug policy, especially in scaling back waiting periods for product introduction.
  • Expand association compact coverage beyond small businesses. This would allow other individual organizations such as church groups to offer coverage and pool together. People could start getting health insurance based on membership in civil society groups instead of the traditional employer/individual markets.
  • Provide a catastrophic coverage option that would prevent personal bankruptcy should something unexpected happen, and would decrease utilization for lower valued services. This option would probably be purchased by the young and healthy in combination with an HSA.

 

In general, the bill does not introduce silver-bullet provisions to significantly lower cost and expand coverage, but it does seek several important reforms. It could be improved by better addressing entitlement spending and look at possible free market mechanisms to increase access.

 

Discussion of Major Titles

 

The Good
Increases incentive to use Health Savings Accounts
The legislation would expand access to portable health savings accounts and increase the maximum allowable contribution to such accounts. HSA’s are good for healthy people, but those with costly chronic illnesses would deplete their accounts quickly. Having a diversity of coverage options in the health market is good so people that can benefit from the method best for them.

 

Creates Medical Liability protections
Includes caps on non-economic damages and limits on attorney’s fees. The only complaint about this provision is that it doesn’t really address health care spending. However, it would have a dramatic effect on alleviating the concerns of doctors and reduce costly defensive medicine expenses at hospitals and practices.

 

Allows Americans to purchase health insurance across state lines.
In most states, the health insurance market is dominated by a few large insurers. A 2014 GAO report showed that while Alabama has 23 individual insurers, 8 small group insurers, and 7 large group insurers, the largest insurer owns 93% of the state market. Opening up access to insurance in other states would force companies to compete for policyholders. The competition would drive down costs and improve the diversity of existing health policies.

 

Allows small businesses to pool together to negotiate better rates
The bill would allow small businesses to create compacts or pools to negotiate for better rates as a bigger group and spreads risk around rather than to one firm. Proliferation of these compacts is essential for businesses to get the best bang for their buck in the employer-based market.

 

Makes Medicare claims and health cost data publically available to increase price transparency, and helps states set up transparency portals
Cost transparency has long-term benefits as patients know what a service or treatment will cost, they may alter their utilization habits. This would work better in a two-party health system, but if we are going to live in a third-party world it would still have the same benefits.

 

Ensures federal anti-trust laws apply to health insurance

The McCarran–Ferguson Act of 1945 exempted the business of insurance from most federal regulation, including federal antitrust laws to a limited extent. This provision could help prevent large insurers from colluding or dominating certain health markets.

 

Concerns
Fully Repeals the Patient Protection and Affordable Care Act and related provisions.

Full repeal can work, but it might be better to eliminate major provisions and then pick a couple of popular measures to keep as an olive branch to proponents of the bill. Otherwise, chances of actual implementation are very low.

 

“Levels the Playing Field” between individual and employer sponsored insurance
Would replace the current uncapped tax benefit for employer-sponsored health insurance, and the self-employed tax deduction with an above-the-line standard deduction for health insurance. Those with a qualifying health plan will receive a deduction of $7,500 (individuals) or $20,000 (families) which will apply to income and payroll taxes, and will increase at CPI-U. Provides the full value of the deduction regardless of how expensive the plan is. Keep in mind that this is almost identical to President Bush’s plan and has the problem of hurting the employer market in favor of the individual market, the latter of which is very expensive.

 

Creates state-based high risk pools
Establishes a 10-year, $25 billion fund to lower costs for Americans afflicted with pre-existing conditions. Caps premiums in those pools at 200% of the average premium in a given state. It also guarantees that individuals with preexisting conditions could move between insurance plans while maintaining coverage in the interim. This tries to alleviate the issue with current high risk patients and how to insure them without burdening other policyholders. Issues involved are waiting periods, high cost sharing requirements, and limits to certain care and services. We also do not know the long-term cost of such a high-risk pool.