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December 2, 2016

Now We Know What the Republican Obamacare Replacement Plan Will Look Like

  Forbes

It’s been six-and-a-half long years of “repeal and replace” rhetoric, with only a vague notion of what the “replace” part would look like—until now. President-elect Donald Trump’s decision to name Georgia Rep. Tom Price as the new secretary of the Department of Health and Human Services (HHS) gives us a pretty good idea.

Unlike former HHS Secretary Kathleen Sebelius, who understood neither healthcare nor health policy, Price, a doctor, understands both. He introduced his own Obamacare replacement plan in 2013 and updated it in 2015.

And Price’s plan, which seeks to create a consumer-driven health care model and is already in legislative language, is very similar to House Speaker Paul Ryan’s “A Better Way” health care reform outline released earlier this year. All of which means the Price plan will likely provide the framework for the Republican plan.

Here are three main replacement elements in the Price bill.

Tax credits for those without employer coverage. Most conservatives have long agreed that we need some type of “tax fairness.” The money employers spend on coverage is excluded from employee income, making it tax-free. The self-employed can deduct 100 percent of their premiums. But employees without access to employer coverage have to buy it themselves with after-tax dollars. Conservatives have wanted to level that playing field.

Price attempts to do that by providing those without access to employer-provided coverage, Medicare, Medicaid or the VA system with a “refundable” tax credit—which means the money comes directly off people’s income tax obligation. And if they owe little or no income tax, they can put the balance towards the purchase of health insurance.

Price doesn’t try to create a universal tax credit as John McCain proposed, or a universal tax deduction as President George W. Bush proposed. His more limited approach—which will likely face less resistance because it is limited—provides age-adjusted help only to those buying their own coverage in the individual market: $1,200 for individuals 18 to 35; $2,100 for 35-50; and $3,000 for those who are 50 and over. There is no income test as there is with Obamacare subsidies.

A solution for those with preexisting conditions. Democrats demanded that health insurance accept anyone who applies regardless of a major preexisting condition, known as guaranteed issue—and they nearly destroyed the individual health insurance market as a result.

President Obama wants Trump to keep that provision, Price has a better idea: Allow those who have had continuous coverage for 18 months to obtain coverage in the individual market without a pre-ex exclusion. If someone is uninsured, the insurer can exclude covering a preexisting condition for 18 months.  A similar provision was in the Health Insurance Portability and Accountability Act (HIPAA) of 1996 but it was dropped.

Guaranteed issue provisions encourage people to game the system, which is one reason nearly 30 million people remain uninsured. By contrast, the Price approach tries to balance the public’s desire for access to coverage while incentivizing people to get insurance and keep it.

For those who are uninsured and can’t buy coverage because of a preexisting condition, Price creates a safety net: The federal government will provide block-grant funding for state-based high risk pools. Prior to Obamacare, some 35 states had such pools. Some worked well, others not so much. But federal funding along with some best practices should address those problems.

Expand Health Savings Accounts. These tax-free accounts are used for smaller and routine health care expenditures, and encourage patients to become value-conscious shoppers in the health care marketplace. Employers and individuals can make contributions to HSAs. There was $34.7 billion in about 18.2 million HSA accounts as of last June, and that number is growing rapidly.

But HSAs have a number of restrictions on them. Price seeks to make them available to more people under broader guidelines—though I suspect there will be pressure to broaden them even more.

For example, employees could be allowed to have and make tax-free deposits to an HSA regardless of coverage. And employers should be able to make their full health-related contribution to employees’ HSAs and let them use the money to “buy into” the employers’ coverage or buy their own coverage.

Both Price and Ryan propose a number of other perennial Republican reforms, including allowing insurers to sell health insurance across state lines, malpractice reform (including arbitration), block granting Medicaid to the states, the ability of associations to unite to offer health insurance under federal self-insurance laws, and providing a defined contribution to Medicare recipients, similar to the way Medicare Advantage operates.

While those are important changes, especially those relating to Medicare and Medicaid, the first three reforms would help reshape U.S. health care into a consumer-driven system.

Price and Ryan provide a framework to start the health care replacement process. People will want to make changes, but at least now we know where the starting line will be.

 


 

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