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Can Health Care Bill Get GOP Off the Schneid?

29 Thursday Jun 2017

Posted by pnoetx in Health Insurance, Obamacare

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AHCA, Avik Roy, BCRA, Better Care Reconciliation Act, CATO Institute, CBO, Community Rating, Corporatism, David Harsanyi, John C. Goodman, Means Testing, Medicaid Reform, Michael Cannon, Obamacare Exchanges, Peter Suderman, Planned Parenthood, Refundable Tax Credits, Seth Chandler, Stabilization Funds, State Waivers, The CATO Institute, Yuval Levin

health insurer bailout

For those who are “woke” to Obamacare’s failures, the Senate GOP’s health insurance reform bill has plenty to hate and maybe some things to love. There are likely to be some changes in the bill before it goes to a vote, which now has been delayed until sometime after Congress’ July 4th recess. Known as the Better Care Reconciliation Act of 2017 (BCRA), the bill is another mixed bag of GOP health care reforms and non-reforms. It is the Senate Republicans’ effort to improve upon the bill passed by the House of Representatives in May. The non-reforms are tied to an inability to repeal all aspects of Obamacare (the Affordable Care Act, or ACA) within the context of budget reconciliation, a process which permits a simple majority for approval of changes linked in some way to the budget (the so-called Byrd rule). Yuval Levin offers an excellent discussion of the bill and the general motivations for the form it has taken:

“They are choosing to address discrete problems with Obamacare within the framework it created and to pursue some significant structural reforms to Medicaid beyond that, and they should want the merits of their proposal judged accordingly. Their premise is politically defensible — it is probably more so than my premise — and the proposal they have developed makes some sense in light of it.“

It’s necessary to get one thing out of the way at the outset: the CBO’s scoring of the Senate bill is flawed in a massive way, like the earlier score of the House bill. The estimate of lost coverage for 22 million individuals is based on the CBO’s errant predictions of Obamacare coverage levels. (See here and here, and see Avik Roy’s latest entry on this topic.) Does anyone believe that enrollment on the exchanges will decline by 15 million in 2018 due to the elimination of the individual mandate? That’s over 40% more than total enrollment in 2017, by the way. Even if we attribute the CBO’s prediction to the elimination of both the individual and employer mandates, it would be an incredible plunge, especially given the means-tested tax credits in the BCRA. Does anyone believe that coverage levels under Obamacare would increase by 18 – 19 million by 2026 (mostly on account of the individual mandate)? That is the baseline assumed by the CBO in its scoring of the BCRA, which is laughable. A more realistic estimate of lost coverage under the BCRA might be 2 to 3 million, but remember that many of those coverage losses would not be “forced” in any sense. Rather, they would be purposeful refusals to take coverage with the demise of the individual mandate. But they would tend to be the healthiest of the current, coerced enrollees.

A related point has to do with hysterical claims that the BCRA will “kill thousands of people”. Someone cooked-up this talking (screaming?) point to rally the ignorant left and perhaps frighten the ignorant right (including a few GOP Senators). As Ira Stoll explains, there are several reasons to dismiss these assertions, not least of which is its tradeoff-free conceit. More ugly detail on the basis of these claims can be found here.

Will the BCRA “gut” Medicaid, as Charles Schumer, Nancy Pelosi and other have claimed? Program spending would not decline by any means, only its growth rate. Enrollment would decline with tougher eligibility rules, but as noted above, tax credits more generous than the Medicaid savings (relative to Obamacare) would help replace lost Medicaid coverage with private insurance. Steve Chapman has contributed one of the most nitwitted commentaries on Medicaid reform that I have seen. Not only do critics consistently ignore the proposed tax credits for coverage at low incomes, but they never address the monumental waste in the program., something that would likely improve under the budgeting requirements and additional discretion given to states by the BCRA.

An even crazier scare story going around is that the Senate bill will cut Medicare benefits. That is not the case, though the bill repeals an Obamacare Medicare tax increase on the self-employed.

Getting back to the broader BCRA, here are some of the major provisions:

  • Medicaid reform to replace the budgetary disaster of federal matching with per capita caps or block grants, and state program control.
  • Means-tested tax credits for insurance purchases would extend to low-income individuals who might otherwise lose their expanded Medicaid eligibility. According to Levin, this group is heavily weighted toward the unmarried and childless.
  • Greater state authority over regulation of the individual insurance market. This is accomplished through the availability of state waivers from many Obamacare regulations, including essential health benefits.
  • Almost all Obamacare tax provisions would be repealed. One exception is the “Cadillac” tax on high-cost employer plans starting in 2026 (after a temporary hiatus). Many of these repeals would benefit individuals broadly as taxpayers, employees, business people, and patients.
  • Expanded allowable age rating to 5/1 from 3/1. This helps limit adverse selection by pricing more risk where it exists, and the means-tested credits would help offset higher premiums for older individuals with low incomes.
  • Provides about $130 billion in “stabilization” funds for insurers over a three-year period. This is an attempt to keep premiums down during a transition over which the GOP probably hopes to enact additional deregulatory measures. Is this a practical maneuver? Yes, but it also reflects a bit of “corporatism-when-it’s-convenient” hypocrisy.
  • Eliminates funding for Planned Parenthood. Presumably funding could be restored later were the organization to split off its abortion services into a financially distinct division, which the Hyde Amendment would seem to require.
  • Retains coverage for pre-existing conditions.
  • Elimination of the individual and employer mandates, including the tax penalty. However, individuals who go without coverage for two months would face a six-month waiting period before they could re-qualify for coverage.

Eliminating the mandates is great from a libertarian and an economic perspective. The coercion inherent in those requirements is bad enough. In practice, the individual mandate has proven less effective in encouraging enrollment than Obamacare’s architects had hoped, which makes the CBO’s conclusions all the more puzzling. The employer mandate gives firms an incentive to reduce hours and employment, so it has extremely undesirable labor-market implications.

Most criticism of the BCRA from the right has centered on its failure to fully repeal Obamacare insurance and health care regulations. The continuation of Obamacare community rating is a major shortcoming of the bill, as it distributes the financial risks of medical needs in ways that do not correspond to the actual distribution of health risks. The result is the very same adverse selection problem we have witnessed on the Obamacare exchanges. Unfortunately, this raises the specter that we’ll be stuck with some form of community rating in the long-term, along with employer-provided coverage and the ill-advised premium tax deductions, which tend to inflate premium levels.

Michael F. Cannon of the CATO Institute calls the BCRA an Obamacare rescue package. John C. Goodman is largely in agreement with Cannon, stating that Republicans have no real desire to repeal Obamacare. Peter Suderman at Reason has many of the same concerns. In addition to community rating, Cannan (and Senator Rand Paul) are unhappy that Medicaid spending continues to grow under the bill with a new program of subsidies (tax credits) to boot! They also condemn the so-called “stabilization” or “cost-sharing” subsidies that would be paid to insurers under the bill. While a broader range of plans would become available, there is little confidence that insurers will be able to  bring down premiums and/or deductibles substantially without the added subsidies.

Avik Roy has defended the Senate bill for its proposed reforms to Medicaid, replacement of Obama’s Medicaid expansion with tax credits for private coverage, and transitional tax credits to smooth jumps in premium levels as income rises from low levels. This is an improvement over the House bill. However, marginal tax rates would be high under the BCRA for individuals in the range of income over which the credits phase out, which is a legitimate “welfare trap” criticism.

David Harsanyi also believes the bill is a good start:

“If Republican leadership had told conservatives in 2013 that they could pass a bill that would eliminate the individual and employer mandates, phase out Obamacare’s Medicaid expansion, cut an array of taxes, and lay out the conditions for full repeal later, I imagine most would have said ‘Sign me up!’“

Naturally, most critics of Obamacare have strong misgivings about a bill that would leave major components of the ACA’s structure in place. That includes Obamacare’s regulation of health care delivery itself, not just health insurance coverage. The BCRA might incorporate signifiant changes before it goes to a vote, however. One can only hope! Rand Paul has suggested breaking the bill into two parts: repeal of the ACA and other spending provisions, though it’s not clear how a repeal bill would qualify under the Byrd rule. Either way, the GOP intends to follow-up with additional health care legislation and administrative changes. Were a bill enacted soon, there is some chance that additional legislation could garner limited bi-partisan support. Long-term stability of the health insurance and health care markets would be better-served by a stronger semblance of political equilibrium than we have seen in the years since Obama was elected.

 

 

Cleaving the Health Care Knot… Or Not

18 Saturday Mar 2017

Posted by pnoetx in Health Care, Obamacare

≈ 2 Comments

Tags

AHCA, American Health Care Act, Avik Roy, Budget Reconciliation, CBO, Community Rating, Congressional Budget Office, John C. Goodman, Medicaid Reform, Michael Cannon, Michael Tanner, Obamacare, Patient Freedom Act, Rand Paul, Refundable Tax Credits, Rep. Pete Sessions, Se. Bill Cassidy, Universal Basic Income, Yuval Levin

IMG_3957

Republican leadership has succeeded in making their health care reform plans in 2017 even more confusing than the ill-fated reforms enacted by Congress and signed by President Obama in 2010. A three-phase process has been outlined by Republican leaders in both houses after the initial rollout of the American Health Care Act (AHCA), now billed as “Phase 1”. The AHCA was greeted with little enthusiasm by the GOP faithful, however.

As a strictly political matter, there is a certain logic to the intent of “three-phase plan”: limiting the provisions of the AHCA to issues having an impact on the federal budget. That would allow the bill to be addressed under “budget reconciliation” rules requiring only 51 votes for passage in the Senate. Phase 2 would involve regulatory rule-making, or rule-rescinding, as the case may be. The putative Phase 3 would require additional legislation to address such unfinished business as allowing health insurance competition across state lines, eliminating anti-trust protection for insurers, and medical tort reform. How the sponsors will get 60 Senate votes for Phase 3 reforms is an unanswered question.

Legislative Priorities

Yuval Levin wrote a great analysis of the AHCA last week In which he described the structure of the House bill as a paranoid reaction to the demands of an “imaginary parliamentarian”. By that he means that the reforms in the bill conform to a rigid and potentially flawed interpretation of Senate budget reconciliation rules. Levin’s view is that the House should not twist itself up over what might be negotiated prior to a Senate vote. In other words, the House should concern itself at this stage with passing a bill that at least makes sense as reform, without bowing to any of the awful legacy provisions in Obamacare.

Medicaid reform is one piece of the proposed legislation and is reasonably straightforward. It imposes caps on federal funding to states after 2020, but it grants more flexibility to the states in managing the program. It also involves a tradeoff by allowing Medicaid funding to increase over the first few years, in line with the expansion under Obamacare, in exchange for capped growth later. The expectation is that long-term costs of the program will be reduced through a combination of the caps and better management at the state level.

The more complex aspects of the AHCA attempt to effect changes in the individual market. Levin offers a good perspective on these measures. First, he describes the general character of earlier Republican reform proposals from which the AHCA descends:

“Those various proposals all involved bringing premium costs down by enabling insurers to sell catastrophic coverage plans (along with more comprehensive plans) and enabling everyone in the individual market to afford at least those catastrophic coverage plans. This would enable far greater competition and let anyone not otherwise covered by insurance enter the individual market as a consumer.  …

The House proposal bears a clear resemblance to this approach. It involves some deregulation from Obamacare, it includes a refundable tax credit for coverage, it gestures toward incentives for continuous coverage. But it is also fundamentally different from this approach, because it functions within the core insurance rules established by Obamacare, which means it can’t really achieve most of the key aims of the conservative reforms it is modeled on.”

The rules established by Obamacare to which Levin refers include the form of community rating, which is merely loosened somewhat by the AHCA. However, the AHCA would impose a 30% penalty for those who fail to enroll while still healthy. This is a poorly designed incentive meant to substitute for Obamacare’s individual mandate, and it is likely to backfire. Levin is clear that this feature could have been avoided by scrapping the old rules and introducing a new form of community rating available only to the continuously insured.

The AHCA also fails to cap the tax benefits of employer-provided coverage, which retains a potential imbalance between the incentives for employer versus individual coverage. Levin believes, however, that some of these shortcomings can be fixed through a negotiation process in either the House or the Senate, if and when the bill goes there.

The CBO’s Report

As it is, the bill was “scored” by the Congressional Budget Office (CBO) with results that are widely viewed as unsatisfactory. The CBO’s report states that the AHCA would reduce the federal budget deficit, but the ugly headline is that relative to Obamacare, it woud cause 24 million people to lose their coverage by 2024. That number is drastically inflated, as Avik Roy demonstrated in his Forbes column this week. Here are the issues laid out by Roy:

  1. The CBO has repeatedly erred by a large margin in its forecasts of Obamacare exchange enrollment, overestimating 2016 enrollment by over 100% as recently as 2014.
  2. The AHCA changes relative to Obamacare are taken from CBO’s 2016 forecast, which still appears to over-predict Obamacare enrollment substantially. Roy estimates that this difference alone would shave at least 7 million off the 24 million loss of coverage quoted by the CBO.
  3. The CBO also assumes that all states will opt to participate in expanded Medicaid going forward. That is highly unlikely, and it inflates CBO’s estimate of the AHCA’s negative impact on coverage by another 3 million individuals, according to Roy.
  4. Going forward, the CBO expects the Obamacare individual mandate to encourage millions more to opt for insurance than would under the AHCA. Roy estimates that this assumptions adds as much as 9 million to the CBO’s estimate of lost coverage across the individual and employer markets, as well as Medicaid.

Thus, Roy believes the CBO’s estimate of lost coverage for 24 million individuals is too high by about 19 million! And remember, these hypothetical losses are voluntary to the extent that individuals refuse to avail themselves of AHCA tax credits to purchase catastrophic coverage, or to enroll in Medicaid. The latter will be no less generous under the AHCA than it is today. The tax credits are refundable, which means that you qualify regardless of your pre-credit tax liability.

Fixes

Despite Roy’s initial skepticism about the AHCA, he thinks it can be fixed, in part by means-testing the tax credits, rather than the flat credit in the bill. He also believes the transition away from the individual mandate should be more gradual, allowing more time for markets to being premiums down, but I find this position rather puzzling given Roy’s skepticism that the mandate has a strong impact on enrollment. Perhaps gradualism would convince the CBO to score the bill more favorably, but that’s a bad reason to make such a change.

It’s impossible to say how the bill will evolve, but certainly improvements can be made. It is also impossible to know whether Phases 2 and 3 will ultimately bring a more complete set of cost-reducing regulatory and competitive reforms. Phase 3, of course, is a political wild card.

Michael Tanner notes a few other advantages to the AHCA. Even the CBO says the cost of health insurance would fall, and the AHCA will bring greater choice to the individual market. It also promises over $1 trillion in tax cuts and lower federal deficits.

Alternatives

The GOP faced alternatives that should have received more consideration, but those alternatives might not be politically viable at this point. Some of them contain features that might be negotiated into the final legislation. Rand Paul’s plan has not attracted many advocates. Paul took the courageous position that there should be no entitlements in a reform plan (i.e., subsidies); instead, he insisted, with liberalized market forces, premium costs would decline sufficiently to allow affordable coverage to be purchased by a broad cross-section of Americans. Paul is obviously unhappy about the widespread support in the GOP for refundable tax credits as a replacement for existing Obamacare subsidies.

John C. Goodman has advocated a much simpler solution: take every federal penny now dedicated to health care and insurance subsidies, including every penny of taxes now avoided via tax deductions on employer-provided coverage, and pay it out to households as a tax credit contingent on the purchase of health insurance or health care expenses. This is essentially the plan put forward by Rep. Pete Sessions and Sen. Bill Cassidy in the Patient Freedom Act, described here. While I admire the simplicity of one program to replace the existing complexities in the federal funding of health care coverage, my objection is that a health care “dividend” of this nature resembles the flat tax credit in the AHCA. Neither is means-tested, amounting to a “Universal Basic Health Insurance Benefit”. Regular readers will recall my recent criticism of the Universal Basic Income, which is the sort of program that smacks of “universal state dependency”. But let’s face it: we’re already in a state of federal health care dependency. In this case, there is no incremental cost to taxpayers because the credit would replace existing outlays and tax expenditures. In that sense, it would eliminate many of the distortions currently embedded in federal health care policy.

A more drastic approach, at this point, is to simply repeal Obamacare, perhaps with a lengthy phase-out, and attempt to replace it later in the hope that support will coalesce around a reasonable set of measures leveraging market forces, and with accommodations for high-risk individuals and the economically disadvantaged. Michael Cannon writes that CBO estimated a simple repeal would increase the number of uninsured by 23 million over ten years, slightly less than the 24 million estimate for the AHCA! Of course, neither of these estimates is likely to be remotely accurate, as both are distorted by the CBO’s rosy assumptions about the future of Obamacare.

Where To Go?

Tanner reminds us that the real alternative to Republican legislation, whatever form it might take, is not a health care utopia. It is Obamacare, and it is collapsing. That plan cannot be effectively reformed with additional subsidies for insurers and consumers, or we’d find ourselves in a continuing premium spiral. The needed reforms to Obamacare would resemble changes contemplated in some of the GOP proposals. While I cannot endorse that AHCA legislation in its current form, or as a standalone reform, I believe it can be improved, and the later phases of reform we are told to anticipate might ultimately vindicate the approach taken by GOP leadership. I am most skeptical about the promise of subsequent legislation in Phase 3. I’ll have to keep my fingers crossed that by then, the path to additional reforms will be more attractive to democrats.

Can The VA Bureaucracy Be Reformed?

01 Sunday Jun 2014

Posted by pnoetx in Uncategorized

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Bureaucracy, Megan McArdle, Restructuring, Veteran's Affairs, Yuval Levin

Image

Yuval Levin assesses the VA in the aftermath of the waiting list scandal, damning the fraud but also giving credit for good performance where credit is due. He debunks some recent defensive claims and apologia, especially concerning comparisons of the VA to the private health care system. Levin concludes that powerful political interests are likely to prevent any big structural changes at the VA. Bad news!

Megan McArdle thinks that fixing the VA bureaucracy is impossible short of a major upheaval, citing the kinds of experiences that have led to successful and unsuccessful corporate restructurings. “Over time, institutions develop a strong culture, a set of institutional practices, customs and norms that control what the organization is capable of doing. To see what I mean, imagine the staff of the New York Times producing Gawker — or the staff of Gawker Media producing the New York Times.” Only sweeping changes, which are often cruel to the old guard, can lead to a successful transition. This is unlikely at the VA.

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