The Republican Study Committee, a group of conservative House Republicans, has issued a health reform proposal. It’s not the first thing on the RSC web site, but scroll down and you’ll find it. The proposal has much to commend it.
Freeing Consumers from Harmful Regulations
Notably, it would repeal the Affordable Care Act’s consistently unpopular preexisting‐conditions provisions, which not only make coverage worse for the sick but leave every ACA enrollee with inadequate coverage. (Can you say, “junk insurance”?) One of the reasons Republicans suffered losses in the 2018 mid‐term elections was their failure to expose how those supposed consumer protections are harming the very patients they purport to help. Had they done so, they could have turned independents and even many Democrats to their side.
Ironically, after launching a full‐throated denunciation of those provisions, the RSC plan then turns around and proposes to apply a modified version of them to consumers who switch from one private health insurance plan to another.
One can perhaps forgive this harmful inconsistency, though, because the RSC plan would codify the Trump administration’s rules regarding short‐term plans. Embedding those rules in statute would free consumers to avoid the RSC plan’s harmful regulations; allow consumers to purchase affordable, renewable term health insurance; and improve the functioning of that market by providing regulatory certainty to insurers.
A Missed Opportunity on Government Spending
The RSC plan gets stuck in the mud when it proposes to repackage the ACA’s Exchange subsidies and Medicaid spending into per‐capita “block” grants, which states could use to expand Medicaid or to create high‐risk pools for consumers with preexisting conditions.
Turning an existing stream of federal spending (the Exchange subsidies) into an intergovernmental transfer (the per‐capita grants) is a bad move. It diffuses responsibility for that spending and the taxes (or deficits) that fund it. It is likely that spending would grow at a much faster rate under the RSC plan, as states are much more powerful/sympathetic/effective lobbyists than the private insurance companies that receive Exchange subsidies. As much as insurers abuse that stream of federal spending, the abuses will only get worse under the RSC proposal.
A per‐capita block grant, moreover, is not a block grant at all. It would preserve the existing Medicaid matching grant system’s incentives to increase enrollment, because expanding enrollment is how states would get more money from the federal government.
Congress should eliminate that spending, or at the very least use it to reform Medicaid with a system of zero‐growth block grants as a step toward eliminating it. States that want such programs should fund them with their own tax revenues and bear full responsibility for the results.
A Transformational Tax Cut
The RSC also includes a sleeping giant of a proposal, one that would deliver the largest effective tax cut any living American has ever seen, on the order of $11 trillion over the next decade..
A quirk in the federal tax code (the tax exclusion for employer‐paid health premiums) allows employers to control roughly $15,000 of the earnings of workers with family coverage and $6,000 of the earnings of employees with self‐only coverage. Those numbers represent the average amounts employers pay toward health benefits for their workers. Even though employers are signing the checks, those funds come out of workers’ wages. Absent the exclusion, labor markets would force employers to provide those funds to workers as cash or other forms of compensation. Under the current exclusion, if workers insist on receiving that compensation as cash wages, they must pay income and payroll taxes on it. In effect, the tax exclusion for employer‐paid health premiums penalizes anyone who does not purchase a government‐approved health plan.
Across all workers with employer‐sponsored health insurance, that’s a lot of employee earnings the exclusion allows employers to control: $828 billion in 2019 alone, or nearly one‐quarter of total U.S. health spending. Over the next decade, it adds up to nearly $11 trillion. (If you want to know why the U.S. health care sector is so expensive and unresponsive to consumers, consider who is controlling the money. Spoiler alert: government directly controls a further one‐half of national health expenditures.)
The RSC proposal would free workers to control their $14,000 for the first time ever. It would do so by expanding tax‐free health savings accounts (HSAs).Workers could use that money to purchase medical care, to purchase the health plan of their choice, or to save for future medical expenses, all tax‐free. Over the next decade, it would return $11 trillion to the workers who earned it. Giving consumers control of the nearly one‐quarter of U.S. health care spending that employers currently control cannot help but make the markets for health insurance and medical care more responsive to consumers. It would also represent an effective tax cut 38 percent larger than President Reagan’s tax cuts and four times the size of President Trump’s tax cuts.
The RSC has not yet indicated how it would keep this proposal budget‐neutral, which regrettably puts them in the same camp as Medicare for All supporters like Democratic presidential candidate Sen. Elizabeth Warren (D‑MA).
Even so, the RSC proposal creates a stark contrast going into the 2020 election cycle. Medicare for All supporters want to give that $11 trillion to the federal government. ‘Large’ HSAs would give it back to the workers who earned it.
Last week during one of their debates, all Democratic primary candidates supported government health care for illegal immigrants. This type of position is extremely damaging politically and, if enacted, would unnecessarily burden taxpayers for likely zero improvements in health outcomes. I expect the eventual Democratic candidate for president to not support this type of proposal, but it should be nipped in the bud.
After the debate, Democratic candidate Julian Castro argued that extending government health care to illegal immigrants would not be a big deal. “[W]e already pay for the health care of undocumented immigrants,” Castro said. “It’s called the emergency room. People show up in the emergency room and they get care, as they should.” It is true that some illegal immigrants use emergency room services thanks to the Emergency Medical Treatment and Labor Act and to Emergency Medicaid, but Castro leaned heavily into a stereotype often used by nativists. According to a paper published in the journal Health Affairs, illegal immigrants between the ages of 18 – 64 consumed about $1.1 billion in government healthcare benefits in 2006 – about 0.13 percent of the approximately $867 billion in government healthcare expenditures that year. That’s a fraction of the cost that would be imposed on American taxpayers by extending nationalized health care to all illegal immigrants. So, with all due respect to Mr. Castro, we do not already pay for their health care just because some illegal immigrants visit emergency rooms at government expense.
One of the reasons why immigrants individually consume so much less welfare than native‐born Americans is that many of them do not have legal access to these benefits. Cato scholars have proposed making these welfare restrictions even stricter to deny benefits to all non‐citizens and to not count work credit toward entitlements until immigrants are naturalized citizens – what the late Bill Niskanen called “build a wall around the welfare state, not around the country.”
Many American voters are concerned about immigrant consumption of welfare benefits. In a 2017 poll, 28 percent of Americans agreed with the statement that “Immigration detracts from our character and weakens the United States because it puts too many burdens on government services, causes language barriers, and creates housing problems [emphasis added].” That level of concern exists under current laws that restrict non‐citizen access to benefits and even chill eligible non‐citizen participation. I’d expect that poll result to worsen if new immigrants, especially illegal immigrants, were put on government health care program.
Extending government health care to illegal immigrants and other new immigrants would probably not improve healthcare outcomes for immigrants. According to the wonderful The Integration of Immigrants into American Society report published by the National Academies of Sciences, immigrants already have better infant, child, and adult health outcomes than native‐born Americans, while also having less access to welfare benefits like Medicaid. Immigrants also live about 3.4 years longer than native‐born Americans do. Illegal Mexican immigrants had an average of 1.6 fewer physician visits per year compared to native‐born Americans of Mexican descent. Other illegal Hispanic immigrants made an average of 2.1 fewer visits to doctors per year than their native‐born counterparts. Illegal immigrants are about half as likely to have chronic healthcare problems than native‐born Americans. Overall per capita health care spending was 55 percent lower for immigrants than for native‐born Americans.
Immigrants also lower the cost of other portions of the health care system. In 2014, immigrants paid 12.6 percent of all premiums to private health insurers but accounted for only 9.1 percent of all insurer expenditures. Immigrants’ annual premiums exceeded their health care expenditures by $1,123 per enrollee, for a total of $24.7 billion. That offset the deficit of $163 per native‐born enrollee. The immigrant net‐subsidy persisted even after ten years of residence in the United States.
From 2002 – 2009, immigrants subsidized Medicare as they made 14.7 percent of contributions but only consumed 7.9 percent of expenditures, for a $13.8 billion annual surplus. By comparison, native‐born Americans consumed $30.9 billion more in Medicare than they contributed annually. Among Medicare enrollees, average expenditures were $1,465 lower for immigrants than for native‐born Americans, for a difference of $3,923 to $5,388. From 2000 to 2011, illegal immigrants contributed $2.2 to $3.8 billion more than they withdrew annually in Medicare benefits (a total surplus of $35.1 billion). If illegal immigrants had neither contributed to nor withdrawn from the Medicare Trust Fund during those 11 years, it would become insolvent 1 year earlier than currently predicted – in 2029 instead of 2030.
American taxpayers should not have to pay for the health care costs of other Americans, let alone for non‐citizens. For those reading this post who are very concerned about the well‐being of immigrants, think of what would happen to public support for legal immigration if welfare benefits were extended in this way. Immigrants come here primarily for economic opportunity, not for government health insurance. They tend to be healthier than native‐born Americans and lower the price of health care for others as a result – but the point would likely change if the laws were different. Let’s not build public support for reducing legal immigration, or increase reluctance to expand it, by extending government health care, at enormous public cost, to people who don’t need it.
In the new Cato Institute book Overcharged: Why Americans Pay Too Much for Health Care, Cato adjunct scholars David A. Hyman and Charles Silver share stories of Americans who have been gouged by hospitals and other health care providers — Americans like Eric Ferguson:
After being bitten on the foot by a snake while taking out the garbage, Eric Ferguson went to the Lake Norman Regional Medical Center, where he was given anti‐venom and monitored. The hospital’s list price for the medication was $81,000. The discounted price his insurer negotiated was about $20,000. The retail price of anti‐venom online? $750.
Overcharged explains that hospitals and pharmaceutical companies can charge such outrageous markups solely because government grants them anti‐competitive monopoly powers and encourages widespread third‐party payment, where nobody has an incentive to curb excessive prices.
Today at 2 p.m., Ferguson will tell his story in person to President Trump and members of his cabinet at a White House roundtable on “Fair and Honest Pricing in Health Care.”
While the Trump administration has admirably required hospitals that participate in Medicare to post prices, simply posting “chargemaster” prices won’t make a difference. Chargemaster prices are so complicated, patients wouldn’t use them even if they were spending their own money. And when it’s someone else’s money on the line, forget it.
Overcharged shows price transparency and price competition won’t happen until we let consumers — rather than politicians and employers — control the $3.9 trillion Americans spend on health care each year.
To watch Eric Ferguson tell his story to Cato last June, click here or see the video below:
The Senate appears poised to vote soon on a Congressional Review Act resolution sponsored by Sen. Tammy Baldwin (D‑WI) that would rescind the Trump administration’s final rule on “short‐term limited duration insurance.” Nearly every Senate Democrat has cosponsored the Baldwin resolution because they believe it would protect consumers. It would do exactly the opposite.
The Baldwin resolution…
- …would increase the number of uninsured. Various scholars have estimated that by making health insurance more affordable, the Trump short‐term plans rule would reduce the number of uninsured Americans by up to 2 million. The Baldwin resolution would rescind that rule, thereby denying health insurance to up to 2 million Americans.
- …would reduce protections for the sick. The Baldwin resolution would reduce consumer protections in short‐term plans and expose sick patients to higher premiums, denied coverage, bankruptcy, and denied care. It would revert to the Obama administration’s 2016 short‐term plans rule, which limited short‐term plans to 3 months and banned renewals. As state insurance regulators noted at the time, “[There are] no data to support the premise that a three‐month limit would protect consumers or markets. In fact, state regulators believe the arbitrary limit proposed in the rule could harm some consumers. For example, if an individual misses the [ACA] open‐enrollment period and applies for short‐term, limited duration coverage in February, a 3‑month policy would not provide coverage until the next policy year (which will start on January 1). The only option would be to buy another short‐term policy at the end of the three months, but since the short‐term health plans nearly always exclude pre‐existing conditions, if the person develops a new condition while covered under the first policy, the condition would be denied as a preexisting condition under the next short‐term policy.” The Trump rule allows consumers to purchase coverage that lasts until the next ObamaCare open‐enrollment period. The Baldwin resolution would result in that patient being re‐underwritten and denied coverage and care for up to nine months.
- …would not reduce ObamaCare premiums and could increase them. The Trump rule allows consumers to couple short‐term plans with standalone renewal guarantees, which allow enrollees who develop expensive illnesses to keep paying healthy‐person premiums. Since it gives expensive patients a lower‐cost alternative to ObamaCare coverage, the Trump rule can reduce ObamaCare premiums by keeping expensive patients out of those risk pools. In contrast, the Baldwin resolution would force those expensive patients into ObamaCare plans, increasing the cost of ObamaCare coverage to both enrollees and taxpayers. In 2016, state insurance commissioners again explained the fundamental flaw of Baldwin’s approach: “If the concern is that healthy individuals will stay out of the general pool by buying short‐term, limited duration coverage, there is nothing in this proposal that would stop that. If consumers are healthy they can continue buying a new policy every three months. Only those who become unhealthy will be unable to afford [short‐term plans], and that is not good for the [ACA] risk pools in the long run.”
- …would make short‐term plans less comprehensive. The Baldwin resolution would not protect consumers from inadequate coverage. It would re‐create the bad old days when excessive regulation blocked consumers from purchasing more‐comprehensive short‐term plans. The Congressional Budget Office writes that under the Trump rule only “a small percentage of [short‐term] plans would resemble current STLDI plans, which do not meet CBO’s definition of health insurance coverage.” Instead, most short‐term plans would “resemble[e] nongroup insurance products sold before the implementation of the Affordable Care Act” that offer “financial protection against high‐cost, low‐probability medical events.” In other words, the Trump rule allows the sort of health plans consumers want. The Baldwin resolution would make those products disappear again.
- …would gut conscience protections. The Trump rule protects conscience rights by improving the market for short‐term plans, which are exempt from ObamaCare’s contraceptives mandate. The Baldwin resolution would strip away those conscience protections.
- …would not protect people with preexisting conditions. The Washington Post’s Paige Winfield Cunningham reports it “doesn’t exactly make sense” for Democrats to claim that restricting short‐term plans helps patients with preexisting conditions. “Even with the expansion of these short‐term plans, the marketplace plans guaranteeing preexisting protections will still be available to those who need them… So expanding the availability of short‐term plans…doesn’t mean people with preexisting conditions would lose access to crucial coverage protections.”
- …is pure symbolism. The Baldwin resolution has zero chance of becoming law. To rescind a final agency rule, Congressional Review Act resolutions must pass both chambers of Congress and receive the president’s signature. The House is unlikely to pass the Baldwin resolution. Even if it did, there is zero chance President Trump would sign a resolution nullifying a rule he himself asked his administration to produce.
- …is terrible politics. Or at least it could be, if opponents expose it as subjecting patients with expensive illnesses to higher premiums, cancelled coverage, medical bankruptcy, and denied care — all to serve supporters’ ideological goal of destroying a free‐market alternative to ObamaCare.
The usual narrative is that Democrats support consumer protections and Republicans oppose them. Today’s short‐term plans final rule flips that narrative: Republicans are expanding consumer protections, and Democrats are opposing them.
Today’s rule reverses a 2016 Obama rule. The Obama rule reduced consumer protections in short‐term plans by exposing sick patients to medical underwriting. Before that rule, consumers could purchase short‐term plans that lasted 12 months. If they developed a serious illness, their plan could cover them until the next ObamaCare open enrollment period, when they could purchase coverage without medical underwriting. The Obama rule restricted short‐term plans to 3 months. It prohibited “renewal guarantees” that protect enrollees who fall ill from medical underwriting when they purchased a new short‐term plan. As a result, the Obama rule left short‐term plan enrollees who got sick with no coverage for up to 9 months: those who purchased a plan in January, and developed a serious illness in February, would lose their coverage at the end of March, and have no coverage until the following January. (Source: NAIC) This was by design: the Obama administration wanted to expose sick people in short‐term plans to medical underwriting and lost coverage as a way of forcing consumers to buy ObamaCare coverage instead. That’s at least a little messed up.
Today’s rule allows short‐term plans to last 12 months and offer renewal guarantees. It therefore allows short‐term plans to protect the sick from medical underwriting for an additional 9 months — indeed, “issuers may offer coverage under a short‐term, limited‐duration insurance policy for up to a total of 36 months, without any medical underwriting or experience rating beyond that completed upon the initial sale of the policy” — and allows renewal guarantees to protect them from medical underwriting indefinitely. Protecting the sick from medical underwriting has long been a goal of Congress.
So, to recap, Republicans are expanding consumer protections, and Democrats are opposing an expansion of consumer protections.
Weird, isn’t it?
The Trump administration has released its final rule expanding so‐called association health plans. The rule would allow many consumers to avoid some of ObamaCare’s unwanted regulatory costs. But the rule also highlights both the destructive power of ObamaCare and Republicans’ utter lack of imagination when it comes to health care.
As originally proposed, the idea behind association health plans was to allow small businesses that purchased health insurance through a member‐organization (i.e., an association) to enjoy the same federal exemption from insurance regulation that large businesses have traditionally (if unwisely) enjoyed. Small businesses have long wanted that exemption so they could escape oppressive state regulation. Now, small businesses are clamoring for association health plans because they want to escape oppressive federal regulation.
ObamaCare exempts large‐employer health plans from many of the regulations it imposes on small‐employer plans. The new rule treats association health plans like large‐employer plans for purposes of ObamaCare, which allows small employers who purchase health insurance through a member organization to avoid those costly regulations. The consulting firm Avalere estimates the ability to avoid some of ObamaCare’s unwanted regulatory costs would induce 3.2 million people to enroll in association health plans and reduce their premiums:
Premiums in the new AHPs are projected to be approximately $2,900 a year lower compared to the small group market and $9,700 a year less compared to the individual market.
By Grabthar’s hammer, what a savings!
Traditionally, association health plans have always been a terrible idea that violates Republicans’ federalist principles, because they would move health‐insurance regulation from the state level to the federal level. But since ObamaCare went ahead and federalized regulation of small‐business health plans, and the association‐health‐plans rule merely allows small businesses to opt for lighter versus heavier federal regulation, association health plans no longer violate federalism. Credit ObamaCare with making a bad idea good.
Even in this iteration, however, association health plans still aren’t much of a good an idea. Trump’s association health plans rule builds on the broken model of employer‐sponsored health insurance. Employer‐sponsored coverage is lousy coverage. It deprives workers of control of their health‐insurance dollars and decisions. It sticks millions of workers with health plans they would never choose themselves. It leaves millions of workers with uninsurable preexisting conditions, because it disappears for no good reason after workers get sick. It increases prices for health care and health insurance. The failures of our government‐created system of employer‐sponsored coverage are what created the demand for ObamaCare in the first place. Rather than offer an agenda to make health care better, more affordable, and more secure, Trump’s association health plans rule works entirely within that framework. It does nothing to move Americans toward a better system of providing health insurance.
Still, it would allow some workers to avoid some unwanted regulatory costs. So there’s that.
And that part gives rise to the only other good part of this rule, which is also the part that ObamaCare supporters hate the most: the rule will make ObamaCare’s costs more transparent. ObamaCare imposes its highest hidden taxes, in the form of higher premiums, on the healthy. The association‐health‐plans rule will free an estimated 1 million disproportionately healthy people to escape those unwanted regulatory costs. When those folks drop out of the Exchanges, the average risk in ObamaCare’s risk pools will rise. Correspondingly, ObamaCare premiums will rise, perhaps even faster than they have to date.
ObamaCare supporters decry this as “sabotage,” but that is a subterfuge. When ObamaCare premiums rise to reflect the cost of ObamaCare’s regulations, it is what the world calls transparency. ObamaCare supporters fear such transparency because, as ObamaCare architect Jonathan Gruber admitted, the public would have rejected the law (and still might!) if they could actually see what it does. “[If] you made explicit that healthy people pay in and sick people get money,” Gruber admitted, “it would not have passed.”
And if you reach a point where you decry transparency as sabotage, it may be time to reevaluate your life.
Correction: The article “Trump’s New Insurance Rules Are Panned by Nearly Every Healthcare Group that Submitted Formal Comments” claimed the Trump administration proposes allowing short‐term health insurance plans “to turn away sick people.” In fact, federal law already allows short‐term plans to turn away sick people, and to our knowledge not even opponents of the administration’s actual proposal have proposed changing that feature. We regret the error.
The article claimed the Trump administration’s short‐term plans proposal would weaken consumer protections. In fact, the proposal would strengthen consumer protections by allowing short‐term plans to shield enrollees who fall ill from medical underwriting — a consumer protection the Obama administration prohibited these plans from offering. We regret the error.
The article described groups that advocate forced health care subsidies as “patient and consumer advocates,” but withheld that designation from patient and consumer advocates who oppose forced health care subsidies. We regret allowing ideology to creep into our reporting.
Finally (we hope), the article identified the financial interests of groups supporting the Trump administration’s proposals, but not the financial interests of groups opposing them. We regret our failure to follow the money.