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GOP Premium Penalty to Replace Obamacare Tax Penalty?

March 7, 2017

Consumer Power Report #538

Conservatives and libertarians, lawmakers and pundits, can and will debate ad infinitum about the need for House Republican leaders to ensure their latest Obamacare replacement bill is politically palatable, even at the expense of some idealism.

The latest bill favored by House GOP leaders-the American Health Care Act (AHCA) released on March 6-appears to make unnecessary concessions out of the gates. Even if passing AHCA proves to be the only politically viable path forward for replacing Obamacare-and I think it is too early to grant it this status-Republicans should claw back ground they obviously should have kept all along.

For example, House Republican leaders pride themselves on removing the individual mandate and tax penalty for individuals who don’t buy insurance, but the GOP leadership’s latest draft bill replaces the Obamacare mandate with a premium penalty.

The bill states insurers “shall” charge a 30 percent “penalty” to buyers who fail to present “certificates” proving continuous coverage. Some analysts have construed this provision of the bill as giving insurers permission to charge patients extra. The text itself, though, provides no permission, but an edict, in subsections titled “Penalty Applied” and “Amount of Penalty”:

“A health insurance issuer offering health insurance coverage in the individual or small group 10 market shall … increase the monthly premium rate otherwise applicable to such individual for such coverage during each 18 month of such period by an amount … equal to 30 percent of the monthly premium rate otherwise applicable to such applicable policyholder for such coverage during such month.” [Emphasis added.]

Dictating what insurers must charge patients, even patients who may prove more expensive to insure, essentially trades Obamacare’s individual mandate and tax penalty for a Republican individual mandate and premium penalty.

If Republican leaders deem it essential to spur patients to maintain continuous health insurance coverage, they could at least change “shall” to “may,” and change “equal to 30 percent” to “up to 30 percent.” These benign revisions would remove the GOP mandate and preserve the possibility insurers would compete on price for the business of patients with lapses in coverage.

If this mandate goes into effect, insurers will price their plans competitively only for buyers who can demonstrate no lapse in coverage. The mandate removes any possibility of insurers responding to market signals of patients who did have lapses in coverage. Those signals would be effectively blocked from transmission by the mandated 30 percent penalty.

This is ill-conceived, considering Republicans have long promised their Obamacare replacement plan would result in an insurance market more responsive to individuals who have experienced lapses in health insurance coverage. This mandate would tune out those patients.

One could object the mandatory 30 percent penalty is necessary to ensure health insurers do the government’s dirty work of making patients feel the pain of refusing to buy insurance. Since when, however, do health insurers need the government’s help making patients feel pain?

As Obamacare demonstrates, and AHCA threatens to confirm, Congress inflicts pain on patients by conflating “health care” with “health insurance.” Laws substantially rewarding patients who buy health insurance deter patients and providers from pursuing health care solutions utterly removed from insurance.

For example, the latest plan does not appear to consider members of health care sharing ministries, which Obamacare exempts from the individual mandate and tax penalty, as eligible for the health insurance tax credit. Nor does it appear to recognize them as having continuous coverage for their health care expenses. This is backward, considering HCSM members have shared each other’s health care costs more efficiently and effectively than insurance markets for the past 25 years, and especially during the reign of Obamacare.

Before approving AHCA, House Republican leaders should comb through it to claw back needless concessions and impositions-things Democrats and centrist Republicans either don’t care about or to which they object so strongly they will never support anyway. Letting insurers set their own, competitive penalties for lacking continuous coverage would be a start.

Congress and President Donald Trump’s focus should be on decreasing the federal government’s footprint in the health insurance and health care markets, thus creating more room for states to implement any number of state-level reforms recommended by The Heartland Institute.

-- Michael T. Hamilton is a Heartland Institute research fellow and managing editor of Health Care News, author of the weekly Consumer Power Report, and host of the Health Care News Podcast.


IN THIS ISSUE:


HOUSE CONSERVATIVES CALL GOP BILL ‘OBAMACARE 2.0’

A handful of House conservatives on Monday evening criticized GOP leadership’s newly released Obamacare replacement bill, foreshadowing trouble for the repeal effort even after leaders tried to assuage the far-right.

Some House Freedom Caucus members dismissed the bill as creating a new “entitlement program” by offering health care tax credits to low-income Americans. A Republican Study Committee memo sent to chiefs of staff, obtained by POLITICO, echoed those comments and blasted the bill’s continuation of the Medicaid expansion for three years.

“This is Obamacare by a different form,” former Freedom Caucus chairman Jim Jordan (R-Ohio) told POLITICO. “They’re still keeping the taxes in place and Medicaid expansion, and they’re starting a new entitlement.”

Freedom Caucus member Dave Brat (R-Va.) piled on, telling POLITICO he’d vote against it in its current form because “the bill maintains many of the federal features including a new entitlement program as well as most of the insurance regulations.”

“Now [they] are saying we’re going to do repeal and replace but the bill does nothing of the sort,” he said. “[Speaker] Paul Ryan has always said the entire rationale for this bill is to bend the cost curve down, and so far I have seen no evidence that this bill will bring the cost curve down.”

His comments come just a few hours after Ryan and his top lieutenants publicly released their much-awaited Obamacare replacement plan. Two House committees will begin marking up the bill this week, and GOP leadership hopes to send the measure to the Senate in three weeks. …

SOURCE: Rachael Bade, Politico


WHAT YOU NEED TO KNOW ABOUT HOUSE REPUBLICANS’ LATEST ‘REPLACE’ LEGISLATION

Below please find some quick fast facts on House Republicans’ “repeal-and-replace” legislation, introduced on Monday evening. (The Energy and Commerce title is here, and the Ways and Means title is here.)

What’s changed since the leaked discussion draft, dated February 10?

Several provisions have been revised, updated, deleted, or added in the intervening three weeks:

  • Increase in funding for community health centers, from $285 million to $422 million;
  • Revision to the repeal of Disproportionate Share Hospital (DSH) cuts-the cuts are restored two years sooner for states that have not expanded Medicaid under Obamacare (in the prior draft, the cuts were restored immediately for all states);
  • Several new Medicaid program integrity provisions, including those prohibiting lottery winners from retaining benefits, restricting retroactive eligibility, prohibiting presumptive eligibility for individuals who cannot provide proof of citizenship, and requiring states to make eligibility re-determinations every six months in many cases;
  • A $10 billion pool of funding ($2 billion per year for calendar years 2018 through 2022) for states that did not expand Medicaid under Obamacare …

What major parts of Obamacare does the bill repeal?

  • Prevention “slush fund”
  • Exchange subsidies, beginning in 2020
  • Enhanced federal match for states that expanded Medicaid, beginning with individuals enrolled after January 1, 2020
  • The individual and employer mandates (penalties set to zero) effective December 31, 2015-mandates would not apply to 2016 tax filings currently taking place
  • All tax increases, except for 1) the economic substance doctrine (not repealed at all); 2) the “Cadillac tax” on high-cost health plans (repealed only until 2025)

What major parts of Obamacare does the bill NOT repeal?

Entitlements

  • Exchange subsidies revised and expanded (extended to off-Exchange populations) through 2020
  • Exchange subsidies would expire in 2020-one year later than the 2015/2016 reconciliation bill
  • Medicaid expansion available to states as an optional population beginning in 2020-the prior 2015/2016 reconciliation bill repealed categorical eligibility for able-bodied adults entirely

Tax Increases

  • ”Cadillac tax”-only repealed until 2025
  • Economic substance doctrine
  • Other tax increases (except the employer and individual mandates) not repealed immediately

Major Insurance Regulations

  • Pre-existing conditions (the bill modifies the existing requirements, by allowing insurers to vary premiums by up to 30 percent for those without continuous coverage)
  • Community rating by age (the bill expands existing rate bands, and permits states to opt-out of the federal standard if they so choose)
  • Under-26 mandate
  • Prohibition on annual and lifetime limits
  • Medical loss ratio requirements
  • Preventive service mandate (including coverage of contraception)
  • Insurance Exchanges
  • Risk corridors and reinsurance …

SOURCE: Chris Jacobs, Juniper Research Group


INVISIBLE HIGH-RISK POOLS: HOW CONGRESS CAN LOWER PREMIUMS AND DEAL WITH PRE-EXISTING CONDITIONS

As Congress and the Trump administration move forward with plans to repeal and replace the Affordable Care Act (ACA), they are looking for proven state-led reforms that maintain access for those with pre-existing conditions in the current exchange market while also lowering premiums for everyone buying insurance in the individual market.

Maine faced similar challenges in 2011 as it sought to unwind failed experiments that pushed its market into a long-term death spiral. But by creating an invisible high-risk pool and relaxing its premium rating bands, Maine policymakers were able to cut premiums in half while still guaranteeing those with pre-existing conditions access to plans.

As a result of these changes, individuals in their early 20s were able to see premium savings of nearly $5,000 per year, while individuals in their 60s saw savings of more than $7,000. As premiums dropped, more young and healthy applicants entered the market, total enrollment increased for the primary insurer in the market, and the individual market’s multi-year death spiral was finally reversed.

Maine’s experience provides federal policymakers with key lessons as they work to repeal and replace the ACA. …

SOURCE: Joel Allumbaugh, Tarren Bragdon, and Josh Archambault, Health Affairs Blog

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Author
Michael Hamilton is a Heartland research fellow and managing editor of Health Care News. Michael writes and edits at the intersection of liberty, language, and learning.
mhamilton@heartland.org