Sen. Richard Burr, R-N.C., is a co-sponsor of the Patients' Choice Act, the major Republican health care reform alternative in Congress. It has yet to be "scored" by the Congressional Budget Office (CBO), and important details are unclear. However, this Act would represent a consequential change by repealing the tax exclusion of employer-paid insurance premiums and replacing it with tax credits. The Act differs in many ways from the Democratic bills in Congress, but there are some points of potential compromise.
The Act would provide an advanceable, refundable tax credit ($5,710/ family or $2,290/individual) that non-elderly individuals would use to purchase insurance. States would arrange "health care exchanges" through which private insurers would voluntarily offer plans that would be mandated to provide a benefit package similar to what Congress enjoys.
The plan would increase insurance coverage (how much is unclear) and likely result in an increase in deductibles of those covered. This is because the amount of the tax credit is less than half the current average premium ($13,000 family; $5,000 individual) of a private insurance plan. As premiums fall, deductibles rise, exposing individuals to more of the actual cost of their care. This aspect of the Act has the potential to reduce use, and therefore costs.
Employers could still pay premiums on behalf of their employees, but this would be taxable income. If a high-deductible plan costing less than the tax credit is chosen, the balance is placed in a Health Savings Account (HSA). Families can put $5,950/year ($3,000 for individuals) into a HSA and the money can be used to pay for care or insurance premiums. Individuals would be more involved in arranging their own insurance under this plan.
The biggest question is how the state insurance exchanges would work. There is no individual mandate to purchase insurance, but the Act envisions states developing automatic enrollment provisions whereby persons would be signed up for high-deductible plans when they did things like renew a driver's license, unless they opted out.
This "soft individual mandate" is important because the plan bans health insurers from denying coverage based on pre-existing conditions, so you need a way to get healthy people into the insurance pool.
Because the tax credits can be used to buy plans both inside and outside of the state-based exchange, there is a danger that only the sickest patients will seek coverage via the exchange, since coverage cannot be denied. If this happened systematically, it could result in death spiral whereby only poor risks are included in exchange-based plans. However, the Plan notes that exchanges "shall develop mechanisms to protect enrollees from the imposition of excessive premiums, reduce adverse selection, and share risk."
While the devil is in the details, this vagueness provides an opportunity for compromise, as the risk adjustment provisions for setting premiums from the Kennedy-Dodd Senate HELP committee bill (on which Burr sits) could fill in the blanks and are noncontroversial. These provisions allow for the consideration of family structure, actuarial value of benefits, geographic area and age only in setting premiums (premiums couldn't vary more than 2 to 1, oldest to youngest).
Both plans ban exclusion on the basis of pre-existing conditions. And if auto enroll procedures are aggressive, there may only be semantic differences between Burr's approach and the individual mandate which is included in all Democratic bills.
The cost of the tax credits in the Patients' Choice Act alone is likely to be larger than the amount saved by repealing the tax exclusion for employer-provided insurance. And a big question is how many persons would be insured by the Act. These two crucial pieces of information will only be available after the CBO scores the bill. The CBO is playing the role of umpire in health reform, judging all bills in terms of their cost to the federal treasury and impact on insurance rates.
Several provisions in the Patients' Choice Act would reduce the plan's cost to the federal government, but these costs would mostly shift to states. The most notable such change is the proposed block-granting of the federal share of Medicaid's long-term care coverage of the elderly and disabled, which might reduce the federal cost by up to $600 billion over 10 years.
However, this would either increase state costs, or necessitate changing how care is provided to such persons, with the impact on access and quality of care being unclear. The plan includes several other provisions, such as changes in how Medicare Advantage plans are paid, means-testing Part D prescription benefits and a modest malpractice reform.
The most intriguing aspect of the Act is the creation of a Health Services Commission, to be run by five commissioners appointed by the president and confirmed by the Senate. The purpose of the commission is to "enhance the quality, appropriateness, and effectiveness of health care services through the publication and enforcement of quality and price information."
A systematic look at the Medicare program (treatment coverage decisions, payment approaches, quality improvement strategies) that was insulated from Congress in a manner similar to the military base-closing commission would be a good first step toward addressing cost inflation in Medicare in a comprehensive and reasoned manner. Lessons learned from Medicare could then be applied more broadly to the health system.
Any such effort will undoubtedly be called rationing by those wanting to kill it, and quality improvement and cost-effectiveness by those arguing for it. Whatever we call it, we must begin to look at inflation in the health care system generally and in Medicare in particular.
If you don't think so, enter the following into Google "CBO long term budget outlook, 2009." And sit down before you read it.
Donald H. Taylor Jr. is an assistant professor of public policy. His blog www.donaldhtaylorjr.blogspot.com is available for discussion of this article and health care reform in general. This article was first published in The (Raleigh) News & Observer on July 24, 2009. This is part of a weekly series of articles by Donald Taylor exploring aspects of the health care reform issue.
Donald H. Taylor, Jr.