During yesterday’s mark-up of the HELP committee’s legislation, Sens. Tom Coburn (R-OK) and Richard Burr (R-NC) re-introduced their Patients’ Choice Act proposal as an alternative to the Kennedy bill. Coburn, who is also actively promoting the plan on his Twitter account, introduced the 4-week-old proposal as a deficit neutral solution that would offer every American affordable coverage without disrupting the employer-based system.
Using Sen. John McCain’s (R-AZ) health care plan as a foundation, the Patients’ Choice Act would tax the full value of employer health benefits, issue refundable tax credits ($2,290 per individual or $5,710 per family), and expand the use of Health Savings Accounts. States are encouraged to “establish rational and reasonable consumer protections” by forming State Health Insurance Exchanges to give Americans a choice of “different” private “health insurance policies” and issue standard benefits, offering “coverage to any individual regardless of age or health.”
Watch a compilation of the discussion:
Coburn and Burr were making a two-part argument: (1) since the plan still allows employers to deduct health care benefits, they won’t have any new incentives to drop coverage. The employee can use the tax credit to pay for the new taxes (once the exclusion is lifted) and her/his contribution (2) in the event that the employer drops coverage, an employee would be able to combine the extra increase in pay with the tax credit and purchase health insurance coverage in the voluntary state-run Exchange.
But most of these assumptions don’t hold up to close scrutiny:
- Small to medium sized employers would likely drop coverage: Equalizing the tax treatment of employer and individual plans entices healthy workers to buy cheaper but less substantive insurance in the Exchange — should one be available — or the individual health insurance market. The departure of healthy workers from employer insurance pools would drive up average health costs, forcing more workers to opt out entirely. The entire employer health insurance system could unravel, ending this as an option for Americans who prefer it.
- Why would states voluntarily establish an Exchange? Coburn argues that an Exchange would lower health care costs and lead to greater investment in chronic care management and preventive care. And while offering comprehensive coverage through an Exchange would likely save money in the long term, most state governments have little capital to invest in establishing the new system (they are also required to balance the budget every year). If the lure of potential savings is so great, why haven’t states already established Exchanges?
- What if a state doesn’t establish an Exchange? If a state fails to establish an Exchange, then Americans will be left at the mercy of the individual market — which the act does not explicitly regulate. Plans in the individual insurance market cost less but also cover less, and provide inadequate safeguards against insurers who refuse to cover patients with pre-existing illnesses, deny coverage outright, or engage in other discriminatory practices. As Elizabeth Edwards points out, “nine out of every ten people seeking individual coverage on the private insurance market never got it. Insurers will disqualify you for just taking certain medicines because of the possibility of future costs…and insurers make it a practice to deny coverage to individuals in high risk occupations, such as firefighting, lumber work, telecom installation, and pretty much anything more risky than working in an office.”
- Will any reduction in offering coverage translate into significantly higher wages, equal to the coverage costs being dropped? While most economists believe that employers will eventually transfer the value of health benefits into higher wages, the increase won’t be immediate. If the Patients’ Rights Act does not mandate the transfer, some employers may voluntarily increase wages, but most won’t have an incentive to fully make up the difference.
- How are the tax credits indexed? If a state establishes an adequate Exchange and the employer transfers the full value of the health benefit into higher wages, the proposal’s tax credit may assist a limited number of families who currently lack health insurance. But will the growth of the credit keep up with medical costs? While such details are unavailable, both Coburn and Burr enthusiastically supported McCain’s tax-credit proposal and presumably endorsed his indexing mechanism. McCain indexed the growth of his initial tax credit to inflation, not premiums. Since premiums grow at a higher rate than inflation, McCain’s proposal would have imposed an estimated $3.6 trillion tax increase on workers.
On the whole, the Patients’ Choice Act fails to guarantee adequate, affordable and accessible coverage and it does does little, if anything, to control health care costs. Americans who can find coverage through a state-based health insurance Exchange would be guaranteed coverage — insurers would not be able to exclude individuals with pre-existing conditions — but it’s unclear that they would be able to afford it. While a summary of the bill includes European-style “non-profit independent board ” that “would penalize insurance companies that cherry pick healthy patients while rewarding companies that seek patients with pre-existing conditions,” the bill does nothing to prevent higher prices based on sex, age, occupation, or medical condition. To finance these higher prices, Americans can rely on the meager tax credits they’ve stashed away in a Health Savings Account.
The legislative text of The Patients’ Choice Act suggests that the tax credits would not be pegged to medical inflation. The act indexes the credits based on a “blended update” that averages the Consumer Price Index (CPI) and medical CPI.