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The healthcare plan introduced last week by Senate Republicans is offered as a replacement for Obamacare. But the bill (I’ll dub it “Coburncare” after one of its three principal architects) could also become a vehicle to fix the most lethal flaws in the president’s alternative scheme. Principal among them is the basic structure of the insurance products that are sold in Obamacare’s state-based exchanges.
In creating a market for health plans, and subsidies to buy them, the architects of Obamacare couldn’t resist tinkering with the ultimate product. They were captured by a political impulse to tightly manage decisions about the items that health plans would need to cover. Rather than leaving these decisions to state regulators, health plans, and the collective action of consumer demand; committees were formed in Washington to design lists of what benefits must be included in the coverage, and those things that are expendable. The usual thing happened. Advocacy groups and businesses lobbied for rules that would force inclusion of their favored products and services. Political activists gained control the process. This became Obamacare’s most significant flaw.
Regulations were imposed that hewed as much to political fashion as public health prerogatives. Plans were required to cover long lists of preferred benefits — many without any cost sharing. Health plans were also limited in how much they could use co-pays to steer patients to lower cost services. In the end, states also got to set their own benchmarks for the mandates that would be grandfathered into the plans. Predictably, state regulators picked benchmark plans that already included all of the mandates fashioned by their own state legislators. The end result was the worst possible outcome. Health plans burdened by the cost of a full slate of state mandates, with the new burden of federal dictates imposed on top of them.
But for everything that was required, something else had to be cut to make the plans even modestly affordable. The cuts are imposed in several fashions: By clamping down on the number of doctors people will have access to, or the drugs they can buy. Or by imposing high deductibles and cost sharing on consumers. But the result is that people are left with little real choice based on benefit design or doctor networks. And the resulting coverage, even while skimping on access to providers, is still very costly.
For consumers who don’t benefit much or at all from Obamacare’s premium and cost sharing subsidies (generally those earning above 250% of the federal poverty level) the plans could be a bad deal. In many states, for consumers with annual incomes above that threshold, Obamacare plans end up being more costly and less attractive than existing alternatives, even with the benefit of the federal subsidies.
For the Obama administration, that’s the rub. These consumers are the middle class families that Obamacare needs to attract in order to make the market for these plans sustainable, and large enough to form a real insurance pool. That number is about 20 million consumers according to insurance actuaries, and probably more. But Obamacare’s sweet spot is people earning 150% to 200% of the federal poverty level. Above or below that threshold, and many of the plans start costing too much, not just in terms of premiums but also deductibles and cost sharing. The Obamacare plans were designed with the working class in mind, but not the middle class.
So how can the bill introduced by Senators Tom Coburn, Richard Burr, and Oren Hatch provide a way out? Coburncare is a sharp departure from the choices and tradeoffs made by the architects of Obamacare. Coburncare leaves it up to states to set the parameters that health plans need to meet. There are no federal committees. No expert boards in Washington. Obamacare could adopt a similar proposal if the White House let states, and not federal regulators, oversee the exchanges.
The Obama team could simply say that any health plan that met a state’s previous regulation (prior to passage of Obamacare) could be sold in each exchange today. But they’re unlikely to do so. A lot more would have to go wrong before they’ll wrest control from their Department of Health and Human Services and give it back to state regulators. In contrast, by leaving insurance regulation to the states, Coburncare guarantees that there will be a wider choice of plans that cover a much broader range of price points. This includes catastrophic only plans. Under Coburncare, states are given flexibility to auto-enroll consumers into these more basic coverage, which would essentially be free to lower income consumers (who would get subsidies that are equal to the cost of a basic catastrophic plan).
Coburncare does many other things that make it a visceral departure from Obamacare. It uses a carrot instead of a stick to get people into the insurance market. Instead of a tax penalty on those who don’t buy coverage, Coburncare offers people who get in (and stay in) the insurance market the promise that they can’t get dropped, or re-rated so long as they stay continuously insured. That’s how it takes care of guaranteed issue and community rating. With incentives. Not penalties.
This is a longstanding conservative proposal for achieving more universal healthcare coverage. There are transition problems. Some people may need help getting in, or staying in the insurance pool. This is especially true if they hit a financial hardship (losing a job). That’s where subsides come into play. Coburncare offers subsidies up to 300% of the federal poverty level (compared to Obamacare, which subsidizes people up to 400% — about $95,000 for a family of four). But instead of calibrating subsidies based only on peoples’ income, Coburncare also adjusts them based on cost, by tying the subsidies to people’s age. Older individuals, who cost more to insure, will receive more in subsidies to offset those expenses. The plan would help states fund special pools for those with the highest medical costs.
The general knock on past conservative health reform plans is that they wouldn’t insure as many people as the progressive proposals, especially Obamacare. But it’s now clear that Obamacare won’t insure as many people as its proponents promised. Most of those getting coverage under the president’s scheme are people who were kicked out of the individual insurance market, not those who are uninsured. It will be hard to shoot at the Republican plan because actuaries at the Congressional Budget Office say it won’t insure as many people as they predicted in their fictitious estimates for Obamacare. The Republican plan will insure millions of people and effectively provide universal access to basic, catastrophic coverage.
In the short term, the Obama team would be smart to take a cue from Coburncare and lift the regulation that is making their health plans unaffordable. Coburncare leaves it to states to regulate plans, creating the opportunity for much more choice in the market, not to mention lower cost plans. The biggest problem Obamacare faces is that the resulting plans are unattractive. As a consequence of costly mandates, the coverage is expensive yet offers very narrow choices. Obamacare managed to simultaneously degrade health insurance, while increasing its cost.
In the long run, Coburncare offers a viable alternative to Obamacare. It pursues the laudable goal of universal insurance coverage using carrots rather than sticks. Coburncare will provide coverage to millions of presently uninsured consumers. And it will do all this without disrupting the marketplace for current consumers by heaping new regulation on existing health plans. It may not insure as many people as Obamacare promised to. But it’s now clear that Obamacare won’t do that either.
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