22 Jun 2015 The Patient Freedom Act: A Roadmap for ObamaCare Opponents if Plaintiffs Win in King v. Burwell, by David Hogberg, Ph.D.
If the U.S. Supreme Court rules in favor of the plaintiffs in the soon-to-be announced decision on King v. Burwell, over 7 million people in the 37 states without state-based exchanges will lose their subsidies.1 That’s because the plaintiffs in the case maintain ObamaCare allows subsidies to flow only to exchanges established by a state.
Should this occur, look for panic to break out on Capitol Hill and in the capitals of states that chose not to establish exchanges. Politicians from affected states won’t be eager to face voters in 2016 who lost their subsidies and, possibly, their insurance altogether.
Such a political crisis would be doubly difficult for Congressional Republicans. The Obama Administration, undoubtedly with an assist from the mainstream media, can be counted on to pressure Republicans to amend the law so subsidies can flow to federal and “state-partnership” exchanges. However, if the GOP merely turns the subsidies back on, it risks alienating a political base adamantly opposed to ObamaCare.
State legislators and governors in those 37 states will also be feeling pressure to establish state exchanges in order to make ObamaCare consumers in those states eligible for subsidies. But, just like Congressional Republicans, Republican legislators and governors risk alienating their base if they set up exchanges.
Fortunately, some Republicans on Capitol Hill are releasing contingency plans in the event that King v. Burwell does deal a major blow to ObamaCare. One promising plan, both in terms of policy and politics, is the “Patient Freedom Act” advanced by Senator Bill Cassidy (R-LA) and Representative Ralph Abraham (R-LA). It has nine cosponsors, including Senate leaders Mitch McConnell (R-KY) and John Cornyn (R-TX).
The Patient Freedom Act offers temporary assistance to states in which the subsidies are cut off. After that, the bill gives those states three options: 1) do nothing; 2) establish a state exchange; or 3) opt in to the Patient Freedom Act.
The third option gives states access to the same amount of money they would have received under ObamaCare for exchange subsidies and the Medicaid expansion. But, under the Patient Freedom Act, states would have to give the money directly to individuals and families in the form of a “health savings deposit.” States could choose to have the health savings deposits delivered in the form of a refundable, advanceable federal tax credit, or as part of a block grant. A state government that decided to take the money in the form of a block grant would get to decide the process by which the health savings deposits were distributed to individuals.
The health savings deposit would be put into health savings accounts (HSAs) that individuals and families would need to establish, if they had not already done so, in order to be eligible for the subsidy. The HSAs can be used to purchase health insurance or spent directly on health care expenses. Low-income individuals would, in certain instances, also be able to use a portion of the HSAs to pay for the employee portion of their employer-based insurance.
Anyone without employer-based insurance, of any income level, would be eligible for the health savings deposit. The amount of the deposit would vary with age based on the average health care cost of an individual in that individual’s age bracket. Only people with higher incomes with employer-based insurance would not be able to take advantage of the health savings deposit.
States that went along with the Patient Freedom Act would be required to allow insurers to offer a low-cost, high-deductible health plan coupled with an HSA. Beyond that, states would be free to regulate their health insurance markets as they see fit.
The Act also forbids insurers from denying coverage to people who have been continuously insured, including those who have pre-existing conditions. It also forbids insurers from taking health status into account when setting premiums for those continuously insured. The uninsured would initially only have access to the low-cost, high-deductible health plan. They would be able to access other types of insurance only after a waiting period lasting as long as the period of time they were uninsured.
Finally, citizens in the states that opt in to the Patient Freedom Act would no longer be bound by the individual or employer mandates. They would have access to insurance that is no longer encumbered with costly ObamaCare regulations such as the essential benefits mandates, community rating and actuarial value.
While this plan has much to offer, it has a few drawbacks. First, forcing states to offer a low-cost, high-deductible health plan may seem like a good idea in theory, but unintended consequences are often the result when the federal government forces the states to take an action.
Second, forbidding insurance companies to take health status into account for people who are continuously insured means the cost of insuring those with pre-existing conditions would be distributed to healthier policyholders. This would result in higher premium costs for those policyholders, which may discourage them from buying insurance. A better idea would be to allow the health savings deposit to be used to purchase “pre-existing condition insurance” that would help people who developed serious health conditions pay for higher health insurance premiums. The Cato Institute has advocated this idea, calling it “Health-Status Insurance.”2
Third, the Act keeps ObamaCare’s prohibition on health insurers putting annual or lifetime limits on the benefits received by a policyholder and allows those up to age 26 to stay on their parents’ insurance. Consumers should be free to purchase such policies as they see fit.
Next, states are allowed to keep up to two percent of a block grant for the purposes of funding population health initiatives. However, the bill does not define “population health initiatives,” which leaves a lot of wiggle room for states to use the money for other purposes. (See, for example, how states often use Medicaid funds.3) To be fair to Sen. Cassidy and Rep. Abraham, this was probably added as a sweetener to states so that they would have an incentive to choose block grants over establishing a state-based exchange. Should this bill move through Congress, it will need to have safeguards added to ensure that such money is used for population health initiatives.
Finally, under this plan some Americans are still forced to pay for the private health insurance of other Americans in a manner that was not occurring prior to ObamaCare. Of course, trying to fix that would mean getting rid of most of the money for tax credits or block grants that are part and parcel of this bill.
Despite the drawbacks, relative to ObamaCare, the Patient Freedom Act moves our health care system in the direction of free markets. First, it sends the subsidies directly to the individual or family — not through an exchange, insurance company or government program. Individuals and families will be in charge of how best to spend their deposit, whether to save it in an HSA or to purchase insurance. They will also have a broader array of insurance options to choose from relative to the ObamaCare exchanges. It can also liberate some of the people on Medicaid by enabling them to leave Medicaid’s command-and-control structure for the benefits of private insurance.
Furthermore, the Patient Freedom Act begins the process of evening out the tax inequity between the employer-based market and individual market. Presently, people only receive a tax break on health insurance benefits if they receive them though their employers. This legislation will allow people in the individual market to receive a tax break as well.
Finally, insurers will be able to offer more insurance choices than they are offering under ObamaCare, perhaps akin to the number they offered prior to the creation of the ObamaCare exchanges. Insurers will no longer be forced to offer policies that fit into one of only five categories — catastrophic, bronze, silver, gold or platinum. They will also be able to cover benefits desired by consumers instead of benefits mandated by the federal government. Want to purchase a policy without maternity coverage? Insurers will now be able to offer that option.
This plan has political advantages for ObamaCare opponents should the King decision fall against ObamaCare. As Republicans control the House, it would pass the House if Republicans got behind it. Could it overcome a filibuster in the Senate? 74 senators represent the 37 states without a state-based exchange, and 25 of them are Democrats. Six can probably be found to get the 60 votes necessary for cloture because the Patient Freedom Act gives Democrats who are wary of ObamaCare’s electoral impact a way to say they voted for a bill that gives states more options, yet still allows them to save face with their base by saying they voted for a bill that lets states keep an ObamaCare exchange if they wish.
There are also 91 House Democrats from those states, including a few moderates. Combined with some of 25 Democratic Senators, they might be able to exert pressure on President Obama to sign the bill.
But would Obama yield to such pressure, even from within his own party?
The President’s early behavior toward ObamaCare suggests that he might be willing to compromise. For example, Obama signed legislation repealing the 1099 tax provision of ObamaCare, and, during the exchange rollout debacle in late 2013, he allowed insurers to reinstate plans to people who had lost them because of ObamaCare’s grandfather regulations.4
As of late, though, Obama’s been far more obstinate. He issued a veto threat earlier this year against a congressional plan to scale back the employer mandate.5 More recently, he took a dismissive — if not condescending — attitude toward Democrats who challenged his plans for trade promotion authority.6 Now that Obama is in the final 18 months of his term and cannot run for reelection, he seems to have lost whatever little inclination he once had for negotiation.
Yet obstinacy could prove to be a risky strategy for Obama. With the Patient Freedom Act, Republicans have an answer for what can be done in the wake of King v. Burwell, and — if they play their cards right — they could use it to portray Obama as the one who is stubborn and unwilling to come to the table to fix health care policy.
David Hogberg, Ph. D., is senior fellow for health care policy at the National Center for Public Policy Research.
1 U.S. Department of Health and Human Services, “Health Insurance Marketplaces 2015 Open Enrollment Period: March Enrollment Report,” ASPE Issue Brief, March 10, 2015.
2 John H. Cochrane, “Health-Status Insurance: How Markets Can Provide Health Security,” Cato Institute, Policy Analysis No. 633, February 18, 2009.
3 David Hogberg, “Medicaid Money Laundering—It’s Perfectly Legal,” Amy Ridenour’s National Center Blog, January 26, 2015, at http://www.conservativeblog.org/amyridenour/2015/1/26/medicaid-money-laundering-its-perfectly-legal.html (June 17, 2015).
4 Galen Institute, “50 Changes to ObamaCare…So Far,” May 18, 2015, at http://www.galen.org/newsletters/changes-to-obamacare-so-far/ (May 29, 2015).
5 Sarah Hurtubise, “White House Veto Threat Makes A Pretty Good Case Against Obamacare’s Employer Mandate,” The Daily Caller, January 7, 2015, at http://dailycaller.com/2015/01/07/white-house-veto-threat-makes-a-pretty-good-case-against-obamacares-employer-mandate/ (May 29, 2015).
6 Jonah Goldberg, “Democrats Get a Taste of Obama’s Arrogance,” National Review Online, May 15, 2015, at http://www.nationalreview.com/article/418417/democrats-get-taste-obamas-arrogance-jonah-goldberg (May 29, 2015).