Backroom policy deals have been described as akin to making sausage. You don’t really want to see it done or you’d lose your appetite. The new Senate health bill is more like meat loaf than sausage, however. By that, I mean a recipe composed of delicious ingredients mushed together with really distasteful ones in an unappetizing blob that could have been a great burger but wasn’t. Remember that 1977 song “Two Out of Three Ain’t Bad” by the band Meat Loaf? That pretty much sums up the Senate health reform bill.
The Better Care Reconciliation Act of 2017 (BCA) proposes a couple good changes: it repeals the Obamacare mandates and associated taxes, sort of caps Medicaid growth but does nothing to make health coverage a better deal for most people. First and foremost, BCA does not attack the root cause of high premiums. These are the regulations requiring insurers to accept customers they do not want and make up the difference by overcharging desirable ones. The catch: gouging good customers makes them less likely to enroll since their perceived need for health coverage is lower. Without profitable customers, premiums must rise to cover all the unprofitable ones.
To be precise, the Better Care Act does not repeal Obamacare’s costly guaranteed issue/community rating regulations. Everywhere these regulations have been tried, they resulted in adverse selection. Adverse selection is a condition where sicker than average consumers are most likely to join because it’s a bad deal for everyone else. This causes medical claims to skyrocket, requiring premium increases to compensate. Each successive round of premium hikes causes a fresh round of healthy people to drop out -- leading to more premium hikes. For the small number of sick people, Obamacare is a bargain, but it’s a huge ripoff for the majority of people without health problems.
It sounds mean-spirited to expect people with ongoing health conditions to pay higher premiums. But that’s not the case. Either way, sick people’s premiums are going to be high. It’s just that prior to Obamacare, healthy people could also get coverage that reflected their health risk. Today, healthy people shun Obamacare, which is why premiums are high for all that remain.
The BCA would tweak the subsidies Americans receive for health insurance, which appears to be a slight improvement. Subsidies would be a function not only of income but also of age. The benchmark plan is also based on an actuarial value of 58 percent rather than 70 percent. Democrats believe this is far too stingy, while conservative Republicans believe it to be too costly for taxpayers.
On the plus side, the BCA repeals the individual and employer mandates. Further, the BCA would repeal most Obamacare taxes. This is a huge deal. I’ve heard Obamacare supporters claim this is a huge redistribution from the poor and middle class to the rich. That’s bogus: Obamacare was a huge redistribution from the rich and middle class to a rat hole, with the poor benefiting a little. This change just redirects the former taxes back to taxpayers. The bill would repeal the Cadillac tax for several years and allow it to come back. There are differing opinions whether this is good or bad.
Small employers could also band together and form Association Health Plans, allowing numerous small firms to leverage their community to get insurance rates similar to what large employers obtain. The bill would also boost health savings accounts (HSAs) while allowing higher contributions and catch-up payments. Consumers could even use their HSAs and FSAs to pay for over-the-counter drugs.
For their part, insurers would get cost-sharing reduction payments for several years but these would be phased out. The essential health benefits package would also be phased out and states would have more authority to decide the benefits that must be covered. I hope this means consumers could decide which benefits they’re willing to pay for.
States would receive a stabilization fund to shore up their insurance markets. This would also give states more leeway to apply for waivers to tweak some insurance regulations, such as medical loss ratio, age bands, and (according to some) cost-sharing. This seems too little, too late. States need the right to innovate and respond to consumer needs rather than be stuck with Obamacare rules that are causing individual insurance to fall into disarray.
Arguably the most important change would be a cap on future Medicaid growth. States would have the option to accept per capita block grants with some stipulations. States could also impose work requirements if they wanted, but it’s not mandatory. Further Medicaid expansion would be curtailed. In several years those that have already expanded eligibility to single adults would have their matching rate ratcheted down. In 2023 the federal government would still pay 75 percent of expansion populations. That doesn’t really go far enough. States should be on the hook for the expansion of the bells and whistles, with the federal government covering only the core needs of the poor.
The Better Care Act is a disjointed hodgepodge of good, bad, and ugly provisions. Many observers rightly criticize it as being more of an Obamacare change bill than a repeal or replace bill. It’s not a bad start but certainly not a good one. Congress needs to go back and finish the job they were elected to perform.