Democrats’ Anti-Choice Agenda

In response to various abortion legislation enacted in Alabama, Georgia, Missouri, and other states, the left has called for a national day of protest on this Tuesday. The groups calling for the protest object to “Donald Trump’s anti-choice movement.”

The groups know of which they speak. The left wants to prohibit choice in medicine, by forcing doctors and health-care providers with religious objections to perform abortions. Multiple Democrat health-care bills would not only force taxpayers to fund abortions, they would commandeer doctors to perform abortions—not to mention other medical procedures that might violate their deeply held religious beliefs.

Existing Conscience Protections

The second conscience provision, the Church Amendment, exists in permanent federal law. It prohibits organizations from discriminating against individuals who refuse to participate in abortions or sterilizations. However, the Church Amendment’s provisions only apply to entities receiving grants or loans under certain statutes and programs:

  • The Public Health Service Act;
  • The Community Mental Health Centers Act;
  • The Developmental Disabilities Services and Facilities Construction Act; and
  • Contracts for biomedical or behavioral research under any HHS program.

The last three programs in particular represent a relatively small percentage of federal funding. And while the Public Health Service Act encompasses a broad set of programs, it does not contain nearly the amount of federal funding as larger entitlements like Medicare and Medicaid.

Single Payer Undermines Conscience Protections

Single-payer legislation in both the House (H.R. 1384) and Senate (S. 1129) would undermine conscience protections. These bills would create a new, automatic funding mechanism for the single-payer program.

Because the single-payer program would not get funded through the Labor-HHS appropriations bill, the Weldon Amendment conscience protections included in that measure would not apply to the program. For the same reason, the Hyde Amendment’s prohibition on taxpayer funding of abortion, also included in the Labor-HHS spending bill, would also not apply.

In theory, the Church Amendment conscience protections would still apply. However, these protections only apply to the discrete federal programs listed above, and therefore may not apply in all cases. Moreover, if existing federal grant programs get subsumed into a new single-payer system—as the sponsors of the legislation would no doubt hope—then conscience protections might go away entirely.

Medicare for America: No Conscience Protections At All

Eliminating conscience protections would fit the rubric established by the Medicare for America bill (H.R. 2452). As I pointed out in the Wall Street Journal last week, the legislation belies its “moderate” label, as it would ban all private health care. On top of that, language on page 51 of the version of the bill introduced earlier this month makes clear that conscience protections do not apply to any medical professional, under any circumstance:

(3) HEALTH CARE PROVIDERS.—Health care providers may not be prohibited from participating in the Medicare for America [sic] for reasons other than their ability to provide covered services. Health care providers and institutions are prohibited from denying covered individuals access to covered benefits and services because of their religious objections. This subsection supercedes any provision of law that allows for conscience protection.

Even more than the Sanders bill, this language makes clear: Doctors have zero conscience protections under Medicare for America, whether about abortion or any other issue. To put it another way, medical professionals can practice their faith for one hour at church on Sunday, but if they wish to live their religious beliefs, they must join another profession.

Philosophical and Practical Concerns

Beyond the moral concerns outlined above, abolishing conscience protections could come with very severe unintended consequences. More than 600 Catholic hospitals (to say nothing of hospitals with other religious affiliations) serve more than one in seven U.S. patients.

Would passage of these bills force these religiously affiliated facilities to close, rather than have the facilities and the professionals within them violate their consciences? And if facilities close, or doctors leave the profession rather than performing procedures that violate their deeply held religious beliefs, who will pick up the slack? After all, our nation already faces looming physician shortages, and the promise of “free” care under a government-run system will only encourage more consumption of health services.

Liberals might want to keep the focus on the state initiatives in Alabama and elsewhere. But forcing people to violate their religious beliefs, and potentially chasing doctors and nurses out of the medical profession as a result, represents the truly radical policy.

This post was originally published at The Federalist.

Democrats’ Single-Payer Health Care Bill Raises Serious Questions

On Tuesday, the House’s Democratic majority will hold its first formal proceedings on single payer legislation. The House Rules Committee hearing will give supporters an opportunity to move past simplistic rhetoric and answer specific questions about H.R. 1384, the House single payer bill, such as:

Section 102(a) makes “every individual who is a resident of the United States” eligible for benefits, regardless of their citizenship status. But in September 1993, Hillary Clinton testified before Congress that she opposed “extend[ing]” benefits to “those who are undocumented workers and illegal aliens,” because “too many people come [to the United States] for medical care as it is.” Do you agree with Secretary Clinton that single payer will encourage “illegal aliens” to immigrate to the United States for “free” health care?

Section 102(b) prevents individuals from traveling to the United States “for the sole purpose of obtaining” benefits. Does this provision mean that foreign nationals can receive taxpayer-funded health care so long as they state at least one other purpose—for instance, visiting a tourist site or two—for their travels?

Section 104(a) prohibits any participating provider from “den[ying] the benefits of the program” to any individual for any of a series of reasons, including “termination of pregnancy.” What if the nation’s more than 600 Catholic hospitals—which collectively treat more than one in seven American patients—refuse to join the government program because this anti-conscience provision forces them to perform abortions and other procedures in violation of their deeply-held religious beliefs? How will the government program make up for this lost capacity in the health care system?

Section 201(a) requires the Secretary of Health and Human Services (HHS) to compile a list of “medically necessary or appropriate” services that the single payer program will cover. Does anything in the bill prohibit the Secretary from including euthanasia—now legal in at least eight states—on that list of covered benefits?

Section 401(b) requires HHS to compile an “adequate national database,” which among other things must include information on employees’ hours, wages, and job titles. Will America’s millions of health care workers appreciate having the federal government track their jobs and income? Why does the bill contain not a word about employees’ privacy in this “adequate national database?”

Section 611 creates a system of global budgets to fund hospitals’ entire operating costs through one quarterly payment. But what if this lump-sum proves insufficient? Will hospitals have to curtail operations at the end of each quarter if they exceed the budget government bureaucrats provide to them?

Section 614(b)(2) prohibits payments to providers from being used for any profit or net revenue, essentially forcing for-profit hospital, nursing home, hospice, and other providers to convert to not-for-profit status. Coming on top of the bill’s virtual abolition of private insurers, how much will this collective destruction of shareholder value hurt average Americans’ 401(k) balances?

Section 614(c)(4) prohibits hospital providers from using federal operating funds to finance “a capital project funded by charitable donations” without prior approval. Does this restriction—preventing hospitals from opening new wings funded by private dollars—demonstrate how single payer will ration access to care, by limiting the available supply?

Section 614(f) bars HHS from “utiliz[ing] any quality metrics or standards for the purposes of establishing provider payment methodologies.” Does this prohibition on tying any provider payments to quality metrics serve as confirmation of the low-quality care a single payer system will give to patients?

Section 616 states that, if drug and device manufacturers will not agree to an “appropriate” price for their products—as defined by the government, of course—the HHS Secretary will license their patents away to other companies. But the average pharmaceutical costs approximately $2.6 billion to bring to market. How many fewer drugs will come to market in the future due to this arbitrary restriction on innovation?

Section 701(b)(2)(B) sets future years’ appropriations for the program based in part on “other factors determined appropriate by the [HHS] Secretary.” But this month, Nancy Pelosi filed suit against President Trump’s border emergency declaration, after she claimed that the declaration “undermines the separation of powers and Congress’s [sic] power of the purse.” How does allowing an unelected executive branch official to determine trillions of dollars in appropriations uphold Congress’ “power of the purse?”

Section 901(a)(1)(A) states that “no benefits shall be available under Title XVIII of the Social Security Act”—i.e., Medicare—two years after enactment. How does abolishing the current Medicare program square with the bill’s supposed title of “Medicare for All?”

If single payer supporters can answer all these queries at Tuesday’s hearing, many observers will only have one other question: Why anyone thought the legislation a good idea to begin with.

This post was originally published at Fox News.

The Freedom and Empowerment Plan for American Health Care

A PDF of the full health care plan is available on the America Next website.

The Problem of American Health Care

By many measures, the American system of health care is the best in the world. It is a source of incredible innovation at the cutting edge of medical science, providing high quality care to people who need it. We have some of the best doctors, nurses, researchers, and provider systems on earth. When world leaders need complex surgery and lifesaving treatment, they fly to us. It is here, in America, where treatments are discovered, methods are improved, and diseases are cured.

But by all sorts of other measures, the American system of health care is the worst of both worlds – and that was true before Obamacare. For starters, it is extraordinarily expensive. This is partly because we aren’t interested in just managing pain, but in curing diseases; partly because market-warping government policies and regulations drive costs higher and incentivize monopolization over competition; partly because Americans have a limited choice of health insurance options; and partly because patients and providers are insulated from the true costs of health care services.

Imagine for a moment if other forms of insurance worked the same way as American health insurance does today. Say you arrive home one day and find that the lightbulb on your front porch has burned out. This happens every couple of months, and it’s predictable as clockwork – or a chronic condition. But because your homeowners insurance policy works like health insurance does, you can’t just drive to a store and buy a lightbulb, oh no. Instead, you have to call and set up an appointment with a highly-paid and highly-educated expert lightbulb specialist.

You go in the waiting room wait for two hours so the specialist can spend five minutes examining the lightbulb and telling you what new one you need to buy. The specialist used to be in a small practice, but now he’s in a big group, because there are all sorts of government regulations he has to deal with, and only big systems can afford to deal with them. He also has to overcharge your private insurer for this brief visit, because he spends a third of his time seeing people on government entitlement programs who dramatically underpay for his services.

The specialist gives you a nearly illegible prescription for a new lightbulb, but you can’t buy it just anywhere – your homeowners insurance has a network of stores, and going out of network means you’ll face penalties. You have to drive across town to an in-network hardware store, and then wait for someone to get the right lightbulb out of the back. You have no idea how much the lightbulb actually costs, or if it would be cheaper at the store ten minutes away – you just have a small co-pay for it, and the rest is covered by your insurer – or how much the specialist is paid to tell you which one to buy. And in a few months when the light burns out again, you’ll have to go through all of this all over again.

When you start to think about the American health insurance system in this context, you start to understand why things are so upside down when it comes to the costs of care. At each stage, everyone is insulated from costs, and most people have no incentive to shop and compare prices and services as they do in every other market. And government policies and sweeping regulations have only served to make it worse.

Health care represents one of the most complex arenas of public policy. It was an animating interest for me from a young age, in part because it is an area that touches every American during the course of their lives in profound ways. I worked at the U.S. Department of Health and Human Services, the National Bipartisan Commission on the Future of Medicare, and the Louisiana Department of Health and Hospitals.  During my lifetime, many attempts have been made to try and fix the broken aspects of our system, some more successful than others. President Obama’s health care law is just the latest in a long line of wrongheaded steps – but it is by far the worst yet.

As someone who believes in empowering patients and using market forces to improve American health care, I oppose President Obama’s law and believe we must repeal all of it—no matter what the conventional wisdom in Washington says. But we must also enact positive reforms to move our health system in the right direction, because the status quo of American health care and insurance is simply not defensible.

What the President said in the course of selling his signature legislation actually sounded good to me – it’s what he did that was awful. The President sold his law as a path to lower premium costs, promising that he’d cut them by $2,500 by the end of his first term. He said he wanted people to be able to keep their health plans and their doctors if they liked them. He said he wanted to bend the cost trajectory down while improving quality. I’m for all of that – but unfortunately that’s not what his law does.  At best the President was horribly naïve about how our health care system works, and how to reform it.  At worst he was deliberately untrue, and sold his government-centric plan as a “conservative” proposal because he knew the American people would never accept the truth.

We want to make sure that people have access to affordable high quality healthcare. We want to create a solid safety net for the poorest of the poor and the sickest of the sick. This is, according to President Obama, what he wants, too. But from my perspective, he never stepped back and really looked at what’s wrong with our system, and asked what we want it to look like if we can tear down the existing market-warping problems and start afresh.

America needs a health care system where it is easy for the consumer to be in control, and where government won’t get in between you and your doctor. Sometimes on the right we’re blind to the fact that health care bureaucracy isn’t just Medicare and Medicaid personnel – it also could be a big insurance bureaucrat, and they’re little better. At each point, this system of bureaucracy, monopolization, and the lack of price transparency serves to drive costs higher and higher for all of us. The most fundamental question in health care policy is: do you want the patient to be in control, working with their doctor and health care provider, or do you want a bureaucrat – whether from the government or your insurer – to be in control?

The left has its answer to this question: empowering government. Instead, we should be empowering patients. How should we go about doing that? Well, there are several things that have to change, steps that will push health care in this country toward being a true competitive marketplace, and which make providers understand once again that the individual patient is their customer.

Big changes never happen organically in Washington, and many of the big stakeholders were heavily invested in Obamacare just a few years ago. But as President Obama’s monopartisan program has stumbled, it presents the opportunity for conservatives to make the case for real reform. It is now obvious to everyone that his plan simply won’t deliver on the many promises he made along the way. And that’s because, from the beginning, his approach was wrongheaded. He trusted the government to fix the problems and get everything right, instead of trusting the American people to know what’s best. We shouldn’t make that mistake twice.

A Conservative Alternative

In the debate surrounding the Patient Protection and Affordable Care Act, more commonly referred to as Obamacare, conservatives have consistently faced one myth, perpetuated by President Obama himself and his political allies: That there is no alternative to Obamacare, and that opponents of the law have offered no solutions on health care themselves.

Nothing could be further from the truth.  In November 2009, House Republicans offered their alternative to Obamacare during a debate on the House floor; not a single Democrat voted for the legislation.[1]  One more recent compilation lists more than 200 pieces of health care legislation offered by conservative Members of Congress in 2013 alone.[2]  Conservatives have consistently proposed alternatives to Obamacare, and publicly advocated on their behalf, yet the President finds it easier to peddle untruths than to engage the American people on why his unpopular law is “better” than alternative reforms.

One reason President Obama fails to recognize conservative alternatives to Obamacare lies in a fundamental dispute about the root problems plaguing the American health care system.  Conservatives believe that the best way to improve access to health insurance coverage is to make that coverage more affordable.  Many conservatives may agree with then-Senator Obama, who stated during his 2008 presidential campaign: “I believe the problem is not that folks are trying to avoid getting health care.  The problem is they can’t afford it.”[3]

Candidate Obama may have talked like a conservative in his rhetoric highlighting health costs and opposing mandates, but President Obama has governed as a liberal.  Instead of tackling the root of the health care problem, and lowering costs first, Obamacare focused on spending trillions of dollars to expand health coverage, creating massive new entitlements in the process.  Rather than making health care more affordable for all Americans, Obamacare gave America a law it can’t afford to keep.  The law is fiscally unsustainable, its tax increases economically damaging, and its enshrinement of greater government control of every aspect of health care is more dangerous than some in Washington appreciate.

For these reasons and more, any conservative health reform must start with repealing Obamacare.  But conservative health reform must not end there.  Even prior to Obamacare, the status quo was, and remains, unacceptable.  Many Americans struggle every day with the high cost of health care, and Americans with pre-existing conditions cannot access the care they need.  America’s health care system does need reforms—but it needs the right reforms.

The policy solutions put forward by America Next in this paper focus on preserving what’s right with American health care, while fixing what’s wrong.  Fixing what’s wrong involves restoring one basic American principle—freedom—that has been eroded due to Obamacare  While it is wise for any individual to have health insurance coverage, Washington cannot—and should not—attempt to compel such behavior.

After restoring those freedoms, we can enact the reforms the American health system needs.  We focus first and foremost on reducing health care costs—because while most Americans want to buy health care and health insurance, many of them struggle to afford it.  We also work to preserve and strengthen the safety net for the most vulnerable in our society, including those with pre-existing conditions.  And we focus on enhancing patient choice, removing obstacles to portability and consumer selection, including many put into place by Obamacare itself.  These principles should form the foundation for true health reform—one that puts doctors and patients, not government bureaucrats, at the heart of all policy decisions.

 

Principle #1: Lowering Health Costs

When running for President in 2008, candidate Obama promised that his health plan would lower premiums—in fact, he promised on numerous occasions that his plan would reduce costs for the average family by $2,500 per year.[4]  Unfortunately, the law President Obama signed bears little resemblance to that campaign pledge.  Obamacare moves American health care in the opposite direction—raising health costs and premiums, not lowering them.  The non-partisan Medicare actuary has concluded that Obamacare will raise total health spending by $621 billion dollars in its first decade alone.[5]  Likewise, independent analysts at the Congressional Budget Office (CBO) concluded that Obamacare would raise premiums for those buying health insurance on the individual market by an average of $2,100 per year.[6]

The higher premiums due to Obamacare are discouraging many people from enrolling in coverage under the law.  A recent survey by analysts at McKinsey found that only 27 percent of Americans selecting insurance plans were previously uninsured—the group Obamacare intended to target for expanded coverage.[7]  The same survey found that half of those individuals who shopped for insurance coverage but did not select a plan cited affordability reasons in deciding not to purchase coverage: “I could not afford to pay the premium.”[8]  For many Americans, the measure dubbed the “Affordable Care Act” has proven anything but affordable.

Obamacare is raising health costs because its mandates and regulations force customers to buy health insurance products they may not want or need, merely because a government bureaucrat tells them they must.  Conversely, true reform would provide incentives for consumers to serve as smart health care shoppers, saving money by engaging in healthy behaviors and taking control of their health care choices.

Tax Equity:  When it comes to health insurance, today’s tax code contains two notable flaws.  First, it includes a major inequity: workers can purchase employer-provided coverage using pre-tax funds, but individuals who buy coverage on their own must use after-tax dollars to do so.  Second, because cash wages provided by an employer are taxable, but health insurance benefits are not taxed, no matter how generous the benefit, the tax code currently gives a greater value to health insurance than increases in cash wages.  This disparity has resulted in employers scaling back pay raises to help fund rapidly rising health plan costs.  The Congressional Budget Office has also noted that this disparity has exacerbated the growth in health costs, and that capping the tax subsidy for employer-provided insurance would help slow cost growth.[9]  Reforms could result in employers raising cash wages if their health costs grow more slowly over time.—and slowing the growth of health care costs would yield benefits for the broader economy.

A conservative health reform would transform the existing tax exclusion for employer-provided health insurance into a standard deduction for all forms of health insurance, regardless of where they are purchased.  First proposed in 2007, this concept was also recently introduced in legislative form in the House of Representatives.[10]  This proposal would not raise taxes; following Obamacare’s repeal, total government revenues would remain at pre-Obamacare levels.  In other words, this proposal would not repeal Obamacare’s tax increases, only to replace them with other tax hikes.

Under this model, the standard deduction would grow at higher rates initially, but as the other efficiencies take effect and the growth in health spending slows, the deduction would in time rise annually according to consumer price inflation.  Much as the current exclusion for employer-provided coverage applies to both income and payroll taxes, the standard deduction would apply towards income and payroll taxes as well.

These reforms would solve several problems with our current tax code.  The standard deduction would create equity between those who buy health coverage through their employer, and those who buy health coverage on their own.  In 2007, one analysis noted this change could reduce the number of uninsured Americans by 9.2 million.[11]  Over time, this policy might encourage more individuals to buy coverage independent of their employer plans, but such a change would likely be gradual and voluntary—as opposed to the millions of Americans who lost their existing health coverage last fall, because their plan did not meet Obamacare’s bureaucratic standards.

Just as importantly, the new standard deduction would contain in-built mechanisms to slow the growth of health costs.  Individuals who purchase insurance costing less than the amount of the standard deduction would still retain the full tax benefit from it—giving them reason to act as smart health care shoppers.  In addition, the slower growth rate of the deduction would give both insurance companies and consumers a greater incentive to maximize efficiencies in the health care system.  For decades, the tax code’s perverse incentives have accelerated spiraling health costs, but creating a standard deduction will help reduce costs rather than raising them.

State Health Insurance Program:  Although millions of Americans without access to employer-sponsored health coverage will benefit from the standard deduction for health insurance, some individuals with minimal tax liability—primarily those with incomes under about 150 percent of the federal poverty level—will receive little benefit from a tax deduction.  Instead, eligible individuals should receive an explicit government subsidy to purchase affordable health insurance.

This health reform plan proposes a pool of $100 billion in federal funding over the next ten years for states to subsidize affordable health insurance for low-income individuals and individuals with pre-existing conditions.  The funding would be provided to states with minimal restrictions:

  1. States must achieve measurable reductions in average health insurance premiums in the individual and small group markets, and must ensure that individuals have access to affordable health insurance—with premiums that do not exceed a defined percentage of that state’s median income.
  2. States must establish and maintain a form of guaranteed access for individuals with pre-existing conditions—a high-risk pool, a reinsurance fund, or some other risk transfer mechanism.  States could use some of their federal allotment to help fund the costs of covering high-risk individuals.
  3. Obamacare reduced disproportionate share hospital (DSH) payments by half to finance expensive, unaffordable health coverage; this plan would instead restore that funding to help fund more affordable health insurance options. [12]  In order to access state grants, states must direct this restored funding toward covering eligible populations, reducing the amount of uncompensated care provided by instead subsidizing health insurance.  States will receive about $10 billion per year in DSH funding; re-directing some of these funds would supplement the $100 billion provided by the federal government.[13]

This reform model relies on federalism to promote innovation in health care and health insurance.  The federal government sets key goals—keeping insurance premiums affordable, and expanding access to low-income individuals and those with pre-existing conditions—and allows states to meet those goals in the manner they believe will work best for their state.  For example, if a state wants to incorporate an account-like savings mechanism to promote healthy behaviors, as Indiana has done, it can pursue that option.

Empowering states with flexibility and freedom can be a powerful tool in reducing health costs.  Analyzing a similar proposal put forward as part of the House Republican alternative to Obamacare in 2009, the non-partisan Congressional Budget Office (CBO) found that state innovation grants, coupled with liability reform and other common-sense solutions, would lower small business health insurance premiums by 7 to 10 percent, and would lower individual health insurance premiums by 5 to 8 percent.[14]  This reduction is even more stark when compared to the premium increases CBO predicted will occur (and are occurring) due to Obamacare.  Overall, estimates suggest that, when compared to Obamacare, this state-based approach could reduce premiums on the individual health insurance market by nearly $5,000 per family.[15]

Washington has tried a top-down approach to health care; it hasn’t worked.  Allowing states to serve as laboratories of innovation could slow the growth in health insurance costs and premium increases.  In addition, the $100 billion in federal funding, coupled with the matching funds from state DSH payments, would expand health care access for low-income individuals who do not benefit from the standard insurance deduction and those with pre-existing conditions.  This state-based model, not more Washington mandates and regulations, represents the best route to true health care reform.

Health Savings Accounts:  One of the innovations over the past decade that has helped slow the growth in health care costs has been Health Savings Accounts (HSAs), which couple a high-deductible health plan with a tax-free savings account.  The high deductible plans provide lower premiums for consumers, who can then deposit the savings in their HSAs to use for routine health expenses.  And because funds in an HSA accumulate from year to year tax-free, they provide motivation for consumers to serve as smart purchasers of health care.

First made available in 2004, HSAs have grown in popularity; more than 15 million Americans are now covered by HSA-eligible health plans.[16]  Many are using tools provided by these plans to take better control of their health and health spending, seeking out preventive care, using generic drugs more frequently, and utilizing plan-provided decision support tools.[17]  These plans are also saving Americans money; in 2013, the average HSA plan provided by an employer cost $1,318 less per family than non-HSA plans—even after firms placed an average of $1,150 per family into the HSA to fund health expenses.[18]  A recent study found that more widespread adoption of HSA coverage could reduce health spending by as much as $73.6 billion per year.[19]

Obamacare moves in the opposite direction by placing limits on the effectiveness of HSAs.  For example, it prohibits the use of funds from an HSA to purchase over-the-counter medications without a prescription.[20]

Conservative health reforms should build upon the success of HSAs by offering new options to make HSA plans more flexible for patients and consumers.  Congress should allow HSA funds to be used to purchase health insurance in all cases, making it easier for consumers who save to fund their health coverage.  Another possible reform would create more flexible insurance policies, linking the size of the deductible for an HSA plan to customers’ account balances, incomes, or other assets; in this way consumers with sizable savings could choose coverage with an even lower premium in exchange for a higher deductible.  These changes would further accelerate a health coverage model that has already helped slow the growth of health costs for millions of Americans.

Greater Incentives for Wellness:  One of the few areas of bipartisan agreement during the Obamacare debate was a consensus around the “Safeway model”—namely, providing financial incentives for individuals and employees to engage in healthy behaviors.[21]  At the time, employers could vary premiums by up to 20% to reward participation in various wellness programs.  However, then-Safeway CEO Steve Burd noted that a 20% premium variation did not allow the company to recoup all the higher costs associated with unhealthy behaviors like smoking.

Congress can and should do more to enhance these innovative efforts to reduce health costs.  First, it can provide explicit statutory authority for premium variations of up to 50%.  It can also allow employers (or insurance companies selling individual insurance plans) to offer any financial incentives for healthy behaviors on a tax-free basis, by placing the money in new Wellness Accounts.  As with HSAs, the money in these accounts could then be used tax-free for health expenses, or withdrawn for other purposes.  This reform would marry two proven successes—HSAs and wellness incentives—turbo-charging efforts to slow the growth in health costs by encouraging Americans to engage in healthy behaviors.

Crack Down on Fraud:  Health costs have grown at a rapid rate at least in part due to widespread fraud in government health programs.  Unfortunately, a recent case in which 49 Russian diplomats were charged with fraudulently obtained Medicaid benefits—lying about their immigration status and income on application forms, even as they purchased goods from Tiffany’s and Jimmy Choo—is not an aberration.[22]  Several years ago, the New York Times cited expert analysis that as much as 40 percent of that state’s Medicaid spending was either questionable or outright fraudulent.[23]  The Medicare program for the elderly also faces widespread fraud—$60 billion per year, according to a 60 Minutes investigation.[24]

While the private sector has a series of programs and protocols in place to combat fraud, government health programs have traditionally lagged; their focus has been on paying claims quickly, whether real or fraudulent.  In recent years, some government programs have improved their efforts to combat fraud; for instance, Louisiana’s new Bayou Health managed care model built in robust savings from fraud detection, requiring plans participating in Bayou Health to crack down on suspicious transactions or face financial penalties.  But Congress should do more to end the current “pay and chase” model, which attempts to track down fraud after-the-fact, and enhance penalties for those who steal or traffic in Medicare patient numbers and other personal health information.

Price and Quality Transparency:  In many cases, consumers who wish to serve as “smart shoppers” of health care do not have the information to do so.  For far too long, price and quality transparency data have been lacking in the health sector, meaning patients face a dearth of information when they have to make potentially life-altering decisions about their care.  The good news is that these trends are slowly changing, and that transparency has provided consumers with useful, and powerful, information:

There is emerging evidence that when hospitals publish prices for surgical procedures, costs decrease without a loss of quality.  The Surgery Center of Oklahoma, for example, has been publishing its prices for various procedures for the past four years.  Because the center’s prices tend to be lower than those of other hospitals, patients started coming from all over the country for treatment.  In order to compete, other hospitals in Oklahoma began listing surgical prices; patients were able to comparison shop, and hospitals lowered their prices.[25]

Further efforts at transparency could help to reduce an estimated $105 billion paid in health costs annually due to uncompetitive pricing levels by medical providers.[26]  Just as importantly, patients could have more objective sources of information about doctors and medical treatments than recommendations from friends or acquaintances.  Online posting of price and quality data can easily lead to new Consumer Reports-type rating systems, which will empower patients with trusted data and provide providers an greater incentive to improve their quality practices.

 

Principle #2: Protect the Most Vulnerable

In trying to provide all Americans with health insurance, Obamacare may actually detract from efforts to protect those who need health care most.  The law provides a more sizable federal match for states to expand their Medicaid programs to childless adults than it does for states to cover their disabled populations.[27]  At a time when more than half a million disabled Americans are on state lists waiting to qualify for long-term supports and services, it is both uncompassionate and unfair for the Administration instead to focus on covering childless adults, most of whom are able to work or prepare for work.[28]

True health reform would focus first and foremost on targeting government resources to the most vulnerable in our society—protecting the safety net rather than stretching it past its breaking point.  These reforms would help individuals with pre-existing conditions, senior citizens, the disabled, and the unborn.  Making these populations the centerpiece of coverage efforts would meet one of Obamacare’s core goals—providing access for individuals with pre-existing conditions—without necessitating the upheaval caused by the President’s 2,700-page health law.

Guaranteed Access for Pre-Existing Conditions:  Obamacare was sold as a way to address the very real problem of Americans with pre-existing conditions—but the size of the problem did not warrant such a massive overhaul.  One estimate found that approximately 2-4 million individuals under age 65 may face difficulties purchasing health insurance.[29]  The Obama Administration has attempted to claim that up to 129 million Americans “could be denied coverage” due to pre-existing conditions.[30]   But when Obamacare created a high-risk pool to provide temporary coverage for those with pre-existing conditions, under 150,000 Americans ever enrolled in it[31]—far fewer than the 600,000-700,000 originally projected to seek enrollment in the program.[32]

Ironically enough, Obamacare has failed to deliver on its promise for individuals with pre-existing conditions.  The Administration froze enrollment in the law’s high-risk pools due to funding constraints,[33] and the unintended consequences of over-regulation meant that 17 states lost access to child-only health insurance plans.[34]  Some patients have also found that their Obamacare plans don’t include the specialists or hospitals they need; for instance, many plans do not offer access to advanced cancer centers.[35]

Conversely, conservative health reform would ensure that states have the incentive of funding to provide guaranteed access for Americans with pre-existing conditions.  Many states use various vehicles to cover these individuals—whether high-risk pools, reinsurance programs, or some other risk transfer mechanism.[36]  The incentive pool of federal dollars would allow states to determine the best mechanism for providing access to those with pre-existing conditions, and a stable source of funding for those endeavors.

Much of the case for Obamacare was made on the basis of an issue which effects a small portion of consumers: the challenge of pre-existing conditions. Since 1996, federal law included a requirement of guaranteed renewability in the individual health insurance market—so long as you paid for your policy, you were guaranteed the ability to renew your plan.  Policy cancellations—also called rescissions—were rare, and nearly always due to fraud, impacting according to some measures just four-tenths of one percent of the private individual market (which is itself just 10 percent of the insured marketplace).[37]  Though relatively small in number, the issue of pre-existing conditions raised concerns for many Americans—who feared that they, or someone they knew, would be affected if they developed an illness that made them uninsurable.

Obamacare was supposed to solve the problem of pre-existing conditions, but in many respects, the law actually made things worse.  It took away the coverage renewability guarantee, by forcing insurance companies to cancel the policies of millions of Americans. Even as they made the case that if you liked your plan you could keep it, those who favored the president’s legislation knew they were about to repeal the existing guaranteed renewability for millions of Americans. By doing this, Obamacare has completely disrupted the individual market, forcing many people who were satisfied with their coverage and the access they had to doctors and specialists being dumped into more costly and less comprehensive insurance simply because of Obamacare.

This lie should not be allowed to stand. Guaranteed renewability should ensure that patients have the ability to renew their coverage, regardless of their health status, so long as they have not committed fraud. Thus, people who maintain continuous coverage should be protected from premium spikes and have confidence their insurance will be there when they need it.

The central irony of Obamacare is that it hurt the very people it was supposed to help. For Americans signing up for new insurance, guaranteed renewability should offer peace of mind that their insurer cannot drop them merely for getting sick. For those Americans for whom access to guaranteed renewability contracts has been destroyed by Obamacare, the incentive pool of state dollars for more innovative approaches, coupled with greater flexibility for individuals leaving employer plans, will be there to help them get the coverage they need in a post-Obamacare system.

Premium Support:  Medicare faces a dire financial predicament.  According to the annual report by the program’s trustees—including members of the Obama Administration—the Part A trust fund financing hospital care will be insolvent by 2026.  In the short term, the program has taken a hit from the recession and slow economic recovery; the Medicare trust fund ran $105.6 billion in deficits during the years 2008-12.[38]  In the longer term, the outlook is even worse: Medicare faces 75-year unfunded obligations of at least $27.3 trillion, and even this estimate may understate the program’s liabilities, due to various budgetary and accounting gimmicks.[39]

Among the biggest gimmicks understating Medicare’s financial shortfalls is Obamacare itself.  In October 2011, Nancy Pelosi admitted what all Americans realize Democrats did as part of Obamacare: “We took a half a trillion dollars out of Medicare in…the health care bill,” to pay for that law’s new entitlements.[40]  Yet the Obama Administration utilized an “only-in-Washington” logic to argue otherwise, citing trust fund accounting to assert that the Medicare provisions in the law could be used both to “save Medicare” and to “fund health care reform.”[41]  There are two kinds of people in politics—those that want to fix Medicare and those who want to use it to score political points.  Sadly, Obamacare followed the latter course.  Current and future generations of seniors deserve better—they deserve true reform that makes Medicare more sustainable.

One bipartisan solution to Medicare’s fiscal shortfalls would give seniors a choice of plans, with the federal government providing a generous subsidy to purchase coverage.  This premium support concept was developed, and endorsed, by a bipartisan majority in a commission created by Congress and President Clinton, whose Executive Director was Bobby Jindal.[42]  The commission’s work was in turn endorsed by the Democratic Leadership Council.[43]  More recently, Rep. Paul Ryan, the Republican Chairman of the House Budget Committee, and Sen. Ron Wyden, the Democratic Chairman of the Senate Finance Committee, submitted a bipartisan health reform plan that included a premium support proposal for Medicare beneficiaries.[44]

The key feature of a premium support proposal is the ability of competition among health plans to bring down costs and provide better care to America’s seniors.  Former Clinton Administration official Alice Rivlin testified before Congress in 2012 that nearly nine in ten seniors live in areas where private health plans have costs lower than traditional, fee-for-service Medicare; under a premium support proposal, these seniors could save money by choosing to enroll in a private plan.[45]  Likewise, the Congressional Budget Office recently analyzed one premium support proposal, and found that it could reduce Medicare spending by $15 billion dollars annually, while also reducing overall out-of-pocket spending by beneficiaries by an average of 6 percent.[46]

As part of the transition to premium support, the traditional Medicare benefit itself should be modernized.  For the first time ever, Medicare should provide a catastrophic cap on out-of-pocket expenses—so that seniors would know their spending.  At the same time, Medigap insurance, which provides supplemental coverage of co-payments and deductibles for some seniors, should also be reformed, so that seniors would no longer be pre-paying their health coverage by over-paying to insurance companies.

Under Medigap reform, seniors’ premium costs would fall substantially.  A 2011 study by the Kaiser Family Foundation found that under one version of reform, Medigap premiums would plummet by an average of over 60%, from nearly $2,000 per year to only $731.[47]  Because less money from Medigap policy-holders would be diverted to administrative overhead, seniors would be able to keep their own money to finance their own health care.

Medigap reform not only lowers seniors’ premiums, it also lowers their overall health costs.  A 2011 Kaiser Family Foundation study concluded that “the savings for the average beneficiary” under Medigap reform “would be sufficient to more than offset his or her new direct outlays for Medicare cost sharing.”[48]  According to Kaiser, nearly four in five Medigap policy-holders would receive a net financial benefit from this reform – with those savings averaging $415 per senior each year.[49]

What’s more, modernizing traditional Medicare and Medigap would drive greater efficiency within the health care system.  The Congressional Budget Office estimates that this reform would make Medicare more sustainable for future generations, by as much as $114 billion in its first decade alone.[50]  As with premium support, this package of proposals represents a true “win-win:” Current seniors would save on their health expenses, while seniors-to-be would have greater confidence that the promises made to them can be kept when they prepare to join Medicare themselves.

For all these reasons and others, this modernization of Medicare carries broad support from across the political spectrum.  Bipartisan endorsers of Medigap reform include the Simpson-Bowles Commission,[51] the Rivlin-Domenici commission on debt and deficits,[52] Sen. Tom Coburn (R-OK) and former Sen. Joe Lieberman (D-CT),[53] and even President Obama’s most recent budget.[54]

Seniors deserve the potential savings and better care these reforms can provide.  Seniors’ plan choices would include some of the same options available to Americans under age 65, along with the traditional, government-run fee-for-service model, updated with new and more flexible options.  Likewise, future generations deserve the peace-of-mind that comes from knowing Medicare has been placed on a more sustainable path.  It is long past time for Washington to enact true Medicare reform.

Medicaid Reforms:  Despite Obamacare’s massive new regulations, some states have already acted to reform their Medicaid programs.  For instance, Rhode Island’s global compact waiver—in which the state received additional regulatory flexibility from the federal government in exchange for a cap on its Medicaid budget—has successfully slowed the growth of health costs in that state.  A 2011 Lewin Group report found that the global compact waiver “generated significant savings”—more than $50 million from the small state’s Medicaid budget—and did so not by reducing care, but by improving it:

The mandatory enrollment of disabled members in care management program [sic] reduced expenditures for this population while at the same time generally resulting in improved access to physician services.[55]

Since the Lewin study in 2011, Rhode Island’s success in managing its Medicaid program has continued.  The state has reduced its per capita Medicaid spending by more than five percent over the past three fiscal years, resulting in three straight years of minimal expenditure growth,  even as the state’s Medicaid caseload increased.[56]

These remarkable accomplishments come despite the Obama Administration’s efforts, not because of them.  The 2011 Lewin report notes that passage of Obamacare and the “stimulus” bill, both of which imposed new restrictions on state Medicaid programs, “had a profound impact” on the Rhode Island waiver, because “the flexibility sought did not always materialize.”  For instance, the original waiver gave Rhode Island the authority to assess modest premium charges for some beneficiaries, but the Obamacare mandates took this flexibility away.[57]

Other states have also acted to reform their Medicaid programs.  Louisiana has transitioned its Medicaid program toward a managed care model, named Bayou Health.  The program has furthered the goals of the Birth Outcomes Initiative, claims data for which reveal a reduction of 23,000 in statewide neonatal intensive care unit days paid by Medicaid—meaning more babies were carried to full term.

The Hoosier State’s Healthy Indiana Plan includes a personal responsibility component, and provides incentives to engage in wellness screenings, and imposes co-payments on beneficiaries who make non-urgent visits to the emergency room.  The plan also requires participants to make modest contributions to an account to fund their health needs, ensuring patients have incentives to manage their health spending and health care.  The financial requirements are not onerous; approximately 70% of beneficiaries consider the required account contributions just the right amount, and 94% of members report being satisfied or highly satisfied with their coverage.[58]  Yet, Obamacare could put this innovative plan out of business entirely, due to its Washington-imposed mandates on state Medicaid programs.[59]

Because the federal government provides states with at least a 1:1 match on their Medicaid expenses, states have a built-in incentive to spend more on Medicaid when compared to other state priorities like education, transportation, and corrections.  This open-ended entitlement drastically reduces states’ incentives to make efficient choices in managing their health care systems.  A more conservative approach should better align incentives to focus states’ efforts on improving care and reducing costs, instead of merely “gaming the system.”

Medicaid is not merely a fiscal failure, however. The error of Obamacare’s Medicaid expansion was to double down on a program whose health outcomes range from the marginal to the horrendous—the result of paying doctors pennies on the dollar and cramming Medicaid recipients into already overburdened systems. Compared to both those patients with private insurance and those without any insurance at all, Medicaid patients stay in the hospital longer, cost more while they are there, and yet are significantly more likely to die before they leave.[60] The recent Oregon Medicaid study, which offered real-world examples of Medicaid recipients compared to those who were not on the program, answered questions about just how significant the benefits of modern Medicaid are.[61] The study authors found that after two years, Medicaid “had no significant effect” on physical health outcomes compared to being uninsured.[62] Spending nearly half a trillion dollars a year on a program which is so ineffective is unacceptable and immoral.

More than two years ago, Republican governors presented a report laying out common-sense reforms to the Medicaid program—from modernizing benefit design to simplifying accountability to eliminating unnecessary requirements.[63]  While the Obama Administration has not implemented most of the report’s 31 separate suggestions, they represent a good place to start when it comes to updating this important program and prioritizing the actual health care of those who need a safety net.

The best way to reform Medicaid lies in a global grant approach, which empowers states with maximum flexibility in exchange for a fixed funding allotment from the federal government.  The allotment would be adjusted annually for inflation and eligible population growth, and could be adjusted if a state receives a sudden increase in its disabled population.  Rhode Island’s innovative waiver demonstrates how it can be done—and further illustrates that indexing the grant to inflation can be achieved without cutting benefits, or harming beneficiaries’ access to care.

States should have additional flexibility to manage their Medicaid programs in a manner that they believe best meets the needs of their citizens—while facing clear and simple accountability metrics from the federal government.  Rather than focusing on managing processes and completing forms, state Medicaid programs should emphasize improving outcomes.  In return, the federal government should revamp its accountability process to hold states to these higher standards.  Those who want to micro-manage states do so because they do not trust the people and their locally elected leaders.

Pro-Life Protections:  Among its many other flaws, Obamacare represents an intrusion on the moral values many Americans hold dear.  Contrary to prior practice, the law has seen federal tax dollars flow to fund health insurance plans that cover abortions.[64]  The law also forces many Americans to choose between violating the law and violating their consciences, imposing mandates on non-profit and other institutions that violate their deeply-held religious beliefs.  As a result, literally dozens of institutions nationwide have taken Obamacare’s anti-conscience mandate to court; the Supreme Court is scheduled to rule on the issue later this summer.[65]

Repeal of Obamacare will remove the law’s anti-conscience mandates, and the funding of plans that cover abortions.  But true health reform should go further, instituting conscience protections for businesses and medical providers, as well as a permanent ban on federal funding of abortions, consistent with the Hyde Amendment protections passed by Congress every year since 1976.[66]  There is much in health care about which Americans disagree, but protecting all Americans’ religious liberty should be one principle that warrants bipartisan support. The government should not force religious people to abandon their faiths in order to keep their doors open.

 

Principle #3: Portability and Choice

In an address to Congress in September 2009, President Obama attempted to sell Obamacare as offering consumers “competition and choice.”[67]  At least 4.7 million Americans—those who have already received cancellation notices due to the law—would beg to differ with the President.[68]  While the President offered a short-term concession—unilaterally waiving portions of Obamacare, and permitting some who lost health coverage to keep their plan until the 2016 presidential election—the cancellation notices are likely to continue for some time.  A 2010 Administration document admitted that more than half of all workers, and up to four in five employees in small businesses, would lose their pre-Obamacare health coverage.[69]

Obamacare undermines choice by dictating what type of insurance health plans must offer—and then dictating to firms that they must offer, and individuals that they must buy, this type of coverage.  Conversely, true health reform would smooth the problems of portability that occurred prior to the law’s enactment, while offering more personalized choices so consumers can buy the plan they want, not the plan a government bureaucrat tells them to purchase.

State Reforms to Expand Access:  For many decades, many states have held laws on their books that block access to care.  At least 36 states have certificate of need (CON) requirements, which force organizations to obtain clearance from the state before building new health care facilities.  In addition to the offensive nature of this approach—entities must ask government bureaucrats for permission to create a facility that will help patients—CON requirements have proven ineffective at their stated goal of reducing costs.  One recent analysis noted that states without CON requirements have significantly lower health costs than those states with certificate of need mandates.[70]  Congress repealed the law that created CON requirements nearly three decades ago; states can follow suit.[71]

Similarly, state licensing requirements can impose unnecessary burdens on medical practitioners, also limiting access to health care.  Given that the supply of doctors is not expected to keep up with projected demand, policy-makers should allow other medical professionals to utilize more of their expertise to provide more affordable and convenient care for patients.[72]  In 2011, the Institute of Medicine recommended that all professionals should be empowered to practice to the full scope of their professional training.[73]  States should modify their licensing requirements to remove artificial barriers impeding the ability to provide high-quality care.  States must also act prudently to protect patient quality and maintain high standards.  Doing so would expand access to care, allowing Minute Clinics and other similar entities to treat patients quickly and at lower cost than hospital emergency rooms or other sources of care.

Both certificate of need and artificial scope of practice restrictions sometimes prioritize the interests of incumbent members of the health system over the needs of patients.  In 2008, the Justice Department testified that CON laws “create barriers to entry and expansion to the detriment of health care competition and consumers.  They undercut consumer choice, stifle innovation, and weaken markets’ ability to contain health care costs.”[74]  Likewise, a seminal 2004 report on competition in health care by the Federal Trade Commission and Justice Department noted that scope of practice laws create anticompetitive risks, have raised costs, and limited mobility of medical providers, all for unclear benefits to health care quality.[75]  At a time when health costs remain high and access for vulnerable populations limited, states should act in both these key areas, initiating reforms that have the potential to reduce costs while simultaneously increasing access to needed care.

Better Access for Individuals Changing Employers:  The fact that so many Americans currently receive health insurance coverage through their employers means that individual health insurance plans have traditionally occupied a smaller segment of the marketplace.[76]  As a result, most individuals transition from one employer plan to another when they switch jobs.  However, moving from employer coverage to an individual plan can often prove more difficult and costly.

While not undermining the employer coverage that many Americans currently have and enjoy, conservative health reforms should also encourage policies that promote greater personal ownership of health insurance.  One key reform would allow individuals who maintain continuous coverage to purchase an individual health insurance plan of their choosing, eliminating the requirement that such individuals first exhaust COBRA coverage before accessing an individual plan.  These and other similar reforms will encourage Americans to purchase coverage they can take with them from job to job.

Cross-State Insurance Purchasing:  Because health insurance is regulated at the state level, many health insurance markets face two major problems.  First, in many states, one or a handful of insurers control most of the market for coverage, and these oligopolies tend to raise premiums.  Obamacare has not helped this trend, and in fact may have worsened it.  According to the New York Times, more than half of all counties in the United States have only one or two health plans participating in their states’ insurance Exchanges.[77]

Second, benefit mandates imposed by state legislatures force individuals to purchase more insurance coverage than they may need or want.  According to the Council for Affordable Health Insurance, states have imposed an average of 44 benefit mandates, each of which raises health costs.[78]  Individually, the mandates may not appear to raise premiums by a significant amount, but estimates suggest that collectively, benefit mandates impose hundreds of dollars in added costs to consumers every year.[79]

One solution to both these problems rests in Congress enacting legislation allowing consumers to purchase health insurance across state lines.  Consumers purchasing insurance across state lines would receive clear disclosures that their health coverage would be regulated by another state with respect to benefit mandates, solvency standards, and other similar requirements.  By using its constitutional authority to regulate interstate commerce, Congress could give consumers the power—a power they currently lack—to buy the health insurance plan that best meets their needs, regardless of the state in which that plan is offered.  Such a measure would give power from insurance company cartels back to consumers, make health insurance portable across state lines, and reduce the growth of premiums.

Pooling Mechanisms:  In addition to allowing the purchase of health insurance across state lines, Congress should also provide clear protections, similar to those provided in the Employee Retirement Income Security Act of 1974 (ERISA), for organizations that wish to establish multi-state insurance pools.  These organizations could be churches, fraternal organizations, trade groups for small businesses, alumni groups, or any other type of group with a common interest.  These groups should be permitted to band together and purchase health insurance for their members, providing coverage that fits members’ distinct needs while potentially reducing administrative costs.  Just as importantly, coverage obtained through these pools, unlike employer coverage, would be portable: Individuals would have and own their personal health policy, and would not need to change plans when they change jobs.

Lawsuit Reform:  In many states, medical liability problems present several problems for patients.  First, defensive medicine practices—doctors performing unnecessary tests due to fear of litigation—raise health costs, according to some estimates by more than $100 billion annually.[80]  Second, the seeming randomness of the legal system—in which some frivolous claims receive large awards, but some legitimate claims are dismissed—frustrates patients.  Finally, at a time when America already faces expected physician shortages, the legal climate discourages prospective doctors from pursuing medicine as a career choice.[81]  A recent study found that physicians spend more than 10% of their careers with an outstanding malpractice claim lingering over their practice.[82]  More than three in five physicians claim they or one of their colleagues may retire in the next three years due to frustration with the health care system—a fact likely exacerbated by an overly litigious culture.[83]

Enacting lawsuit reforms—including a cap on non-economic damages, restrictions on attorney contingency fees, discouraging frivolous lawsuits, and other common-sense changes—would reduce health care costs.  Because nearly half of all health spending is controlled by government, largely through the Medicaid and Medicare programs, Congress should take the lead in enacting lawsuit reforms in instances where the federal government is a payer of health services.[84]  If enacted, these changes could have a salutary effect on America’s physicians, just as the passage of tort reform in Texas encouraged more doctors to move to that state.[85]

Freedom for Seniors to Choose:  The doctor-patient relationship is the foundation on which our health care system should be based.  Unfortunately, government requirements often impede the ability for patients to choose the best option for their own care.  For instance, one law dictates that senior citizens may not make their own financial arrangements with their doctors if those arrangements contradict Medicare’s payment rates; any physician who does so is prohibited from receiving any reimbursements from Medicare for two years.[86]

Congress should restore the doctor-patient relationship by repealing this onerous requirement.  It should also restore the ability of Medicare patients to buy procedures on their own, provided seniors receive full disclosure from their physicians and medical providers for the costs of their care.  The Wall Street Journal reported that the number of doctors dropping out of Medicare nearly tripled between 2009 and 2012. [87]  Senior citizens should not have access to the physician of their own choosing—or to procedures their doctors recommend for them—violated due to arbitrary restraints imposed by federal bureaucrats.

 

Taken together, this package of reforms would accomplish the objectives the American people are looking for in their health care system—the objectives President Obama said his legislation would bring, but which Obamacare has not delivered.  Enacting policies that get the incentives right can reduce costs, even while protecting the most vulnerable and enhancing portability and choice for consumers.

The American people deserve true health reform—one that puts patients and doctors first, not government bureaucrats.  After repealing Obamacare, enacting America Next’s plan would point America’s health system in the right direction.

 

 

[1] Vote on Boehner Substitute Amendment to H.R. 3962, Affordable Health Care for America Act, House Roll Call Vote 885, 111th Congress, November 7, 2009, http://clerk.house.gov/evs/2009/roll885.xml.

[2] “Republican Study Committee Policy Brief: Members’ Health Care Initiatives in the 113th Congress,” November 25, 2013, http://rsc.scalise.house.gov/uploadedfiles/113th_112513_rsc_healthcare_menu.pdf.

[3] Remarks in Democratic presidential debate sponsored by CNN and Congressional Black Caucus Institute, January 21, 2008, http://www.cnn.com/2008/POLITICS/01/21/debate.transcript2/index.html.

[4] A video compilation of candidate Obama’s remarks on this issue from the 2008 campaign is available at http://freedomeden.blogspot.com/2010/03/obama-20-promises-for-2500.html.

[5] Gigi A. Cuckler, et al., “National Health Expenditure Projections: Slow Growth Until Coverage Expands and Economy Improves,” Health Affairs October 2013, http://content.healthaffairs.org/content/32/10/1820.

[6] Congressional Budget Office, Letter to Sen. Evan Bayh regarding premium effects of the Patient Protection and Affordable Care Act, November 30, 2009, http://cbo.gov/sites/default/files/cbofiles/ftpdocs/107xx/doc10781/11-30-premiums.pdf.

[7] Amit Bhardwaj, et al., “Individual Market Enrollment: Updated View,” McKinsey Center for U.S. Health System Reform, March 2014, http://healthcare.mckinsey.com/sites/default/files/Individual-Market-Enrollment.pdf.

[8] Ibid.

[9] Congressional Budget Office, Key Issues in Analyzing Major Health Insurance Proposals, December 2008, http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/99xx/doc9924/12-18-keyissues.pdf, pp. 84–87.

[10] The White House, “Affordable, Accessible, and Flexible Health Coverage,” January 2007, http://georgewbush-whitehouse.archives.gov/stateoftheunion/2007/initiatives/healthcare.html; Republican Study Committee, “The American Health Care Reform Act,” September 18, 2013, http://rsc.scalise.house.gov/solutions/rsc-betterway.htm.

[11] John Sheils and Randy Haught, “President Bush’s Health Care Tax Deduction Proposal: Coverage, Cost, and Distributional Impacts,” The Lewin Group, January 28, 2007, http://www.lewin.com/~/media/Lewin/Site_Sections/PressReleases/BushHealthCarePlanAnalysisRev.pdf.

[12] Patient Protection and Affordable Care Act (P.L 111-148), Section 2551.

[13] Congressional Budget Office, Medicaid baseline, May 2013, http://cbo.gov/sites/default/files/cbofiles/attachments/44204_Medicaid.pdf.

[14] Congressional Budget Office, analysis of House Republican substitute amendment to H.R. 3962, November 4, 2009, http://cbo.gov/sites/default/files/cbofiles/ftpdocs/107xx/doc10705/hr3962amendmentboehner.pdf.

[15] Press release by House Ways and Means Committee Ranking Member Dave Camp, November 5, 2009, http://waysandmeans.house.gov/news/documentsingle.aspx?DocumentID=153186.

[16] America’s Health Insurance Plans, Center for Policy and Research, “January 2013 Census Shows 15.5 Million People Covered by Health Savings Account/High-Deductible Health Plans (HSA/HDHPs),” June 2013, http://www.ahip.org/HSACensus2013PDF/.

[17] America’s Health Insurance Plans, Center for Policy and Research, “Health Savings Accounts and Account-Based Health Plans: Research Highlights,” July 2012, http://www.ahip.org/HSAHighlightsReport072012/.

[18] Kaiser Family Foundation and Health Research and Educational Trust, “Employer Health Benefits: 2013 Annual Survey,” August 2013, http://kaiserfamilyfoundation.files.wordpress.com/2013/08/8465-employer-health-benefits-20132.pdf, Exhibit 8.8, p. 140.

[19] Amelia M. Haviland, M. Susan Marquis, Roland D. McDevitt, and Neeraj Sood, “Growth of Consumer-Directed Health Plans to One-Half of All Employer-Sponsored Insurance Could Save $57 Billion Annually,” Health Affairs, May 2012, http://content.healthaffairs.org/content/31/5/1009.abstract.

[20] Patient Protection and Affordable Care Act (P.L. 111-148), Section 9003.

[21] Steven A. Burd, “How Safeway Is Cutting Health Costs,” Wall Street Journal June 12, 2009, http://online.wsj.com/news/articles/SB124476804026308603.

[22] Christopher Matthews, “U.S. Accuses Russian Diplomats of Medicaid Fraud,” Wall Street Journal December 5, 2013, http://online.wsj.com/news/articles/SB10001424052702303497804579240163174732486.

[23] Clifford Levy and Michael Luo, “New York Medicaid Fraud May Reach into Billions,” The New York Times, July 18, 2005, http://www.nytimes.com/2005/07/18/nyregion/18medicaid.html.

[24] CBS News, “Medicare Fraud: A $60 Billion Crime,” 60 Minutes, September 5, 2010, http://www.cbsnews.com/8301-18560_162-5414390.html.

[25] Lisa Rosenbaum, “The Problem with Knowing How Much Your Health Care Costs,” The New Yorker December 23, 2013, http://www.newyorker.com/online/blogs/elements/2013/12/price-transparency-health-care-costs.html.

[26] Institute of Medicine, The Health Care Imperative: Lowering Costs and Improving Outcomes—Workshop Summary, February 2011, http://www.iom.edu/reports/2011/the-healthcare-imperative-lowering-costs-and-improving-outcomes.aspx.

[27] Chris Jacobs, “How Obamacare Undermines American Values: Penalizing Work, Marriage, Citizenship, and the Disabled,” Heritage Foundation Backgrounder No. 2862, November 21, 2013, http://www.heritage.org/research/reports/2013/11/how-obamacare-undermines-american-values-penalizing-work-marriage-citizenship-and-the-disabled.

[28] Kaiser Family Foundation, “Waiting Lists for Medicaid Section 1915(c) Home and Community-Based Services (HCBS) Waivers,” December 2012, http://kff.org/medicaid/state-indicator/waiting-lists-for-hcbs-waivers-2010/#table.

[29] James C. Capretta and Tom Miller, “How to Cover Pre-Existing Conditions,” National Affairs Summer 2010, http://www.nationalaffairs.com/doclib/20100614_CaprettaMiller_Web.pdf, pp. 114-15.

[30] U.S. Department of Health and Human Services, Office of Planning and Evaluation, “At Risk: Pre-Existing Conditions Could Affect 1 in 2 Americans,” November 2011, http://aspe.hhs.gov/health/reports/2012/pre-existing/index.shtml.

[31] Centers for Medicare and Medicaid Services, Center for Consumer Information and Insurance Oversight, “Covering People with Pre-Existing Conditions: Report on the Implementation and Operation of the Pre-Existing Condition Insurance Plan Program,” January 31, 2013, http://www.cms.gov/CCIIO/Resources/Files/Downloads/pcip_annual_report_01312013.pdf.

[32] Congressional Budget Office, letter to Senator Mike Enzi (R–WY), June 21, 2010, http://cbo.gov/sites/default/files/cbofiles/ftpdocs/115xx/doc11572/06-21-high-risk_insurance_pools.pdf.

[33] Department of Health and Human Services, Pre-Existing Condition Insurance Plan, notice of enrollment suspension, February 15, 2013, https://www.pcip.gov/Notifications/021513-ENROLLMENT_SUSPEND.html.

[34] Report by Senate Health, Education, Labor, and Pensions Committee Ranking Member Mike Enzi, “Health Care Reform’s Impact on Child-Only Health Insurance Policies,” August 2, 2011, http://www.help.senate.gov/imo/media/doc/Child-Only%20Health%20Insurance%20Report%20Aug%202,%202011.pdf.

[35] Ricardo Alonso-Zaldivar, “Concerns about Cancer Centers under Health Law,” Associated Press March 18, 2014, http://hosted2.ap.org/apdefault/3d281c11a96b4ad082fe88aa0db04305/Article_2014-03-18-Health%20Overhaul-Top%20Cancer%20Centers/id-d5acff9619ec4bc6aa875800d96fc270.

[36] Information on various state plans for covering high-risk individuals can be found on the website of the National Association of State Comprehensive Health Insurance Plans, www.naschip.org.

[37] John C. Goodman, “Rescissions: Much Ado About Nothing,” Kaiser Health News, May 13, 2010,    http://www.kaiserhealthnews.org/Columns/2010/May/051310Goodman.aspx.

[38] Centers for Medicare and Medicaid Services, 2013 Medicare trustees report, May 31, 2013, http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/Downloads/TR2013.pdf, TableII.B4, p. 58.

[39] Suzanne Codespote, memo from Office of the Actuary, Centers for Medicare and Medicaid Services, to Senate Budget Committee Ranking Member Jeff Sessions, June 3, 2013.

[40] Maria Bartiromo, “One-on-One with Nancy Pelosi,” CNBC interview, October 28, 2011, http://video.cnbc.com/gallery/?video=3000054002.

[41] Kathleen Sebelius, testimony before the House Energy and Commerce Committee hearing on “Fiscal Year 2012 HHS Budget,” March 4, 2011, video available at http://archives.republicans.energycommerce.house.gov/hearings/hearingdetail.aspx?NewsID=8281.

[42] The National Bipartisan Commission on the Future of Medicare was chaired by Sen. John Breaux (D-LA) and Rep. Bill Thomas (R-CA); its work can be found at http://medicare.commission.gov/medicare/index.html.

[43] Testimony of David Kendall, Progressive Policy Institute Senior Analyst for Health Policy, before Senate Finance Committee hearing on “Modernizing Medicare,” May 26, 1999, http://dlc.org/ndol_ci04fb-2.html?kaid=111&subid=141&contentid=1790.

[44] Sen. Ron Wyden and Rep. Paul Ryan, “Guaranteed Choices to Strengthen Medicare and Health Security for All: Bipartisan Options for the Future,” December 15, 2011, http://budget.house.gov/uploadedfiles/wydenryan.pdf.

[45] Alice Rivlin, testimony before the House Ways and Means Health Subcommittee on “A Bipartisan Approach to Reforming Medicare,” April 27, 2012, http://waysandmeans.house.gov/uploadedfiles/rivlin_testimony_final_4-27-2012.pdf, p. 4.

[46] Congressional Budget Office, “A Premium Support System for Medicare: Analysis of Illustrative Options,” September 2013, http://www.cbo.gov/sites/default/files/cbofiles/attachments/09-18-PremiumSupport.pdf.

[47] Kaiser Family Foundation, “Medigap Reforms: Potential Effects of Benefit Restrictions on Medicare Spending and Beneficiary Costs,” July 2011, http://www.kff.org/medicare/upload/8208.pdf, Exhibit 2, p. 6.

[48] Ibid., p. 8.

[49] Ibid., p. 8.

[50] Congressional Budget Office, “Options for Reducing the Deficit: 2014 to 2023,” November 13, 2013, http://cbo.gov/sites/default/files/cbofiles/attachments/44715-OptionsForReducingDeficit-2_1.pdf, Health Option 7, p. 211.

[51] The Moment of Truth, report of the National Commission on Fiscal Responsibility and Reform, December 2010, http://www.fiscalcommission.gov/sites/fiscalcommission.gov/files/documents/TheMomentofTruth12_1_2010.pdf, p. 39.

[52] Restoring America’s Future, report of the Bipartisan Policy Center’s Debt Reduction Tax Force, November 2010, http://bipartisanpolicy.org/sites/default/files/BPC%20FINAL%20REPORT%20FOR%20PRINTER%2002%2028%2011.pdf, pp. 52-53.

[53] Overview of Coburn/Lieberman Medicare reform proposal, June 2011, http://www.coburn.senate.gov/public/index.cfm?a=Files.Serve&File_id=1ea8e116-6d15-46ba-b2e0-731258583305

[54] Office of Management and Budget, Fiscal Year 2015 Budget, March 4, 2014, http://www.whitehouse.gov/sites/default/files/omb/budget/fy2015/assets/budget.pdf, pp. 31-32.

[55] Lewin Group, “An Independent Evaluation of Rhode Island’s Global Waiver,” December 6, 2011, http://www.ohhs.ri.gov/documents/documents11/Lewin_report_12_6_11.pdf.

[56] Testimony of Gary Alexander before the Congressional Commission on Long-Term Care, August 1, 2013, http://ltccommission.lmp01.lucidus.net/wp-content/uploads/2013/12/Garo-Alexander.pdf.

[57] Lewin Group, “An Independent Evaluation,” pp. 11-12.

[58] Indiana Family and Social Services Administration, Healthy Indiana Plan 1115 Waiver Extension Application, February 13, 2013, http://www.in.gov/fssa/hip/files/HIP_WaiverforPosting.pdf, pp. 19, 6.

[59] Mitch Daniels, “We Good Europeans,” The Wall Street Journal March 26, 2010, http://online.wsj.com/article/SB10001424052748704094104575144362968408640.html.

[60] Avik Roy, “The Medicaid Mess: How Obamacare Makes It Worse,” The Manhattan Institute, March 2012,  http://www.manhattan-institute.org/html/ir_8.htm

[61] Katherine Baicker, Sarah Taubman, Heidi Allen, Mira Bernstein, Jonathan Gruber, Joseph P. Newhouse, Eric Schneider, Bill Wright, Alan Zaslavsky, Amy Finkelstein, and the Oregon Health Study Group, “The Oregon Experiment – Effects of Medicaid on Clinical Outcomes” New England Journal of Medicine, May 2013, http://www.nejm.org/doi/full/10.1056/NEJMsa1212321

[62] The Oregon Health Insurance Experiment, http://www.nber.org/oregon/

[63] Republican Governors Public Policy Committee Health Care Task Force, “A New Medicaid: A Flexible, Innovative, and Accountable Future,” August 30, 2011, http://www.scribd.com/doc/63596104/RGPPC-Medicaid-Report.

[64] Sarah Torre, “Obamacare’s Many Loopholes: Forcing Individuals and Taxpayers to Fund Elective Abortion Coverage,” Heritage Foundation Backgrounder No. 2872, January 13, 2014, http://www.heritage.org/research/reports/2014/01/obamacares-many-loopholes-forcing-individuals-and-taxpayers-to-fund-elective-abortion-coverage.

[65] A full list of the court cases, and further information regarding them, can be found through the Becket Fund for Religious Liberty, http://www.becketfund.org/hhsinformationcentral/.

[66] Chuck Donovan, “Obamacare: Impact on Taxpayer Funding of Abortion,” Heritage Foundation WebMemo No. 2872, April 19, 2010, http://www.heritage.org/research/reports/2010/04/obamacare-impact-on-taxpayer-funding-of-abortion.

[67] President Barack Obama, remarks to a Joint Session of Congress on Health Care, September 9, 2009, http://www.whitehouse.gov/the_press_office/Remarks-by-the-President-to-a-Joint-Session-of-Congress-on-Health-Care.

[68] Associated Press, “Policy Notifications and Current Status, by State,” December 26, 2013, http://money.msn.com/business-news/article.aspx?feed=AP&date=20131226&id=17219856.

[69] Interim final rule by Departments of Labor, Treasury, and Health and Human Services regarding grandfathered health insurance status, released June 14, 2010, http://www.federalregister.gov/OFRUpload/OFRData/2010-14488_PI.pdf Table 3, p. 54.

[70] Jordan Bruneau, “The Great Healthcare CON,” Foundation for Economic Education, January 15, 2014, http://www.fee.org/the_freeman/detail/the-great-healthcare-con#axzz2qbUCvcC2.

[71] There may need to be some very targeted consideration given to specific health care markets so dependent on government programs that taxpayers end up paying for unused capacity.

[72] Association of American Medical Colleges, Center for Workforce Studies, “Recent Studies and Reports on Physician Shortages in the U.S.,” October 2012, https://www.aamc.org/download/100598/data/.

[73] Institute of Medicine, “The Future of Nursing: Focus on Scope of Practice,” Report Brief, October 2010, http://www.iom.edu/~/media/Files/Report%20Files/2010/The-Future-of-Nursing/Nursing%20Scope%20of%20Practice%202010%20Brief.pdf.

[74] Joint Statement of the Antitrust Division of the U.S. Department of Justice and the Federal Trade Commission before the Illinois Task Force on Health Planning Reform, September 15, 2008, http://www.justice.gov/atr/public/comments/237351.pdf, pp. 1-2.

[75] Federal Trade Commission and Department of Justice, Improving Health Care: A Dose of Competition, July 2004, http://www.justice.gov/atr/public/health_care/204694.pdf, pp. 25-28.

[76] According to the U.S. Census Bureau, in 2012 170.9 million Americans were covered by employer-based insurance, compared with 30.6 million Americans covered by direct-purchase insurance (including various forms of supplemental coverage).  Carmen DeNavas-Walt, Bernadette D. Proctor, and Jessica C. Smith, Income, Poverty, and Health Insurance Coverage in the United States: 2012, U.S. Census Bureau, September 2013, http://www.census.gov/prod/2013pubs/p60-245.pdf, Table C-1, p. 67.

[77] Reed Abelson, Katie Thomas, and Jo Craven McGinty, “Health Care Law Fails to Lower Prices for Rural Areas,” New York Times October 24, 2013, http://www.nytimes.com/2013/10/24/business/health-law-fails-to-keep-prices-low-in-rural-areas.html.

[78] CAHI found a total of 2,271 benefit mandates enacted in 50 states and the District of Columbia.  Council for Affordable Health Insurance, “Health Insurance Mandates in the States 2012: Executive Summary,” April 9, 2013, http://www.cahi.org/cahi_contents/resources/pdf/Mandatesinthestates2012Execsumm.pdf.

[79] One study found that benefit mandates raise premiums by an average of $0.75 per month, or $9 per year.  A state with the national average of 44 benefit mandates would therefore have raised premiums by an average of $396 annually.  See Michael J. New, “The Effect of State Regulations on Health Insurance Premiums: A Revised Analysis,” Heritage Foundation Center for Data Analysis Report No. 06-04, July 25, 2006, http://www.heritage.org/research/reports/2006/07/the-effect-of-state-regulations-on-health-insurance-premiums-a-revised-analysis, p. 5.

[80] U.S. Department of Health and Human Services, Office of the Assistant Secretary for Planning and Evaluation, “Addressing the New Health Care Crisis: Reforming the Medical Litigation System to Improve the Quality of Health Care,” March 2003, http://aspe.hhs.gov/daltcp/reports/medliab.pdf, p. 16.

[81] Association of American Medical Colleges, “Recent Studies on Physician Shortages.”

[82] Seth A. Seabury, et al., “On Average, Physicians Spend Nearly 11 Percent of their 40-Year Careers with an Open, Unresolved Malpractice Claim,” Health Affairs January 2014, http://content.healthaffairs.org/content/32/1/111.full.pdf+html.

[83] Deloitte Center for Health Solutions, “Deloitte 2013 Survey of U.S. Physicians,” March 18, 2013, http://www.deloitte.com/assets/Dcom-UnitedStates/Local%20Assets/Documents/us_chs_2013SurveyofUSPhysicians_031813.pdf, p. 3.

[84] Gigi A. Cuckler, et al., “National Health Expenditure Projections.”

[85] Joseph Nixon, “Why Doctors Are Heading for Texas,” Wall Street Journal May 17, 2008, http://online.wsj.com/news/articles/SB121097874071799863.

[86] Section 4507 of the Balanced Budget Act of 1997, P.L. 105-33.

[87] Melinda Beck, “More Doctors Steer Clear of Medicare,” Wall Street Journal July 30, 2013, http://online.wsj.com/news/articles/SB10001424127887323971204578626151017241898.

Summary of the Freedom and Empowerment Plan

A PDF of the full health care plan is available on the America Next website.

Four years after being enacted into law, Obamacare’s massive government overreach and higher taxes continue to wreak havoc on the American economy and health care system.  The unpopular, unworkable, and misguided law should be repealed in its entirety.

It is now becoming obvious to all that Obamacare is not merely bad policy, but it is also constructed ineptly, and was deceptively sold to the American people with the now infamous “lie of the year.”  Without the president’s repeated acts of deception, his disastrous health regime would never have become law.

Today, costs to consumers are rising, people are losing their health coverage and access to their doctors, struggling families are being forced to buy coverage they do not want, and the Congressional Budget Office has acknowledged that the law incentivizes Americans not to work–which the President now insists is a good thing.

The American people are in favor of repealing Obamacare.  But conventional wisdom in Washington holds that the law cannot be fully repealed.  I couldn’t disagree more.  A country that won two world wars and landed a man on the moon can surely eradicate this attack on our health care system.

Repealing all of Obamacare is a good and necessary step–but not one sufficient by itself to achieve the real health reform America needs.  The President was right about one thing: American health care did need reform. But Obamacare did not “reform” American health care, so much as it took a dysfunctional system and made it dramatically worse.

Rather than focusing on the liberal shibboleth of “universal coverage”—forcing individuals to buy a plan under pain of taxation, and raising health spending through new mandates and taxes—the American health system should be focused on containing the rising tide of health costs.  To quote none other than Barack Obama: “I believe the problem is not that folks are trying to avoid getting health care.  The problem is they can’t afford it.”

True reform would also preserve what Americans like about their health care—its high quality, its innovation, the relationship of patients and doctors–while changing what they don’t.  Giving more control to the states, controlling and slowing the growth in health costs, protecting the most vulnerable in our society, and enhancing portability and choice are the keys to achieving real reform that will improve America’s health care system, and Americans’ health.

Principle #1: Lowering Health Costs

Tax Equity:  Giving all individuals the same standard deduction for health insurance, regardless of whether they obtain that health insurance from an employer or on their own, will remedy a major inequity in the tax code.  Moreover, linking the growth in the deduction to price inflation (after an appropriate phase-in) would give medical providers and insurers an incentive to become more efficient, slowing the growth of rising costs.

State Health Insurance Program:  While Congress does have a role to play in reforming health care, the states have often led the way by introducing new and exciting reforms.  Providing states with a grant pool of over $100 billion over ten years, along with a few simple restrictions—notably, guaranteed access for individuals with pre-existing conditions, coupled with reductions in health insurance premiums that make coverage more affordable—would give states both the flexibility and resources to innovate.  States could use these funds to subsidize insurance coverage for low-income individuals who would not receive tax savings from a health insurance deduction, and individuals with pre-existing conditions.

Health Savings Accounts:  Additional incentives associated with health savings accounts—allowing individuals to use HSA funds to pay health insurance premiums, and allowing for additional flexibility in benefit design—would further increase participation in this innovative insurance model, and enhance its ability to contain the growth of health costs.

Greater Incentives for Wellness:  Providing insurers and employers with additional flexibility to offer incentives for healthy behaviors—and the ability to provide those incentives on a tax-free basis—would accelerate efforts at changing behaviors in a way that can slow health cost growth.

Crack Down on Fraud:  Our current record deficits and debt highlight the need to spend taxpayer resources wisely.  Reforms should move away from the existing “pay and chase” model, while targeting those who profit from or traffic in personal health information.

Price and Quality Transparency:  Health care remains one of the few industries where consumers struggle to find information on price and quality.  Online posting of price and quality data can empower patients with trusted information and provide providers a greater incentive to improve their quality practices.

Principle #2: Protect the Most Vulnerable

Guaranteed Access for Pre-Existing Conditions:  As a condition of participation in the new $100 billion innovation pool, states will be required to guarantee access for individuals with pre-existing conditions—through a high-risk pool, reinsurance, or some other method ensuring those with chronic conditions can obtain needed care.

Premium Support:  A bipartisan concept since its introduction nearly two decades ago, premium support can provide seniors with more health insurance choices, while making Medicare more financially solvent and sustainable for future generations.

Medicaid Reforms:  While some states have already implemented innovative reforms to their Medicaid programs, the federal government can and should do more to assist their efforts.  Specifically, Washington should empower Medicaid reform through a global grant program, which gives states additional flexibility to design solutions that meet their needs, in exchange for a fixed funding allotment from the federal government and accountability standards.

Pro-Life Protections:  Unlike Obamacare—which sees federal funds flowing to plans that cover abortion—true reform would make permanent in law the pro-life protections enacted by Congress annually since 1976, as well as strengthening conscience protections for businesses and medical providers.

Principle #3: Portability and Choice

State Reforms to Expand Access:  By reforming laws that govern medical licensure and construction of new medical facilities, states can dramatically increase the supply of medical providers—including new options that could lower health care costs.

Better Access for Individuals Changing Employers:  Individuals leaving their employers should not be required to exhaust COBRA continuation coverage before gaining access to the individual health insurance market.  Removing this requirement would alleviate a costly mandate on businesses, and ease the transition into individual health coverage for those changing jobs.

Pooling Mechanisms:  Allowing small businesses, fraternal organizations, civic groups, alumni associations, and other similar organizations to band together and offer health insurance to their members will provide new options for individuals to purchase coverage that goes with them from job to job.

Cross-State Insurance Purchasing:  Empowering individuals to purchase health insurance across state lines—a power most currently do not have—would allow Americans to buy the customized plan that best meets their needs.

Lawsuit Reform:  Enacting common-sense tort reforms to crack down on frivolous lawsuits—some of which have successfully been implemented in Texas and other states—would expand patient access and lower costs by reducing the incidence of defensive medicine practices among physicians.

Freedom for Seniors to Choose:  Enhancing choice and competition involves eliminating the arbitrary restrictions on seniors’ choice of medical providers imposed by bureaucratic mandates.  Congress should restore the doctor-patient relationship by repealing these onerous requirements.

After Repeal of Obamacare: Moving to Patient-Centered, Market-Based Health Care

A PDF of this Backgrounder is available on the Heritage Foundation website.

For a better life, Americans need a health care system that they, not the government, control. Consumers should have the ability to choose how to meet their health insurance needs in a free market for insurance. Taxpayers should benefit from a more efficient and affordable system for helping those who need health care but cannot afford it. Above all, patients, with their doctors, should make their own health care decisions free from government interference.

The important first step is to repeal the Obamacare statute that puts the government in charge of health care. The second step is to let the country move to a patient-centered, market-based system that focuses on citizens and not on the government.

Principles for Reform

To allow Americans to reclaim control of their own health care and benefit from competition in a free market for insurance and health care, Congress should repeal the Obamacare statute and enact patient-centered, market-based reforms based on five principles:

  • Choose, control, and carry your own health insurance;
  • Let free markets provide the insurance and health care services that people want;
  • Encourage employers to provide a portable health insurance benefit to employees;
  • Assist those who need help through civil society, the free market, and the states; and
  • Protect the right of conscience and unborn children.

The Patient Protection and Affordable Care Act (Obamacare) moves health care in the wrong direction. It puts government, not patients, in charge of individual health care decisions. Moreover, it fails to meet the promises laid out by President Barack Obama. With each passing day, it becomes clearer that Obamacare will not reduce premiums for average American families, bend the cost curve in health care spending, or bring down the deficit. For these reasons, among others, Obamacare must be repealed.

However, a return to the status quo before Obamacare is not the final step. Policymakers should pursue reforms based on five basic principles. Adopting such reforms would move American health care in the right direction: toward a patient-centered, market-based health care system.

Principle #1: Choose, control, and carry your own health insurance.

True health reform should promote personal ownership of health insurance. While Obamacare uses government-run insurance exchanges to limit individual choice, real reforms would focus on encouraging Americans to purchase insurance policies that they can take with them from job to job and into retirement in a competitive, free market. Policymakers should enact several key changes for this culture of personal health care ownership to take root.

Portability. Most Americans obtain coverage through their place of work. This allows employers to provide tax-free health benefits to their employees, while individuals purchasing health insurance on their own must use after-tax dollars. As a result, most individuals with private health insurance obtain that coverage from their employer.[1]

Rather than following Obamacare’s example of forcing Americans into government-run health insurance exchanges, true patient-centered reform of health care would make insurance more portable. Individuals should be able to purchase an insurance policy when they are young and carry that policy with them throughout their working lives into retirement.

Equal Tax Relief. While Obamacare alters the tax treatment of health insurance, it does so in a way that increases burdens on taxpayers. Its 40 percent tax on so-called Cadillac health insurance plans is but one of 18 separate tax increases included in the law,[2] which, according to the Congressional Budget Office and the Joint Committee on Taxation, will raise $771 billion in revenue from 2013 to 2022.[3]

A better approach would equalize the tax treatment of health insurance without raising new revenues. The Heritage Foundation has previously proposed replacing the existing deduction for employer-provided health coverage with a flat tax credit that individuals could use to purchase a health insurance policy of their own.[4] Another idea, first proposed by then-President George W. Bush, would give all Americans purchasing health coverage—whether through an employer or on their own—the same standard deduction for health insurance.[5] Both proposals assume revenue neutrality over 10 years. Unlike Obamacare, they do not propose using reform to increase net tax revenues.

Both of these proposals would accomplish two important objectives.

First, they would equalize the tax treatment between health coverage provided through an employer and health coverage purchased by an individual. Providing equal tax treatment would remove a major obstacle that discourages individuals from buying and holding their own health insurance policy for years and taking that coverage from job to job. Tax equity would also encourage firms either to provide direct contributions toward their workers’ health coverage or to increase wages in place of health benefits.

Second, limiting the amount of the tax benefit provided, either with a tax credit or with a standard deduction, would encourage individuals to become smarter purchasers of health insurance coverage. Studies have demonstrated that the current uncapped tax benefit for employer-provided health insurance encourages firms to offer richer health plans and individuals to overconsume health care. According to the Congressional Budget Office, reforming the tax treatment of health insurance “would provide stronger incentives for enrollees to weigh the expected benefits and costs of policies” when buying insurance, thus helping to reduce costs.[6]

Choice of Providers. Through its new system of government control, Obamacare restricts choice and access for many patients. The nonpartisan Medicare actuary concluded that the Medicare reimbursement reductions in Obamacare could make 40 percent of all hospitals unprofitable in the long term, thus restricting beneficiary access to care.[7] Moreover, preliminary reports suggest that Obamacare’s insurance exchanges will feature limited provider networks in an attempt to mitigate premium increases for individuals purchasing exchange coverage.[8]

The most important element of any health care system is the trusted relationship between doctor and patient. Any system of truly patient-centered health care should work to preserve those important bonds and to repair the damage to those bonds caused by Obamacare.

Encouraging Personal Savings. Since their creation in 2004, health savings accounts (HSAs) have become a popular way for millions of families to build savings for needed health care expenses. HSA plans combine a health insurance option featuring a slightly higher deductible—but catastrophic protection in the event of significant medical expenses—with a tax-free savings account. As one of several new consumer-driven health options, HSAs encourage patients to take control of their own health care, providing financial incentives for consumers to serve as wise health care purchasers.

Over the past several years, millions of families have taken advantage of the innovative tools that HSA plans offer. The number of people enrolled in HSA-eligible policies has skyrocketed from 1 million in March 2005 to 15.5 million in January 2013.[9] Numerous studies have also shown that individuals with HSA plans have used tools provided by their health insurer to become more involved with their health care—for example, by using online support tools, inquiring about provider cost and quality, and seeking preventive care.[10] As a result, individuals had saved at least $12.4 billion in their HSAs by the end of 2011.[11]

However, HSA holders still face obstacles to building their personal savings. For instance, under current law, funds contributed to an HSA may not be used to pay for insurance premiums, except under very limited circumstances.[12] Changing this restriction and increasing HSA contribution limits would enhance both personal savings and personal ownership of health insurance.

Coverage for Pre-Existing Conditions. The problem of providing access to individuals with pre-existing conditions, while very real, did not necessitate the massive changes in America’s health care system included in Obamacare. In 2011, the Obama Administration suggested that as many as 129 million Americans with pre-existing conditions were “at risk” and “could be denied coverage” without Obamacare’s massive changes in America’s insurance markets.[13]

That claim was wildly untrue. Under prior law, individuals with employer-sponsored coverage (90 percent of the private market) could not be subjected to pre-existing condition exclusions.[14] In fact, prior to Obamacare, the number of individuals with pre-existing conditions who truly could not obtain health coverage was vastly smaller, and the problem existed only in the individual market. It is therefore not surprising that, according to the most recent data, only an estimated 134,708 individuals have enrolled in the supplemental federal high-risk pool program since it was created under Obamacare to cover individuals with pre-existing conditions[15]—still less than the 200,000 individuals originally projected to enroll.[16]

States could use a variety of approaches to provide coverage to individuals who are unable to purchase insurance. For instance, 35 states already operate high-risk pools with a collective current enrollment of 227,000 individuals to ensure access to coverage for individuals with pre-existing conditions.[17] Alternatively, states could establish reinsurance or risk transfer mechanisms under which insurance companies would reimburse each other for the cost of treating individuals with high medical expenses without added funding from state or federal taxpayers. Either approach would be far preferable to the massive amounts of regulation, taxation, and government spending under Obamacare.

Principle #2: Let free markets provide the insurance and health care services that people want.

Many individuals have already learned that, due in part to Obamacare, with its government-run health exchanges, new bureaucracies, and other forms of government control, they will not be able to retain their current health insurance.[18] There is a better way, and it involves providing more choice through market incentives rather than undermining markets through centralized bureaucracy.

Cross-State Purchasing. Currently, state insurance markets suffer from two flaws: Many markets are uncompetitive, with up to 70 percent of metropolitan areas considered “highly concentrated,”[19] and costly benefit mandates raise health insurance premiums. A prior Heritage Foundation analysis found that each benefit mandate raises costs by an average of approximately $0.75 per month.[20] Another study found that states have imposed a total of 2,271 benefit mandates—or approximately 45 per state.[21] Taken together, these two studies suggest that the cumulative effect of these mandates could raise premiums by $20–$40 per month, or hundreds of dollars per year.

Congress can help to mitigate these problems by removing federal barriers to interstate commerce in health insurance products. Individuals should have the ability to purchase insurance products across state lines, choosing the health plan that best meets their needs regardless of the location of its issuer.

Pooling Mechanisms. Another way to improve patient choice and make insurance markets more competitive would involve new purchasing arrangements and pooling mechanisms. Small businesses, individual membership associations, religious groups, and fraternal organizations should be able to sell health insurance policies through new group purchasing arrangements. The federal government’s role should be to remove the barriers to such arrangements.

By extending the benefits of group coverage beyond the place of work, these new purchasing arrangements would also encourage portability of health insurance coverage. These reforms would allow individuals to obtain their health plan from a trusted source—one with which they would be likely to have a longer association than they have with their employer—thereby creating a form of health coverage that Americans could truly own.

Medicare Private Contracting. Seniors could also benefit from patient-centered Medicare reforms, one of which should help to restore the doctor–patient relationship. Congress should eliminate the anti-competitive restrictions that prevent doctors and patients from contracting privately for medical services outside of traditional Medicare.[22] Congress can also restructure the Medicare benefit, modernizing the design of a program that has remained largely unchanged since its creation nearly 50 years ago.[23] These changes would enhance patient choice while preserving the program’s solvency for future generations of Americans.

Medicare Reform. Regrettably, Obamacare imposes many its most harmful effects on senior citizens.[24] According to the Medicare actuary, the Medicare reimbursement reductions in Obamacare will make 15 percent of all hospitals unprofitable within the decade and 40 percent unprofitable by 2050.[25] As a result, seniors may face significant obstacles to obtaining health care in the future.

There is a better way. Specifically, Congress should provide seniors with a generous subsidy to purchase a Medicare plan of their choosing. Seniors who choose a plan costing less than the subsidy would pay less, while seniors who choose a plan costing more than the subsidy would pay the difference in price.[26 ]

Consumer Choice and Competition. As part of its system of government control, Obamacare hinders patients’ ability to choose their own health plan. One survey found that the mandates and requirements in the law mean that more than half of all insurance policies purchased directly by individuals will not qualify as “government-approved” under Obamacare.[27] As a result, many Americans are finding that they will not be able to keep the health plan they have and like[28]—despite President Obama’s repeated promises.[29]

True patient-centered reform would bolster HSAs and other consumer-directed health products—such as health reimbursement arrangements and flexible spending accounts—that have the ability to transform American health care. One study published in the prestigious journal Health Affairs in 2012 found that expanding market penetration of consumer-driven health plans from 13 percent to 50 percent of all employers could reduce health costs by as much as $73.6 billion per year—a reduction in health spending of 9.1 percent.[30]

In other words, expanding consumer choice and competition could reduce health care costs and spending—the opposite of Obamacare, which restricts consumer choice and increases health costs and spending.

Principle #3: Encourage employers to provide a portable health insurance benefit.

Because most Americans traditionally have received health insurance from their employers, many individuals have few, if any, choices when selecting a health plan. According to the broadest survey of employer plans, nearly nine in 10 firms (87 percent) offer only one plan type, and only 2 percent offer three or more plan types.[31] As a result, employees have only a very limited ability to choose the plan that best meets their needs.

Defined Contribution. An ideal solution would convert the traditional system of employer-provided health insurance from a defined benefit model to a defined contribution model. Rather than providing health insurance directly, employers instead would offer cash contributions to their workers, enabling them to buy the plans of their own choosing. Combined with changes in the tax treatment of health insurance and regulatory improvements to enhance portability, moving to a defined contribution model for health insurance would allow workers to buy a health insurance policy in their youth and take that policy with them from job to job into retirement. These changes would also enable workers and families to negotiate contributions from multiple employers rather than having just one employer foot the bill.

Principle #4: Assist those who need help through civil society, the free market, and states.

While some health reforms—such as changing the tax treatment of health insurance and reforming the Medicare program—remain fully within the purview of the federal government, states also play a critical role in enacting reforms that can lower costs, improve access to care, and modernize state Medicaid programs. By serving as the “laboratories of democracy,” states can provide examples for other states—and the federal government—to follow. Because many state-based reforms do not rely on Washington’s involvement or approval, states can move ahead with innovative market-based solutions even as federal bureaucrats attempt to implement Obamacare’s government-centric approach.

State Innovation. If given proper time and space by an all-too-intrusive federal government, states can act on their own to open their insurance markets. A few states have already acted to open their insurance markets. In 2011, Georgia enacted legislation allowing interstate purchasing of health insurance, and Maine passed legislation allowing carriers from other New England states to offer insurance products to its citizens.[32] Just before Obamacare was enacted in 2010, Wyoming acted to permit out-of-state insurers to offer products.[33] While it may take some time before a critical mass of states creates a true interstate market for insurance, these nascent efforts demonstrate the nationwide interest in expanding health insurance choice and competition.

Medicaid Premium Assistance. Among various forms of health coverage, the Medicaid program is known for its poor quality and outcomes for patients. Numerous studies have found that Medicaid patients suffer worse outcomes than other patients suffer.[34] A recent study from Oregon concluded that after two years, patients in Medicaid did not achieve measurable health benefits from their insurance coverage.[35] Even participants—recognizing that many physicians, because of the program’s low reimbursement rates, will not treat Medicaid patients—complain that the program is not “real insurance.”[36]

Obamacare makes Medicaid’s problems worse, consigning millions more Americans to this poor government-run program. True reform would instead subsidize private health insurance for low-income Medicaid beneficiaries. The Heritage Foundation has previously promoted such a solution as part of its comprehensive reform of the Medicaid program.[37] Congress should take steps to encourage states to provide premium assistance. Such programs would promote health care ownership and provide beneficiaries with better access to care than the traditional Medicaid program does.

Medicaid Reforms. Despite the looming presence of Obamacare, states should continue wherever possible to seek opportunities to reform their Medicaid programs, moving toward more personalized care and including strong incentives for personal responsibility. States can also seek additional flexibility from Washington to modernize care; many governors have already made such requests.[38]

Congress also should act to reform and modernize Medicaid. Efforts in this vein would include comprehensive reforms—such as a block grant or per capita spending caps—that trade additional flexibility for states in exchange for a fixed spending allotment from Washington.[39] Other reforms could incentivize and subsidize Medicaid beneficiaries to move to private insurance policies that they can own and keep. All of these reforms would focus on modernizing Medicaid to provide better quality care, reduce costs, and promote personal responsibility and ownership.

Reducing Fraud. Regrettably, many government health programs are riddled with fraud. Some estimates suggest that as much as $60 billion in Medicare spending may involve fraud.[40] Similar problems plague many state Medicaid programs. A 2005 New York Times exposé on Medicaid fraud quoted James Mehmet, a former chief investigator in New York State, as saying that 10 percent of the state’s Medicaid spending constituted outright fraud, with another 20 percent to 30 percent comprising “unnecessary spending that might not be criminal.” Overall, Mehmet estimated that “questionable” Medicaid spending totaled $18 billion in New York State alone.[41]

Congress and the states should do more to crack down on the waste, fraud, and abuse that plague America’s health entitlements. Reforms should end the current “pay and chase” model, under which investigators must attempt to track down fraudulent claims and providers after they have already received reimbursement. Other solutions would enhance penalties for those who engage in fraudulent activity—for instance, buying or selling personal patient information, which is often used to perpetrate fraud schemes. These and other reforms would save taxpayer dollars, helping to preserve Medicare and Medicaid for future generations.

Removing Barriers to Care. With studies indicating that America faces a doctor shortage in future years, policymakers should focus on removing barriers that discourage institutions from assisting those who need health care.[42] Regrettably, America’s litigious culture has resulted in the widespread practice of defensive medicine by doctors and other health practitioners. In response, some states have changed their medical liability laws to discourage frivolous lawsuits, prompting doctors to move to those states to practice medicine. Were other states to adopt such reforms, this would encourage doctors—a majority of whom believe the practice of medicine is in jeopardy[43]—to remain in practice and would encourage students to join the profession.

In addition, reforms that improve the liability system could reduce the prevalence of defensive medicine practices and thereby help to reduce health costs. One government estimate found that reasonable limits on non-economic damages could reduce total health spending by as much as $126 billion per year by reducing the amount of defensive medicine practiced by physicians.[44] More recently, the Congressional Budget Office concluded that enacting comprehensive liability reform would reduce health care spending by tens of billions of dollars per year, reducing the federal budget deficit by tens of billions over the next decade.[45]

To help to eliminate barriers to care and reduce health costs, states should reform their liability systems, capping non-economic damages and taking other steps to reduce the incidence of frivolous lawsuits and ensure proper legal protections for health care providers.[46] However, because liability reform and torts in general are properly a state issue, Congress should not impose liability reforms except where the federal government has a clear, constitutionally based federal interest. Examples might include liability reforms with respect to medical products approved by the federal Food and Drug Administration or when the federal government is a payer of health care services, as it is with Medicare and Medicaid.[47]

Reforming Scope-of-Practice and Certificate of Need. State governments control the licensure of both medical professionals and medical practices. By removing artificial obstacles that restrict the supply of medical providers, states can expand access to health services across populations while unleashing new competition that can work to reduce costs.

States can reform their health care systems by re-examining scope-of-practice laws, which frequently limit the ability of nurse practitioners and other health professionals to care for patients. In 2010, the Institute of Medicine concluded that “state regulations often restrict the ability of nurses to provide care legally” and that policymakers should remove “barriers that limit the ability of nurses to practice to the full extent of their education, training, and competence.”[48] Many states have begun to reform their scope-of-practice laws to allow physician assistants, nurse practitioners, and others to treat more patients even as entrenched interests have fought to preserve their preferential treatment.[49] States should follow the recommendations of the Institute of Medicine in reforming their scope-of-practice laws to allow all medical professionals to practice to the full extent of their training.

A total of 36 states also impose certificate-of-need requirements, which impede the introduction of new hospitals and medical facilities. These laws require organizations seeking to build new medical facilities to obtain a certificate from a state board that the facility is “needed” in a particular area.[50] As with scope-of-practice requirements, reforming or eliminating certificate-of-need restrictions would encourage the development of new medical facilities, expanding access to care and giving patients more choices.

Principle #5: Protect the right of conscience and unborn children.

Government should not compel individuals to undertake actions that violate their deeply held religious beliefs. Regrettably, Obamacare imposes just such a requirement on Americans, forcing many employers to offer, and individuals to purchase, health coverage that violates the core tenets of their faith regarding the protection of life.[51]

Congress should ensure that individuals never again are required to violate their religious beliefs to meet a government diktat.

Rights of Conscience. Congress should protect the rights of consumers, insurers, employers, and medical personnel to refrain from facilitating, participating in, funding, or providing services contrary to their consciences or the tenets of their religious faith. Enacting these protections would prevent Americans from facing the moral dilemma presented by Obamacare, which has forced individuals, employers, and religious organizations to choose between violating the law and violating their faith or consciences.

Permanent Prohibition on Taxpayer-Funded Abortion. Congress should make permanent in law the existing annually enacted prohibitions on the use of federal taxpayer funds to finance abortions or health insurance coverage that includes elective abortions. These protections, enacted as the “Hyde Amendment” every year since 1976, prevent the use of taxpayer dollars to fund elective abortions.[52] After nearly 40 years of renewing these protections on an annual basis, Congress should finally make them permanent in law.

A New Vision for Health Reform

Obamacare moves American health care in the wrong direction. Not only does the law raise health costs rather than lowering them, but it creates new bureaucracies that will erode the doctor–patient relationship.[53] The trillions of dollars in new spending for Obamacare will place a massive fiscal burden on future generations of taxpayers.[54] For these reasons and more, Congress should repeal the law in its entirety.

Once this has been done, policymakers should then advance health reforms that move toward patient-centered, market-based health care. Such reforms would promote personal choice and ownership of health insurance; enable the free market to respond to consumer demands; encourage portability of coverage for workers; help civil society, the free markets, and the states to assist those in need; and protect the rights of faith, conscience, and life.

 

 


[1] According to the most recent census data, 86.2 percent of Americans with private health insurance coverage obtained that coverage through an employer. Carmen DeNavas-Walt, Bernadette D. Proctor, and Jessica C. Smith, Income, Poverty, and Health Insurance Coverage in the United States: 2011, U.S. Census Bureau, September 2012, p. 65, Table C-1, http://www.census.gov/prod/2012pubs/p60-243.pdf (accessed September 20, 2013).

[2] Alyene Senger, “Obamacare’s Impact on Today’s and Tomorrow’s Taxpayers: An Update,” Heritage Foundation Issue Brief No. 4022, August 21, 2013, http://www.heritage.org/research/reports/2013/08/obamacares-impact-on-todays-and-tomorrows-taxpayers-an-update.

[3] Joint Committee on Taxation, “Estimated Revenue Effects of a Proposal to Repeal Certain Tax Provisions Contained in the ‘Affordable Care Act (“ACA”)’,” June 15, 2012, and Congressional Budget Office, “Table 2: CBO’s May 2013 Estimate of the Budgetary Effects of the Insurance Coverage Provisions Contained in the Affordable Care Act,” http://www.cbo.gov/sites/default/files/cbofiles/attachments/44190_EffectsAffordableCareActHealthInsuranceCoverage_2.pdf. The total amount of tax revenue collected from the individual mandate, employer mandate, and 40 percent excise tax on high-cost health plans comes from the CBO’s May 2013 estimate. For all other taxes, the amount of tax revenue totaled comes from the Joint Committee on Taxation’s June 2012 estimation.

[4] Nina Owcharenko, “Saving the American Dream: A Blueprint for Putting Patients First,” Heritage Foundation Issue Brief No. 3628, June 6, 2012, http://www.heritage.org/research/reports/2012/06/saving-the-american-dream-a-blueprint-for-putting-patients-first.

[5] The White House, “Affordable, Accessible, and Flexible Health Coverage,” 2007, http://georgewbush-whitehouse.archives.gov/stateoftheunion/2007/initiatives/healthcare.html (accessed September 20, 2013). Recently, the House Republican Study Committee included a standard deduction in its proposal for health reform. See U.S. House of Representatives, Republican Study Committee, “The American Health Care Reform Act,” September 18, 2013, http://rsc.scalise.house.gov/solutions/rsc-betterway.htm (accessed September 25, 2013).

[6] Congressional Budget Office, Key Issues in Analyzing Major Health Insurance Proposals, December 2008, pp. 84–87, http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/99xx/doc9924/12-18-keyissues.pdf (accessed September 20, 2013).

[7] John D. Shatto and M. Kent Clemens, “Projected Medicare Expenditures Under Illustrative Scenarios with Alternative Payment Updates to Medicare Providers,” Centers for Medicare and Medicaid Services, Office of the Actuary, May 31, 2013, pp. 8–10, http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/Downloads/2013TRAlternativeScenario.pdf (accessed September 20, 2013).

[8] Anna Wilde Mathews, “Many Health Insurers to Limit Choices of Doctors, Hospitals,” The Wall Street Journal, August 15, 2013, http://online.wsj.com/article/SB10001424127887323446404579010800462478682.html (accessed September 20, 2013; subscription required).

[9] America’s Health Insurance Plans, Center for Policy and Research, “January 2013 Census Shows 15.5 Million People Covered by Health Savings Account/High-Deductible Health Plans (HSA/HDHPs),” June 2013, http://www.ahip.org/HSACensus2013PDF/ (accessed September 20, 2013).

[10] America’s Health Insurance Plans, Center for Policy and Research, “Health Savings Accounts and Account-Based Health Plans: Research Highlights,” July 2012, http://www.ahip.org/HSAHighlightsReport072012/ (accessed September 20, 2013).

[11] Devenir, “Health Savings Accounts Surpass $12.4 Billion in 2011,” January 31, 2012, http://www.devenir.com/2012/devenir2011yearendsurvey (accessed September 20, 2013).

[12] For the definition of “qualified medical expenses,” see 26 U.S. Code § 223(d)(2). HSA funds can be used to purchase health insurance only for COBRA continuation health coverage, health insurance purchased during periods of unemployment, Medigap supplemental coverage, or long-term care insurance (within certain limits).

[13] U.S. Department of Health and Human Services, Office of Planning and Evaluation, “At Risk: Pre-Existing Conditions Could Affect 1 in 2 Americans,” November 2011, http://aspe.hhs.gov/health/reports/2012/pre-existing/index.shtml (accessed September 20, 2013).

[14] Edmund Haislmaier, “HHS Report on Obamacare’s Preexisting Conditions Impact: Say What???” The Heritage Foundation, The Foundry, January 19, 2011, http://blog.heritage.org/2011/01/19/hhs-report-on-obamacare’s-preexisting-conditions-impact-say-what/.

[15] Centers for Medicare and Medicaid Services, Center for Consumer Information and Insurance Oversight, “Covering People with Pre-Existing Conditions: Report on the Implementation and Operation of the Pre-Existing Condition Insurance Plan Program,” January 31, 2013, http://www.cms.gov/CCIIO/Resources/Files/Downloads/pcip_annual_report_01312013.pdf (accessed September 24, 2013).

[16] Douglas W. Elmendorf, letter to Senator Mike Enzi (R–WY), June 21, 2010, http://cbo.gov/sites/default/files/cbofiles/ftpdocs/115xx/doc11572/06-21-high-risk_insurance_pools.pdf (accessed September 20, 2013).

[17] National Association of State Comprehensive Health Insurance Plans, “Pool Membership—2011,” September 2012, http://naschip.org/2012/Quick%20Checks/Pool%20Membership%202011.pdf (accessed September 20, 2013).

[18] Chris Jacobs, “Obamacare: Taking Away Americans’ Health Coverage,” The Heritage Foundation, The Foundry, August 6, 2013, http://blog.heritage.org/2013/08/06/obamacare-taking-away-americans-health-coverage/.

[19] Press release, “New AMA Study Finds Anticompetitive Market Conditions Are Common Across Managed Care Plans,” American Medical Association, November 28, 2012, http://www.ama-assn.org/ama/pub/news/news/2012-11-28-study-finds-anticompetitive-market-conditions-common.page (accessed September 20, 2013).

[20] Michael J. New, “The Effect of State Regulations on Health Insurance Premiums: A Revised Analysis,” Heritage Foundation Center for Data Analysis Report No. 06-04, July 25, 2006, p. 5, http://www.heritage.org/research/reports/2006/07/the-effect-of-state-regulations-on-health-insurance-premiums-a-revised-analysis.

[21] Council for Affordable Health Insurance, “Health Insurance Mandates in the States 2012: Executive Summary,” April 9, 2013, http://www.cahi.org/cahi_contents/resources/pdf/Mandatesinthestates2012Execsumm.pdf (accessed September 24, 2013).

[22] Chris Jacobs, “Medicare’s Sustainable Growth Rate: Principles for Reform,” Heritage Foundation Backgrounder No. 2827, July 18, 2013, http://www.heritage.org/research/reports/2013/07/medicares-sustainable-growth-rate-principles-for-reform.

[23] Robert E. Moffit and Rea S. Hederman, Jr., “Medicare Savings: Five Steps to a Down Payment on Medicare Reform,” Heritage Foundation Issue Brief No. 3908, April 11, 2013, http://www.heritage.org/research/reports/2013/04/medicare-savings-5-steps-to-a-downpayment-on-structural-reform.

[24] Alyene Senger, “Obamacare’s Impact on Seniors: An Update,” Heritage Foundation Issue Brief No. 4019, August 20, 2013, http://www.heritage.org/research/reports/2013/08/obamacares-impact-on-seniors-an-update.

[25] Shatto and Clemens, “Projected Medicare Expenditures Under Illustrative Scenarios,” pp. 8–10.

[26] Owcharenko, “Saving the American Dream: A Blueprint for Putting Patients First.”

[27] Jon R. Gabel, Ryan Lore, Roland D. McDevitt, Jeremy D. Pickreign, Heidi Whitmore, Michael Slover, and Ethan Levy-Forsythe, “More Than Half of Individual Health Plans Offer Coverage That Falls Short of What Can Be Sold Through Exchanges as of 2014,” Health Affairs, May 2012, http://content.healthaffairs.org/content/early/2012/05/22/hlthaff.2011.1082 (accessed September 20, 2013; subscription required).

[28] Jacobs, “Obamacare: Taking Away Americans’ Health Coverage.”

[29] For instance, see a 2008 campaign document answering the question “Will I have to change plans?” under the Obama proposal: “No, you will not have to change plans. For those who have insurance now, nothing will change under the Obama plan—except that you will pay less.” Obama for America, “Background Questions and Answers on Health Care Plan,” 2008, http://www.scribd.com/doc/191306/barack-obama-08-healthcare-faq (accessed September 20, 2013).

[30] Amelia M. Haviland, M. Susan Marquis, Roland D. McDevitt, and Neeraj Sood, “Growth of Consumer-Directed Health Plans to One-Half of All Employer-Sponsored Insurance Could Save $57 Billion Annually,” Health Affairs, May 2012, http://content.healthaffairs.org/content/31/5/1009.abstract (accessed September 20, 2013; subscription required).

[31] Kaiser Family Foundation and Health Research and Educational Trust, Employer Health Benefits: 2013 Annual Survey, August 2013, p. 56, Exhibit 4.1, http://kaiserfamilyfoundation.files.wordpress.com/2013/08/8465-employer-health-benefits-20131.pdf (accessed September 23, 2013).

[32] National Council of State Legislatures, “Out-of-State Health Insurance—Allowing the Purchase (State Implementation Report),” updated September 2012, http://www.ncsl.org/issues-research/health/out-of-state-health-insurance-purchases.aspx (accessed September 23, 2013).

[33] Ibid.

[34] For a summary of many of these studies, see Kevin D. Dayaratna, “Studies Show: Medicaid Patients Have Worse Access and Outcomes than the Privately Insured,” Heritage Foundation Backgrounder No. 2740, November 7, 2012, http://www.heritage.org/research/reports/2012/11/studies-show-medicaid-patients-have-worse-access-and-outcomes-than-the-privately-insured. See also Scott Gottlieb, “Medicaid Is Worse Than No Coverage at All,” The Wall Street Journal, March 10, 2011, http://online.wsj.com/article/SB10001424052748704758904576188280858303612.html (accessed September 23, 2013).

[35] Annie Lowrey, “Study Finds Health Care Use Rises with Expanded Medicaid,” The New York Times, May 2, 2013, http://www.nytimes.com/2013/05/02/business/study-finds-health-care-use-rises-with-expanded-medicaid.html (accessed September 23, 2013).

[36] Vanessa Fuhrmans, “Note to Medicaid Patients: The Doctor Won’t See You,” The Wall Street Journal, July 19, 2007, http://online.wsj.com/article/SB118480165648770935.html (accessed September 23, 2013; subscription required).

[37] Nina Owcharenko, “Medicaid Reform: More Than a Block Grant Is Needed,” Heritage Foundation Issue Brief No. 3590, May 4, 2012, http://www.heritage.org/research/reports/2012/05/three-steps-to-medicaid-reform.

[38] Republican Governors Public Policy Committee, Health Care Task Force, “A New Medicaid: A Flexible, Innovative, and Accountable Future,” August 30, 2011, http://www.rga.org/homepage/gop-govs-release-medicaid-reform-report/ (accessed September 23, 2013).

[39] Owcharenko, “Medicaid Reform: More Than a Block Grant Is Needed.”

[40] CBS News, “Medicare Fraud: A $60 Billion Crime,” 60 Minutes, September 5, 2010, http://www.cbsnews.com/8301-18560_162-5414390.html (accessed September 23, 2013).

[41] Clifford Levy and Michael Luo, “New York Medicaid Fraud May Reach into Billions,” The New York Times, July 18, 2005, http://www.nytimes.com/2005/07/18/nyregion/18medicaid.html (accessed September 23, 2013).

[42] Nisha Nathan, “Doctor Shortage Could Cause Health Care Crash,” ABC News, November 13, 2012, http://abcnews.go.com/Health/doctor-shortage-health-care-crash/story?id=17708473 (accessed September 23, 2013).

[43] Deloitte, “Deloitte 2013 Survey of U.S. Physicians: Physician Perspectives About Health Care Reform and the Future of the Medical Profession,” 2013, p. 3, http://www.deloitte.com/assets/Dcom-UnitedStates/Local%20Assets/Documents/us_chs_2013SurveyofUSPhysicians_031813.pdf (accessed September 23, 2013).

[44] U.S. Department of Health and Human Services, Office of the Assistant Secretary for Planning and Evaluation, “Addressing the New Health Care Crisis: Reforming the Medical Litigation System to Improve the Quality of Health Care,” March 2003, p. 16, http://aspe.hhs.gov/daltcp/reports/medliab.pdf (accessed September 23, 2013).

[45] Douglas W. Elmendorf, letter to Senator Orrin Hatch (R–UT), October 9, 2009, http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/106xx/doc10641/10-09-tort_reform.pdf (accessed September 23, 2013).

[46] Randolph W. Pate and Derek Hunter, “Code Blue: The Case for Serious State Medical Liability Reform,” Heritage Foundation Backgrounder No. 1908, January 17, 2006, http://www.heritage.org/research/reports/2006/01/code-blue-the-case-for-serious-state-medical-liability-reform.

[47] Hans von Spakovsky, “Medical Malpractice Reform: States vs. the Federal Government,” The Heritage Foundation, The Foundry, March 19, 2012, http://blog.heritage.org/2012/03/19/medical-malpractice-reform-states-vs-the-federal-government/.

[48] Institute of Medicine, “The Future of Nursing: Focus on Scope of Practice,” Report Brief, October 2010, http://www.iom.edu/~/media/Files/Report%20Files/2010/The-Future-of-Nursing/Nursing%20Scope%20of%20Practice%202010%20Brief.pdf (accessed September 23, 2013).

[49] Melinda Beck, “Battles Erupt over Filling Doctors’ Shoes,” The Wall Street Journal, February 5, 2013, http://online.wsj.com/article/SB10001424127887323644904578271872578661246.html (accessed September 23, 2013), and Melinda Beck, “Nurse Practitioners Seek Right to Treat Patients on Their Own,” The Wall Street Journal, August 15, 2013, http://online.wsj.com/article/SB10001424127887323455104579013193992224008.html (accessed September 23, 2013; subscription required).

[50] National Conference of State Legislatures, “Certificate of Need: State Laws and Programs,” updated March 2012, http://www.ncsl.org/issues-research/health/con-certificate-of-need-state-laws.aspx (accessed September 23, 2013).

[51] The Heritage Foundation “Obamacare Anti-Conscience Mandate: An Assault on the Constitution,” Fact Sheet No. 103, February 17, 2012, http://www.heritage.org/research/factsheets/2012/02/obamacare-anti-conscience-mandate-an-assault-on-the-constitution.

[52] Chuck Donovan, “Obamacare: Impact on Taxpayer Funding of Abortion,” Heritage Foundation WebMemo No. 2872, April 19, 2010, http://www.heritage.org/research/reports/2010/04/obamacare-impact-on-taxpayer-funding-of-abortion.

[53] Alyene Senger, “Obamacare’s Impact on Doctors—An Update,” Heritage Foundation Issue Brief No. 4024, August 23, 2013, http://www.heritage.org/research/reports/2013/08/obamacares-impact-on-doctors-an-update.

[54] Alyene Senger, “Obamacare’s Impact on Today’s and Tomorrow’s Taxpayers: An Update,” Heritage Foundation Issue Brief No. 4022, August 21, 2013, http://www.heritage.org/research/reports/2013/08/obamacares-impact-on-todays-and-tomorrows-taxpayers-an-update.

Legislative Bulletin: H.R. 1424, Paul Wellstone Mental Health and Addiction Equity Act

Order of Business:  The bill is reportedly scheduled to be considered on Wednesday, March 5th, subject to a likely structured rule.

Summary:  H.R. 1424 would amend the Internal Revenue Code, the Public Health Service Act, and the Employee Retirement Income Security Act (ERISA) to require equity in the provision of mental health disorder benefits for group health insurance plans that offer both mental health benefits and medical and surgical benefits.  Previously, the Mental Health Parity Act—first enacted in 1996, and extended in subsequent legislation until it lapsed in December 2007—required only that plans choosing to offer both mental health and medical and surgical benefits must have equal annual and lifetime limits on coverage for both types of treatments.  Specific details of the federal mandates in the bill include the following:

Treatment Limits and Beneficiary Financial Requirements:  H.R. 1424 would require group health plans to offer the same financial benefit structure for both mental and physical disorders.  The federal mandate would apply to overall coverage limits on treatment as well as deductibles, out-of-pocket limits, and similar beneficiary financial requirements.

Expansion of Definition:  The bill would expand the definition of “mental health benefits” subject to the federal mandate to include substance abuse and disorder treatments. (See Additional Background section below.)

Minimum Scope of Benefits:  H.R. 1424 would require all group health insurance plans offering mental health benefits to offer coverage for any mental health and substance-related disorder included in the most recent edition of the Diagnostic and Statistical Manual of Mental Disorders.  (See Additional Background section below.)

Out-of-Network Benefits:  The bill would mandate plans that offer out-of-network insurance coverage for medical and surgical benefits to provide out-of-network coverage for mental health benefits, and at the same benefit levels.  This provision exceeds the standards required by the Office of Personnel Management for insurance carriers participating in the Federal Employee Health Benefits Program (FEHBP); plans offered through the federal program need only provide mental health parity with respect to in-network benefit packages.

Increased Cost Exemption:  H.R. 1424 would raise the level at which employers whose health insurance costs rise as a result of implementing mental health parity in benefits may claim an exemption from the federal mandate.  The bill would exempt employers whose costs due to mental health claims rise by more than 2% in the first year of implementation, and by more than 1% in subsequent years.  The more limited version of the Mental Health Parity Act first enacted in 1996 exempted employers whose claim costs rose 1%.  Employers with fewer than 50 workers would be exempt from federal mandates under the legislation.

Federal Pre-emption:  H.R. 1424 would not preclude states from imposing on employers who offer group health insurance coverage more stringent requirements with respect to “consumer protections, benefits, methods of access to benefits, rights, or remedies.”  This provision constitutes a significant variation from past federal policy with respect to employer-provided health insurance dating to ERISA’s enactment in 1974.  (See Additional Background section below.)

Random Federal Audits:  The bill would require the Department of Labor to conduct annual audits of a random sample of group health insurance plans to ensure compliance with the federal mandates included in H.R. 1424.

GAO Study:  The bill would require a study by the Government Accountability Office evaluating the law’s impact on the cost of health insurance coverage, access to mental health care, and related issues.

Medicaid Drug Rebate:  The bill would increase the rebate required of pharmaceutical companies offering single source (i.e. protected under federal patent laws) and innovator multiple source (i.e. formerly protected under federal patent law, but now subject to generic competition) pharmaceuticals in the Medicaid program from at least 15.1% of the Average Manufacturer Price (AMP) to at least 20.1% of the AMP.  The increase would apply for the years 2009 through 2015.  (See Additional Background section below.)

Specialty Hospitals:  H.R. 1424 would impose additional restrictions on so-called specialty hospitals by limiting the “whole hospital” exemption against physician self-referral.  Specifically, the bill would only extend the exemption to facilities with a Medicare reimbursement arrangement in place at the time of the bill’s enactment, and generally prohibit facilities from expanding their total number of operating rooms or beds.  Facilities may be able to expand their number of beds by up to 50%, provided that a) the population within the area has grown at more than double the national average over a five-year period; b) the facility has an above-average rate of Medicaid admissions when compared to the statewide average; c) the facility is located in a state with average bed capacity below the national average; and d) average bed occupancy within the area is at least 80%.  The bill also imposes additional reporting and related requirements regarding the nature of physician ownership arrangements.  (See Additional Background section below.)

Additional Background on ERISA Pre-Emption:  The Employment Retirement Income Security Act (ERISA) has served as the primary federal standard for the regulation of employee benefit plans since its enactment in September 1974 as Public Law 93-406.  One of its key provisions, Section 514 (29 U.S.C. 1144), states that ERISA “shall supersede any and all state laws insofar as they may now or hereafter relate to any employee benefit plan,” except in limited instances.  As Rep. John Dent (D-PA), then-Chairman of the House Labor Subcommittee and sponsor of the bill which became the ERISA statute, noted during debate on the conference report:

I wish to make note of what is to many the crowning achievement of this legislation, the reservation to federal authority the sole power to regulate the field of employee benefit plans.  With the pre-emption of the field, we round out the protection afforded participants by eliminating the threat of conflicting and inconsistent state and local regulation. [Emphasis added.]

The strong pre-emption provisions have been upheld by numerous federal courts since the enactment of ERISA more than 30 years ago.  In 2004, the Supreme Court in the case of Aetna Health Inc. v. Davila (542 U.S. 200) ruled that a Texas state law permitting lawsuits against managed care companies could not be enforced against plans provided by private employers due to ERISA’s pre-emption provisions and remedies already available under federal law.  More recently, the Fourth Circuit Court of Appeals cited ERISA pre-emption as the basis for striking down Maryland’s so-called Wal-Mart bill, which attempted to enact a “pay-or-play” mandate on large employers by requiring them to contribute a percentage of payroll expenses to their employees’ health care.

Over more than three decades, ERISA pre-emption has permitted thousands of employers to offer group health insurance coverage to millions of workers nationwide without the fear of becoming bogged down in complex and conflicting health insurance regulations in the several states.  This system currently provides more than 177 million Americans—more than half the national population—with health insurance coverage, according to Census Bureau data.  If passed, H.R. 1424 would permit states to pass laws with more stringent consumer protections, and could subject group health insurance plans to those state laws, creating the first significant erosion of ERISA pre-emption since its enactment.

Additional Background on Scope of Mental Health Benefits:  H.R. 1424 would incorporate into federal statute the Diagnostic and Statistical Manual of Mental Disorders as the basis for which group health plans offer coverage for mental health conditions.  Specifically, the bill would require plans to cover any mental disorder listed in the most recent edition of the manual, currently in its fourth edition (DSM-IV).

A 1999 executive order signed by President Clinton incorporated DSM-IV into the Federal Employee Health Benefit Program (FEHBP), beginning in January 2001.  However, the Office of Personnel Management requires FEHBP carriers to cover “all categories of…conditions” within DSM-IV, while H.R. 1424 requires overage of “any mental health condition”—a more expansive requirement for plans.  Moreover, plans offering coverage within FEHBP are permitted discretion to require an “authorized treatment plan” based on medical necessity—but are given no discretion to determine necessity under H.R. 1424.  The Office of Personnel Management has estimated that implementation of the executive order increased premium costs by 1.64% for fee-for-service plans participating in FEHBP.

The DSM-IV standards, first published in 1994 and revised slightly in 2000, include a wide variety of classifications for mental disorders, several of which are considered by some in the psychiatric community to have dubious value.  In addition, the number and breadth of declared psycho-sexual disorders included in the DSM have sparked controversy between homosexual activists and traditional values supporters.  Among the more troubling diagnoses incorporated into DSM-IV are:

  • Nightmare disorder;
  • Circadian rhythm sleep disorder (jet lag type);
  • Caffeine-induced sleep disorder;
  • Caffeine intoxication;
  • Substance-induced sexual dysfunction;
  • Gender identity disorder;
  • Transvestic fetishism; and
  • Pedophilia.

Under H.R. 1424, employers offering group coverage would be required to provide benefits related to these and similar diagnoses included in DSM-IV.

The expansive definitions of mental disorders included in DSM-IV have led to charges that psychiatric diagnoses have become politicized.  In response, the American Psychiatric Association, which publishes the DSM guidebook, included the following explanation on its website:

Q:        Aren’t some of the diagnoses included in the DSM there for political reasons?

A:        Decisions to include a diagnosis in the DSM are based on a careful consideration of the research underlying the disorder.  This is not to say that decisions are made without regard to other considerations.  Scientific data cannot be interpreted in a vacuum.  Sociological and other considerations must also be taken into account.   For example, each proposed new diagnosis carries with it the risk of making a false positive diagnosis (i.e., making a diagnosis when no disorder is present).  Since false positives can never be completely eliminated, we must consider instead how to balance the advantages of including the diagnosis in the DSM (e.g., increased detection of a treatable disorder with consequent reduction in morbidity and cost to the patient, his or her family, and to society at large) against the risks of making a false positive diagnosis (e.g., risk of stigmatization, cost and potential morbidity of unnecessary treatment, etc.).  However, the overall driving force in the decision to include or exclude a potential diagnosis from the DSM is the availability of scientific data. [Emphasis added.][1]

The American Psychiatric Association is tentatively scheduled to publish the fifth version of its Diagnostic and Statistical Manual of Mental Disorders (DSM-V) in 2011 or 2012, and any new disorders included in the revised version will be included in the federal mandate under the provisions of H.R. 1424.

Additional Background on Specialty Hospitals:  The past few years have seen the significant growth of so-called specialty hospitals.  These facilities, which generally concentrate on one medical practice area (often cardiac or orthopedic care), are often able to provide higher-quality care than general hospitals due to their focused mission.  Critics of specialty hospitals claim that, by “cherry-picking” the best—and therefore most lucrative—candidates for surgical procedures, they siphon off revenues from general and community hospitals, threatening their future viability.

The ownership arrangements of many specialty hospitals have also been questioned.  While federal law against physician self-referral prohibits doctors from holding an ownership stake in a particular department of a hospital facility, the “whole hospital” exemption permits physicians to hold an ownership stake in an entire facility.  Because many specialty hospitals are physician-owned in whole or in part, some critics believe that physicians owning a stake in a specialty hospital may be inclined to perform additional tests and procedures on patients due to a stronger profit motive.

In July 2007, Section 651 of H.R. 3162, the Children’s Health and Medicare Protection (CHAMP) Act, proposed several modifications to the “whole hospital” exemption for physician self-referral.  Most notably, the bill applied the exemption only to those facilities with Medicare provider agreements in place prior to July 2007—excluding new specialty hospitals or other facilities, including those currently under construction, from protection under the self-referral statute—and prohibited existing facilities from expanding their number of operating rooms or beds.  While the bill passed the House by a 225-204 vote, the Senate has yet to take up the measure.

Amidst spiraling costs and uneven quality, some conservatives may believe that the health sector warrants more competition, not less: new entrants to introduce innovative techniques and practices improving the quality of care; greater transparency of both price and quality information, so patients can make rational choices about the nature of their treatment options; and a funding system that reduces where possible the distortionary effects of third-party payment and empowers consumers to take control of their health.  Viewed from this perspective, opposition to undue and onerous restrictions on the specialty hospitals that have driven innovation within health care may strike many conservatives as a return to first principles.

Additional Background on Medicaid Drug Rebates:  As part of a drug payment policy designed to ensure that Medicaid paid the “best price” available, the Omnibus Budget Reconciliation Act of 1990 included provisions requiring manufacturers of pharmaceuticals desiring to offer their products to Medicaid enrollees to enter into rebate agreements with the Secretary of Health and Human Services (HHS).  As of 2003, over 550 manufacturers have entered into rebate agreements, which apply to all pharmaceuticals separately billed to Medicaid.  In 2005, states reported receiving $11.1 billion in federally required drug rebates, constituting 26% of all outpatient pharmaceutical spending.  In addition, many states have their own additional rebate policies in effect; in 2005, 22 states reported collecting an additional $1.3 billion in supplemental rebates.  However, a 2005 survey by the non-partisan Kaiser Family Foundation reported that nearly half of states surveyed (17 of 37) do not return their rebates to Medicaid, choosing instead to apply rebates to the general fund to finance other state spending.[2]

In determining rebate levels, federal law establishes two classes of pharmaceuticals.  For single source drugs (those still under federal patent protection) and “innovator” multiple source drugs (those formerly marketed under a patent, but where generic competition now exists), rebate amounts are determined by comparing the Average Manufacturer Price (AMP) to the “best price”—the lowest price offered by the manufacturer to any retailer, wholesaler, or other entity.  The basic rebate is equal to either 15.1% of the AMP or difference between the AMP and the “best price,” whichever greater.  Additional rebates for these drugs are required if their price rises faster than inflation, as measured by the consumer price index for urban areas.  For “non-innovator” multiple source (i.e. generic) drugs, rebates are equal to 11% of AMP; “best prices” are not considered, and there are no additional rebates linked to price inflation.

The Deficit Reduction Act of 2005 (DRA) made several changes related to the Medicaid rebate system, particularly with respect to reporting of prices used to compute the pharmaceutical rebates owed.  Specifically, DRA required states to report data regarding certain physician-administered outpatient pharmaceuticals, in an attempt to ensure that rebates for chemotherapy and other drugs administered in physician settings were properly paid.  In addition, the DRA required that, for manufacturers who both produce a brand-name drug and license another manufacturer to produce a generic version, that the manufacturer-reported price include the price of these “authorized generics.”  In its cost estimate for DRA, CBO scored these changes as generating $220 million in additional federal revenues over five years, and $720 million over ten years.

Additional Background on Senate Legislation:  On September 18, 2007, the Senate passed its version of the Mental Health Parity Act.  This legislation, S. 558, sponsored by Sen. Pete Domenici (R-NM), contains significant variations when compared to H.R. 1424.  Specifically, the Senate-passed language:

  • Retains ERISA pre-emption for the large employers (those with more than 50 employees) subject to the law—states would not have the option of enacting more stringent and conflicting laws and regulations;
  • Remains silent on codifying classes of mental disorders—the language does not require group health plans to offer coverage for all disorders under DSM-IV;
  • Does not mandate an out-of-network coverage benefit—plans must offer out-of-network coverage only to the extent they do so for medical and surgical benefits, while the House bill mandates out-of-network coverage for all plans offering mental health benefits; and
  • Permits group health insurance plans to utilize medical management practices, including utilization review, authorization, medical necessity and appropriateness criteria, and use of network providers—the House bill includes no such “safe harbor” for plans.

While some conservatives may still have concerns with the mandates imposed by the Senate legislation and the way in which these mandates would increase health insurance premiums, many segments of the business community have embraced the Senate compromise as a reasonable attempt to achieve the goal of both bills without eroding ERISA pre-emption or imposing undue restrictions on benefit plan design.  Many of those same trade organizations are opposing H.R. 1424, as listed below, as a legislative over-reach that will impede their ability to offer quality coverage through group health insurance plans.

Committee Action:  On March 9, 2007, the bill was introduced and referred to the Energy and Commerce Committee, the Education and Labor Committee, and the Ways and Means Committee.  On July 18, 2007, the Education and Labor Committee reported the bill to the full House by a vote of 33-9.  On September 26, 2007, the Ways and Means Committee reported the bill to the full House by a vote of 27-13.  On October 16, 2007, the Energy and Commerce Committee reported the bill to the full House by a vote of 32-13.

Possible Conservative Concerns:  Numerous aspects of this legislation may raise concerns for conservatives, including, but not necessarily limited to, the following:

  • Increase Health Insurance Costs.  As noted below, CBO estimates that H.R. 1424 would impose mandates on private insurance companies totaling $3 billion annually by 2012.  These costs will ultimately be borne by employers offering health insurance and employees seeking to obtain coverage.  Moreover, by increasing the cost of health insurance, H.R. 1424 will lead directly to an increase in the number of uninsured Americans.
  • Private-Sector Mandates on Small and Large Businesses.  As detailed below, the bill contains multiple new federal mandates on the private sector, affecting the design and structure of health insurance plans.   Among other mandates, the bill would require plan sponsors to provide out-of-network benefits for mental health services if the sponsors provide out-of-network benefits for medical and surgical services, exceeding the standard mandated of insurance carriers participating in the FEHBP.
  • Decrease in Mental Health Coverage.  While the bill imposes several new federal mandates on those employers who choose to offer mental health coverage, there is nothing in H.R. 1424 that would impose a mental health mandate on all group health plans.  Thus H.R. 1424 could have the perverse effect of actually decreasing mental health coverage, by encouraging employers frustrated with the bill’s onerous burdens to drop mental health insurance altogether.
  • Intergovernmental Mandate.  The bill would pre-empt state laws governing mental health coverage that conflict with the bill—but would not pre-empt laws providing more stringent consumer protections for employees.  Additionally, the Congressional Budget Office (CBO) notes that some state and local governments would face increased costs for health insurance provided to their employees.  However, as these higher costs would be in the form of increased insurance premiums borne by government entities, CBO does not consider these higher costs a direct intergovernmental mandate.
  • Violation of UMRA.  CBO estimates that the costs of the mandates to the private sector in the bill would be at least $1.3 billion in 2008, rising to $3 billion in 2012 and thus exceed the annual threshold established in the Unfunded Mandates Reform Act or UMRA ($131 million in FY2007, adjusted annually for inflation).
  • Codification of Treatment Mandate for Health Plans.  H.R. 1424 would incorporate into federal law the DSM-IV classification definitions as the parameter of mental health treatment for health plans.  The broad parameters included in the DSM-IV categories will obligate employers to cover “disorders” such as “jet lag” and “caffeine intoxication.”  The DSM-IV standards incorporated into federal law would also require employers to cover a broad array of sexual “disorders” that many conservatives may find objectionable, as noted above.
  • Lack of Conscience Clause.  H.R. 1424 would subject all employers with over 50 employees—including faith-based organizations—to federal mandates to cover all diagnoses under DSM-IV.  The bill does not include an exemption for faith-based groups to exclude coverage of mental disorders, particularly psycho-sexual disorders, for which they have religious or moral objections.
  • Erode Federal Pre-emption for Employers under ERISA.  While H.R. 1424 does pre-empt state laws that conflict with the bill, it also explicitly permits additional state laws that provide more stringent consumer protections.  This provision could undo a history of strict federal pre-emption dating to ERISA’s enactment in 1974, creating a patchwork of laws across all 50 states with which major employers would have to comply.  Some employers could decide to drop group health insurance coverage altogether rather than face a potentially conflicting array of state mandates and regulations to which they could be subjected under H.R. 1424.
  • Lack of Medical Management Tools.  H.R. 1424 does not include language explicitly permitting group health plans to negotiate separate reimbursement rates or provider payment rates and delivery service systems for different benefits.  These tools would empower plans to utilize medical management practices in order to reduce claim costs.

  • Decreased Access to Pharmaceuticals for Medicaid Patients.  H.R. 1424 increases from 15.1% to 20.1% the minimum rebate amount which certain pharmaceutical manufacturers must pay to offer their drugs to patients within the Medicaid program.  These tightened government price controls may cause some manufacturers to leave the program altogether, resulting in the loss of available prescription drugs for low-income beneficiaries.
  • Restrictions on Specialty Hospitals.  The bill would limit the “whole hospital” exemption under physician self-referral laws, such that any new specialty hospital—including those currently under development or construction—would not be eligible for the self-referral exemption, and any existing specialty hospital would be unable to expand its facilities, except under very limited circumstances.  Given the advances which several specialty hospitals have made in increasing quality of care and decreasing patient infection rates, these additional restrictions may impede the development of new innovations within the health care industry.
  • Budgetary Gimmick.  In order to comply with PAYGO rules, H.R. 1424 would rely upon an increase in the Medicaid rebate for pharmaceuticals lasting from 2009 through 2015.  The fact that the rebate levels are scheduled to increase and then return to current levels suggests that the legislative change proposed has as its primary motive the financing of the costs associated with an expansion of mental health parity.  Some conservatives may believe this temporary increase violates the spirit, if not the letter, of the PAYGO requirement under House rules.

Administration Position:  Although the Statement of Administration Policy (SAP) was not available at press time, reports indicate that the SAP will strongly oppose the legislation; a veto threat is possible but not certain.  In September 2007, Labor Secretary Chao and HHS Secretary Leavitt wrote to the Senate HELP Committee expressing support for the Senate mental health legislation (S. 558), and stating “concern” with the bill introduced in the House (H.R. 1424).

Cost to Taxpayers:  A final score of the substitute bill presented to the Rules Committee was not available at press time.  However, according to a Congressional Budget Office (CBO) score of the bill as marked up before the Ways and Means Committee, H.R. 1424 would cost the federal government nearly $4 billion over ten years.  Direct federal outlays would increase by $820 million through increased Medicaid costs.  In addition, federal revenues would decline by more than $3.1 billion due to increases in the cost of health insurance, as employees with group coverage would exclude more of their income from payroll and income taxes.

The bill proposes to offset the costs outlined above by increasing the rebate rate required of drug manufacturers participating in the Medicaid program with respect to certain classes of pharmaceuticals.  In addition, the bill places additional restrictions on physician-owned specialty hospitals.  In July 2007, CBO scored similar provisions included in H.R. 3162, the Children’s Health and Medicare Protection (CHAMP) Act as saving $3.5 billion over ten years by directing more patients from specialty hospitals and to general hospitals, due to CBO’s belief that such a transition would result in overall savings to Medicare based on lower utilization rates for outpatient services and related reimbursement changes.  However, as noted previously, such savings may not be realized.

Does the Bill Expand the Size and Scope of the Federal Government?:  Yes, the bill would authorize the Department of Labor to conduct random audits of plan to ensure they are in compliance with the bill’s requirements, which according to CBO would require estimated appropriations of $330 million over ten years.

Does the Bill Contain Any New State-Government, Local-Government, or Private-Sector Mandates?:  Yes, the bill would impose significant new mandates on private insurance carriers (and large employers who self-insure their workers) with respect to the structure and design of their benefit packages.  CBO estimates that the direct costs of the private-sector mandates would total $1.3 billion in 2008, rising to $3 billion in 2012, significantly in excess of the annual threshold ($131 million in 2007, adjusted for inflation) established by the Unfunded Mandates Reform Act (UMRA).

In addition, the bill would also impose an intergovernmental mandate as defined by UMRA by pre-empting some state laws in conflict with the bill, but CBO estimates that this mandate would impose no significant costs on state, local, or tribal governments.

However, costs to state, local, and tribal governments would increase under the bill, for two reasons.  First, the CBO cost estimate indicates that state spending for Medicaid would increase by $235 million between 2008-2012.  Second, while state, local, and tribal governments that self-insure their workers would be able to opt-out of H.R. 1424’s federal mandates, some governments that fully insure their workers (i.e. purchase coverage through an insurance carrier, as opposed to paying benefits directly) would see their costs rise under the legislation.  CBO estimates that the bill would increase state, local, and tribal expenditures by $10 million in 2008, rising to $155 million by 2012.  However, because these increased costs result from mandate costs initially borne by the private sector and passed on to the governments while purchasing insurance, CBO did not consider them intergovernmental mandates as such.

Does the Bill Comply with House Rules Regarding Earmarks/Limited Tax Benefits/Limited Tariff Benefits?:  The Education and Labor Committee, in House Report 110-374, Part I, asserts that, “H.R. 1424 does not contain any congressional earmarks, limited tax benefits, or limited tariff benefits as defined in clause 9 of rule XXI.”

Constitutional Authority:  The Education and Labor Committee, in House Report 110-374, Part I, cites constitutional authority in Article I, Section 8, Clauses 1 (the congressional power to provide for the general welfare of the United States) and 3 (the congressional power to regulate interstate commerce). (emphasis added)

Outside Organizations:  The following organizations are opposing H.R. 1424:

  • Aetna;
  • American Association of Physicians and Surgeons;
  • American Benefits Council;
  • America’s Health Insurance Plans;
  • Assurant;
  • Blue Cross Blue Shield Association;
  • CIGNA;
  • Concerned Women of America (*potential key vote);
  • Family Research Council (*potential key vote);
  • National Association of Health Underwriters;
  • National Association of Manufacturers (*key vote);
  • National Association of Wholesaler-Distributors (*key vote);
  • National Business Group on Health;
  • National Restaurant Association;
  • National Retail Federation (*key vote);
  • Retail Industry Leaders Association;
  • Society for Human Resource Management;
  • U.S. Chamber of Commerce (*key vote).

 

 

[1] Available at http://www.dsmivtr.org/2-1faqs.cfm (accessed February 21, 2008).

[2] Kaiser Family Foundation, State Medicaid Outpatient Prescription Drug Policies: Findings from a National Survey, 2005 Update, available online at http://kff.org/medicaid/7381.cfm (accessed March 3, 2008).

Top Ten Conservative Concerns with H.R. 1424, Mental Health Parity Act

  1. Increases Health Insurance Costs. CBO estimates that H.R. 1424 would impose mandates on private insurance companies totaling $3 billion annually by 2012.  These costs will ultimately be borne by employers offering health insurance and employees seeking to obtain coverage.
  2. Increases Costs for Business Due to Private-Sector Mandates. The bill contains multiple new federal mandates on the private sector, affecting the design and structure of health insurance plans.   The bill also increases the threshold level at which employers suffering increased claim costs as a result of implementing the new federal mandates can claim an exemption from the provisions of H.R. 1424.
  3. Decreases Mental Health Coverage. While the bill imposes several new federal mandates on those employers who choose to offer mental health coverage, there is nothing in H.R. 1424 that would require plans to cover these conditions.  Thus H.R. 1424 could have the perverse effect of actually decreasing mental health coverage, by encouraging employers frustrated with the bill’s onerous burdens to drop mental health insurance altogether.
  4. Increases the Number of Uninsured. By increasing the cost of health insurance, H.R. 1424 will lead directly to an increase in the number of uninsured Americans.  In addition, some employers could decide to drop group health insurance coverage altogether rather than face a potentially conflicting array of state mandates and regulations to which they could be subjected under H.R. 1424.
  5. Erodes Federal Pre-emption for Employers. While H.R. 1424 does pre-empt state laws that conflict with the bill, it also explicitly permits additional state laws that provide more stringent consumer protections.  This provision could undo three decades of strict federal pre-emption for group health plans, creating a patchwork of laws across all 50 states with which large employers would have to comply.
  6. Codification of Treatment Mandate for Health Plans. H.R. 1424 would incorporate into federal law the Diagnostic and Statistical Manual of Mental Disorders (DSM-IV) classification definitions as the parameter of mental health treatment for health plans.  The broad parameters included in the DSM-IV categories will obligate employers to cover “disorders” such as “jet lag” and “caffeine intoxication.”
  7. Intergovernmental Mandate. The bill would pre-empt state laws governing mental health coverage that conflict with the bill—but would not pre-empt laws providing more stringent consumer protections for employees.  Additionally, CBO notes that some state and local governments would face increased costs for health insurance provided to their employees.
  8. Violation of UMRA. CBO estimates that the costs of the mandates to the private sector in the bill would be at least $1.3 billion in 2008, rising to $3 billion in 2012 and thus exceed the annual threshold established in the Unfunded Mandates Reform Act or UMRA ($131 million in FY2007, adjusted annually for inflation).
  9. Lack of Conscience Clause. H.R. 1424 would mandate that employers offering mental health benefits cover all diagnoses under DSM-IV.  The bill does not include an exemption for groups to exclude coverage of mental disorders, particularly psycho-sexual disorders, for which they have religious or moral objections.
  10. Lack of Medical Management Tools. H.R. 1424 does not include language permitting group health plans to negotiate separate reimbursement rates or provider payment rates and delivery service systems for different benefits.  These tools would empower plans to utilize medical management practices in order to reduce claim costs.