House Health Care Bills Show Misplaced Priorities

Why would House Republican leadership place the concerns of gym owners over those of pro-lifers? And why would that same leadership embrace a policy suggestion from the liberal group Families USA that could entrench Obamacare while raising premiums for young people?

While the House will consider legislation this week providing tax breaks to individuals who buy gym memberships, the House has yet to consider legislation cutting off tax breaks for abortion this Congress. On the latter front, an expansion of “copper” catastrophic insurance plans would effectively eliminate a regulatory provision that has lowered premiums for young Americans—another misplaced priority that could cause consternation for some conservatives.

What’s Inside Some Health Savings Account Legislation

However, Section 8 of one of the bills would allow for a $500 deduction for gym memberships or instruction, and a $250 deduction for safety equipment, as a qualified medical expense. The amounts would double for joint returns.

While just about everyone supports increasing Americans’ levels of physical activity, the provision seems questionable at best. The tax reform bill enacted not eight months ago attempted to eliminate these kinds of deductions from the tax code, creating a simpler, fairer process. This proposal would turn right around and add more complexity, by requiring the IRS to issue new regulations “to determine…what does not constitute a qualified physical activity, including golf, hunting, sailing, horseback riding, and other similar activities.”

The federal government already tries to do too many things, and has too great a role in Americans’ lives as it is. Do we really need the IRS determining what is, and is not, a “qualified physical activity?”

As for Abortion and HSAs

In fact, some pro-life leaders have opposed provisions that would allow individuals to use HSA dollars to fund insurance premiums, because pro-lifers want to prohibit those funds from being used to pay for abortion coverage (or abortions period). But the House has yet to vote this Congress on limiting abortion as a qualified medical expense.

The pro-life legislation that the House voted on in January 2017, H.R. 7, sponsored by Rep. Chris Smith (R-NJ), prohibited taxpayer dollars from funding abortion in all cases, including Obamacare exchange plans. However, it did not address preferences in the tax code relating to abortion, such as the qualified medical expense deduction.

It seems that the House Ways and Means Committee, which marked up the bills in question, cares more about satisfying lobbyists than responding to their large pro-life constituency. From gym owners to device makers—who have lobbied intently for the Obamacare device tax repeal that the House will also consider this week—the series of health care bills contains myriad provisions, some good and some not-so-good, advocated by business lobbyists. Unfortunately, pro-life advocates have yet to receive similar consideration.

Unintended Consequences of Expanding ‘Copper’ Plans

However, because only certain individuals currently qualify for “copper” plans, insurers can adjust their premiums downward accordingly. Section 1312 of Obamacare contains a single risk pool requirement, meaning that insurers must rate all their products in a given state as a single book of business in determining premium rates. But a rule the Obama administration released in 2013 included a special exception to that provision for “copper” plans. These catastrophic plans may adjust their rates to reflect “the expected impact of the specific eligibility categories.”

In other words, because primarily young individuals enroll in catastrophic plans, insurers can at present lower their premiums to reflect that fact. However, by making everyone eligible for “copper” coverage, the House bill would effectively eliminate this adjustment, thus raising premiums for the 18- to 29-year-old individuals enrolled in the plans.

Effects of the ‘Copper’ Change

Catastrophic plans have not proven particularly popular on the exchange market, with only 1 percent of enrollees purchasing them as of earlier this year. However, that lack of popularity arises because individuals receiving premium subsidies (i.e., most of the people buying coverage directly from the exchange) cannot apply those subsidies to “copper” plans.

Paradoxical as it may sound, expanding these popular plans to all age groups could actually curb their appeal. While a recent eHealth analysis claims that an expansion of “copper” plans could save near-seniors (i.e., those aged 55-64) an average of $4,608 per year, it likely will not do so. eHealth’s analysis compares the current 41 percent differential between “copper” premiums and bronze premiums to arrive at its figure.

However, as noted above, the current “copper” rates assume enrollment primarily by individuals under 30. eHealth’s analysis thus compares rates for a market of individuals aged 18-29 to a market of individuals aged 18-64—which explains the 41-percentage point difference in premiums. But if “copper” plans expand to all ages, that premium differential will narrow—and premiums for the 18-29 population will likely increase.

Single Risk Pool Bolsters Obamacare

More to the point: The “copper” plan provision includes language reinforcing Obamacare’s single risk pool. It also undermines the intent of last year’s Consumer Freedom Amendment, offered in the Senate by Sen. Ted Cruz (R-TX), which would have allowed for the sale of non-compliant plans alongside Obamacare-compliant plans.

The difference on this one provision speaks to a broader philosophical debate. Moderates want to support Obamacare’s exchanges by passing “stability” legislation and expanding subsidies. So does Families USA, which in December 2012 submitted a comment to the Department of Health and Human Services opposing the rate adjustment provision for catastrophic plans, because it could tend to segment the market.

By contrast, conservatives want to offer people lifeboats away from the exchanges—options such as short-term insurance plans, association health plans, and the like. On that front, this week’s legislation does not advance the ball, and expanding “copper” plans could on balance represent a step back.

Thankfully, House leadership did not end up attaching attach an insurer bailout to this week’s HSA bills, after early rumblings in that direction. But the fact that conservatives even need to have these discussions speak to the ways in which many House Republicans want to strengthen Obamacare rather than repealing it.

This post was originally published at The Federalist.

Obamacare: Taking Away Americans’ Health Coverage

In Indianapolis, married couple Rod Coons and Florence Peace are satisfied with their current health insurance coverage:

I’d prefer to stay with our current plan because it meets our needs.

Unfortunately, that’s not possible—because Obamacare’s government bureaucrats are forcing Coons and Peace off their health plan. As Kaiser Health News notes this morning, this couple’s current insurance won’t qualify as “government-approved” coverage under Obamacare, meaning they will have to find different coverage.

Coons knows that his current plan has a $10,000 deductible—and he’s comfortable with that fact. He says, “I’m only really interested in catastrophic coverage” in the event of a medical emergency like a heart attack. But Washington bureaucrats who think they know better will force him to change health insurance plans to meet Obamacare’s mandate to purchase insurance.

Sadly, many Americans find themselves in the same position. Kaiser Health News reports on the widespread outrage one online broker received when telling clients that their insurance does not meet Obamacare’s standards:

When online health insurance vendor ehealthinsurance.com began notifying people in non-grandfathered plans that they would have to change policies next January, they got so many calls that they shut down the planned week-long email campaign after one day. “The people that received the email were not happy at all,” says Carrie McLean, the website’s director of customer care. “They said, ‘What are you talking about? I thought I was already on an [Obamacare] plan.’”

And while Obamacare’s supporters claim the law will reduce costs, the additional mandated benefits included in the new “government-approved” insurance policies will actually raise overall health spending. The Congressional Budget Office concluded that for individuals buying health insurance on their own, the law’s mandates would lead to an “induced increase” in health spending, due to an “increase in enrollees’ use of medical care resulting from lower cost-sharing.” In other words, by increasing subsidies for health care, Obamacare will raise—not lower—both insurance premiums and overall health spending.

Meanwhile, Rod Coons is left to ponder what will happen when he loses his existing health coverage:

I’m happy with where I’m at right now, but it doesn’t look like that’s where I’m going to be at in the future.

Many Americans share his concerns about the future of their health coverage. It’s why Congress should refuse to spend a single dime implementing Obamacare.

This post was originally published at The Daily Signal.

Obamacare Shocker: Premiums Could Double

This morning’s Wall Street Journal published its own analysis of premiums under Obamacare, and its conclusions will prompt shock—rate shock—among those who need to buy health insurance under the law’s new exchanges next year:

Healthy consumers could see insurance rates double or even triple when they look for individual coverage under the federal health law later this year, while the premiums paid by sicker people are set to become more affordable, according to a Wall Street Journal analysis of coverage to be sold on the law’s new exchanges. The exchanges, the centerpiece of President Barack Obama’s health-care law, look likely to offer few if any of the cut-rate policies that healthy people can now buy, according to the Journal’s analysis.

The article goes on to provide specific examples of the kind of premium hikes many Americans may face under Obamacare:

Virginia is one of the eight states examined by the Journal and offers a fairly typical picture. In Richmond, a 40-year-old male nonsmoker logging on to the eHealthInsurance comparison-shopping website today would see a plan that costs $63 a month from Anthem, a unit of WellPoint Inc. That plan has a $5,000 deductible and covers half of medical costs.

By comparison, the least-expensive plan on the exchange for a 40-year-old nonsmoker in Richmond, also from Anthem, will likely cost $193 a month, according to filings submitted by carriers.

Liberals may argue that even though premiums may triple for some Americans, these individuals will be getting “better” insurance. But that’s not what then-Senator Obama promised—he said premiums would go down under his plan by $2,500 per family per year. Moreover, the Congressional Budget Office noted in 2009, well before the law passed, that premiums would go up in part because Obamacare forces individuals to buy more costly health insurance policies:

Average premiums would be 27 percent to 30 percent higher because a greater amount of coverage would be obtained. In particular, the average insurance policy in this market [i.e., on exchanges] would cover a substantially larger share of enrollees’ costs for health care (on average) and a slightly wider range of benefits. Those expansions would reflect both the minimum level of coverage (and related requirements) specified in the proposal and people’s decisions to purchase more extensive coverage in response to the structure of subsidies.

Liberals’ response to the latest analysis of higher premiums is particularly telling. From the WSJ:

Tom Perriello, who voted for the law as a Democratic House member from Virginia and who now works for the left-leaning Center for American Progress, called the costs of premiums “a work in progress” and added, “Over the next few years, we should see that cost curve bend.”

In other words, premiums won’t go down any time soon. That admission from a lawmaker who helped ram Obamacare into law will likely prove cold comfort to millions of Americans facing higher premiums due to the measure next year.

This post was originally published at The Daily Signal.

Health Insurance Connectors and Exchanges

History and Background:  The 2006 Massachusetts health reform act signed into law by Republican Gov. Mitt Romney contained several concepts designed to expand insurance coverage and access.  These ideas included a health insurance “Connector,” which would allow employees at businesses not offering coverage to their workers to purchase insurance on the same tax-free basis as those covered under a group insurance plan.[1]  Because the Connector’s structure ensures that participants would be eligible for the federal tax subsidies provided to employer-sponsored coverage through the use of cafeteria plans (also named Section 125 plans after their location in the Internal Revenue Code), the state-based program provides a “back door” way to equalize the tax treatment of health insurance in the absence of federal legislation to do so.

Public vs. Private:  Although one of the more innovative concepts behind the Massachusetts plan, some conservatives may view the Connector as one of the least necessary.  While the head of a leading organization supporting the Massachusetts plan called the Connector concept “fairly unprecedented in US insurance history” for its ability to allow individuals to comparison shop between and among plans online, the private marketplace has provided that service to consumers for over a decade.[2]  Companies like eHealthInsurance, created in 1998, and Revolution Health have served for years as online insurance clearing-houses, enabling and empowering consumers to compare the features of plans offered in their area and select a plan best meeting their needs.

Given the private marketplace’s willingness to offer services comparable to the Massachusetts Connector, some conservatives may therefore view its creation as a symptom of two larger problems: the inequitable tax treatment of health insurance by the federal government and costly regulations imposed by state governments.  In an attempt to encourage younger individuals to take the step of buying insurance coverage, the Connector does sell streamlined benefit packages to 19-26 year-olds at lower costs—but some conservatives may believe that these individuals, and all Massachusetts residents, would be better served by more comprehensive insurance reform that repeals costly benefit mandates entirely, rather than loosening them only for certain populations under certain conditions.

Likewise, while the Connector concept provides an innovative way to extend current-law tax incentives for the purchase of health insurance to all individuals, some conservatives may be concerned that, should such an idea extend to other states, such a development would have the effect of perpetuating a system that depresses cash wages, encourages over-consumption of care, and results in hundreds of billions of dollars of tax subsidies annually—more than $168 billion in FY09, and more than $1.05 trillion over the next five years.[3]  Were the tax subsidies reformed, and the state benefit mandates streamlined, pre-empted, or eliminated, some conservatives may believe that the need for a government-run bureaucratic entity such as the Connector to administer health insurance plans would be minimized.

Legal Issues:  Although the Connector received significant attention from both the press and policy-makers at the time the Massachusetts plan was unveiled, some within the insurance community have raised potential concerns about the implications of super-imposing the Connector purchasing model on the existing legal framework for health insurance.  The National Association of Health Underwriters has released a paper raising several questions about the ramifications of Connector-based coverage, including whether Connector-purchased policies meets the current definition of group health insurance under applicable federal laws.

It is also possible that state-based health insurance Connectors, whether in Massachusetts or other states, could have provisions interfering with language in the Employee Retirement Income Security Act of 1974 (ERISA) pre-empting “any and all state laws insofar as they may now or hereafter relate to any employee health benefit plan.”[4]  Given the potential legal scrutiny, as well as the implications for individuals who may need to transfer their Connector-based coverage to another state or employer, some conservatives may urge caution with any state efforts to enact other versions of Massachusetts’ creation.

Connector vs. Regulator:  The relative novelty of the Connector concept has resulted in several attempts in the two years since the Massachusetts plan was first adopted to capitalize upon its perceived success by creating similar sounding models in other states and venues.  However, these models often vary widely in their structure and approach, with the major differences lying in the extent to which the Connector or Exchange represents an attempt by a bureaucratic entity to use its collective purchasing power to regulate or otherwise influence private insurance markets.

Sen. Barack Obama’s health care plan would establish a National Health Insurance Exchange, to allow individuals who do not wish to purchase coverage through his proposed new public health insurance program a choice of privately-run plans from which to buy a policy.  However, the language of his proposal makes clear that the Exchange would perform a highly active role as both a facilitator of coverage and a regulator of those plans participating in it:

The Exchange will act as a watchdog and help reform the private insurance market by creating rules and standards for participating insurance plans to ensure fairness and to make individual coverage more affordable and accessible….Insurers would have to issue every applicant a policy, and charge fair and stable premiums that will not depend upon health status.  The Exchange will require that all the plans offered are at least as generous as the new public plan and meet the same standards for quality and efficiency.  Insurers would be required to justify an above-average premium increase to the Exchange.  The Exchange would evaluate plans and make the differences among the plans, including the cost of services, transparent.[5]

The clear language of the Obama plan may give some conservatives pause that a purported health insurance “Exchange” will in fact serve more as a regulator than a mere facilitator for the purchase of insurance policies, imposing additional mandates and controls on carriers that will stifle the innovation of new insurance products and raise the cost of coverage.  Some conservatives may also be concerned that the Obama plan could in time turn into a government-run monopsony, where the Exchange as the largest and/or sole purchaser of health insurance would use its power to dominate the insurance marketplace, imposing arbitrary and damaging price controls on plans as a precondition to their participation in a venue where many Americans would seek to purchase coverage.

By contrast, several Republican Senators produced legislation (S. 1886) last year with language ensuring that state-based Connectors serve only as a purchasing tool and not as a blunt instrument to allow the federal government to intervene in health insurance markets.  The legislation provides that the health insurance tax credits created under the bill would be refundable (i.e. extended to those individuals with tax liability less than or equal to the amount of the credit) only in the case of policies purchased through a state-based Exchange.  Title II of the legislation establishes strict parameters on the actions that an Exchange may take with respect to insurance policies offered through it, prohibiting the Exchange from setting prices, imposing additional benefit mandates or guidelines, or restricting participation for any state-licensed plan.  The legislation also provides the opportunity for health insurance plans or other third parties to contract with states to organize the exchange, rather than forcing states to spend additional taxpayer resources to create something readily available in the private marketplace, as occurred in Massachusetts.

Conclusion:  Although a significant element of the Massachusetts reform law, some conservatives may believe that the Connector’s creation achieved little in practice that the private marketplace was not already working to develop—namely, an easy method for individuals to find, compare, and purchase health insurance plans.  While the tax advantages of purchases made through the Connector (as opposed to on the individual market) cannot be denied, the advisability of using the Connector as anything more than a stopgap solution until Congress debates and passes fundamental tax reform—including reform of the inequities of the tax treatment of health insurance—may be questioned.  Moreover, Internal Revenue Service guidance released last August found that individual health insurance policies purchased through tax-free Section 125 cafeteria plans established by employers need not be acquired solely by means of a Connector mechanism to receive favorable tax treatment, raising additional questions as to whether an additional state-based bureaucracy for the purchase of health insurance is necessary or desirable.[6]

To the extent that Connector-like mechanisms provide additional information and transparency to potential purchasers of health insurance, some conservatives may support these efforts as one way to replicate the information and advice which individuals may previously have received solely from employers.  However, to the extent state or federal lawmakers seek to utilize the Connector concept in an attempt for government to dominate the private insurance marketplace, many conservatives may oppose these efforts as antithetical to the principles of freedom and likely unworkable in practice.

 

[1] While the Massachusetts Connector also offers access to state-subsidized Commonwealth Care plans for low-income individuals, references to “Connectors” in this paper speak solely to mechanisms that facilitate the purchase of unsubsidized insurance from the private marketplace.

[2] Statement of John McDonough, Executive Director, Health Care for All, Alliance for Health Reform briefing on “Massachusetts Health Reform: Bragging Rights and Growing Pains,” (Washington, DC, May 19, 2008), available online at http://www.allhealth.org/briefingmaterials/Transcript-1219.pdf (accessed July 1, 2008), p. 9.

[3] Table 19-1, Estimates of Total Income Tax Expenditures, Analytical Perspectives, Budget of the United States Government, Fiscal Year 2009, available online at http://www.whitehouse.gov/omb/budget/fy2009/pdf/spec.pdf (accessed July 1, 2008), p. 302.

[4] 29 U.S.C. §1144a.

[5] “Barack Obama’s Plan for a Healthy America,” available online at http://www.barackobama.com/issues/pdf/HealthCareFullPlan.pdf (accessed July 1, 2008), p. 4.

[6] Internal Revenue Service Notice of Proposed Rulemaking issued August 6, 2007 and available online at http://edocket.access.gpo.gov/2007/pdf/E7-14827.pdf (accessed July 1, 2008).  Language relating to reimbursement of individual health insurance premiums is in proposed 26 CFR §1.125-7(m) at pp. 43952-53.

Health Savings Account Plan Enrollment

This week, the Government Accountability Office (GAO) released a study requested by Reps. Henry Waxman and Pete Stark with additional data on take-up and enrollment in Health Savings Accounts (HSAs).  In addition, America’s Health Insurance Plans (AHIP) released a new report reflecting enrollment in HSAs as of January 2008.  In response to these two reports, the RSC has prepared the following document rebutting criticisms propounded by the Democrats who requested the GAO study, and summarizing the news released by AHIP about HSAs’ growing popularity.

Democrat Criticisms Based on GAO Report

Criticism:  Because contributions to HSAs are significantly exceeding withdrawals from the accounts, Health Savings Accounts can therefore be considered a “tax shelter.”

Response:

  • The GAO report found that in 2005, tax filers contributed $754 million to HSAs, while withdrawing $366 million, or about half the total contribution figure, to pay various expenses.
  • The point of HSAs is to allow individuals to save money tax-free for health care expenses. Therefore, many conservatives would view the net $388 million in savings as positive news—because that money is being saved to pay for long-term and catastrophic health care expenses, rather than being used on high-cost, first-dollar insurance coverage with benefits that individuals may never use.
  • GAO also cited various employer surveys noting that employers are placing $600-800 annually in their workers’ HSAs to pay for health expenses.
  • Some conservatives may believe that, had total withdrawals nearly equaled total contributions, Democrats would instead be objecting that individuals are not saving enough funds in their HSAs to cover unexpected health expenses under a high-deductible health insurance plan.

Criticism:  Because HSA account holders reported higher incomes than other tax filers, HSAs are being used primarily by wealthy individuals and families.

Response:

  • The data in the GAO study leading to this conclusion reflect information from tax year 2005—when there were just over one million covered lives in HSAs.
  • Since the point in time captured by GAO, Health Savings Accounts have grown nearly six-fold, and now encompass more than six million covered lives.
  • The small sample size available in 2005 may have incorporated a disproportionate number of holders of Medical Savings Accounts (MSAs), who converted their accounts into HSAs upon their creation in early 2004. Because MSAs were only available to self-employed individuals and small business owners—who would have higher incomes than the general population—it is perhaps unsurprising that the incomes of these “early adopters” would be higher than all tax filers.
  • However, eHealthInsurance, an online broker of health insurance policies nationwide, has released a report based on its sales of HSA policies in 2005, which found that 45% of HSA-eligible plan purchasers earned less than $50,000 annually—and 41% of HSA purchasers had not previously had health insurance coverage in the prior six months.
  • Because the data on “all tax filers” included both Medicare and Medicaid recipients—many of whom have significantly lower incomes than the average tax filer, and none of whom are eligible to make HSA contributions—the GAO report did not provide an “apples-to-apples” comparison of the incomes of those individuals who purchase HSAs and those who choose other forms of private insurance.
  • The GAO report did not provide context on the relative incomes for individuals who use other tax-favored accounts, such as those for college savings. Without that contextual data, it is difficult to determine whether and how HSAs are being improperly used when compared to similar tax-favored savings vehicles.

Criticism:  Many individuals who take out HSA-eligible plans are never opening Health Savings Accounts—leaving them vulnerable to high expenses in the event of a health care emergency.

Response:

  • The GAO study quoted various studies stating that 42-49% of HSA-eligible plan enrollees had not opened an HSA.
  • However, the study confuses the difference between covered lives in an HSA-eligible plan and the number of accounts opened. For many reasons, the two numbers will never be equal, or even nearly equal—dependent children covered on their parents’ HSA-eligible plan cannot open their own account, and some spouses may choose to operate a shared account rather than two distinct ones.

Growth of Health Savings Accounts

Both the GAO study and the report released by AHIP this week confirm that Health Savings Accounts have appreciably grown in popularity since their introduction in 2004.  Relevant points include the following:

  • The number of HSA covered lives has grown from 438,000 in September 2004 to more than 4.5 million in January 2007—and 6.1 million in January 2008.
  • The growth in enrollment from January 2007 to January 2008 represents a 35% increase in the number of HSA covered lives in a single year.
  • Of the nearly 1.6 million newly covered lives, almost half were in the small group market—a particularly compelling statistic, given the difficulties many small businesses have in offering health insurance to their employees.
  • States such as Louisiana and Minnesota, along with the District of Columbia, are seeing HSA-eligible policies approaching 10% of all enrollment in private health insurance.
  • HSAs provide quality health insurance above the high deductible—the average lifetime maximum benefit exceeds $3 million for many policies, and anywhere from one-fifth to one-third of policies have unlimited lifetime maximum benefits.
  • The average HSA account balance is $1,382—significant savings that can be used to pay for health expenses.

Conclusion:  Despite the comments released by the Democrats who requested the GAO study, many conservatives will be pleased by much of the data in the report.  The study demonstrates that individuals and families are compiling real savings in their Health Savings Accounts—money that may otherwise have been sent to an insurance company to pay higher premiums for benefits that they may never have used.  Instead, consumers are creating savings to pay for catastrophic health care expenses, and becoming wiser shoppers when purchasing incidental medical goods and services, which will help to slow the growth of health care spending.

The dramatic and continued increase in HSA adoption over the past four years demonstrates the resonance which this new concept has had on individuals and families alike.  The significant growth in HSA adoption among small businesses—where many of the “working uninsured” are employed—and the contributions made to HSAs by a strong percentage of employers indicate their widespread popularity as a means for businesses to control the growth of health care spending while empowering their workers to make better health decisions.  For these reasons, many conservatives will continue to support actions that allow HSAs to grow and thrive, while opposing actions by Democrats—either through legislative fiat or unnecessary regulatory burdens—to undo this critical health care innovation.