Why Do Louisiana Republicans Want to Replace Obamacare with Obamacare?

For the latest evidence that bipartisanship occurs in politics when conservatives agree to rubber-stamp liberal policies, look no further than Louisiana. Last week, that state’s senate passed a health-care bill by a unanimous 38-0 margin.

The bill provides that, if a court of competent jurisdiction strikes down all of Obamacare, Louisiana would replace that law with something that…looks an awful lot like Obamacare. Granted, most remain skeptical that the Supreme Court will strike down all (or even most) of Obamacare, not least because the five justices who upheld its individual mandate in 2012 all remain on the bench. Notwithstanding that fact, however, the Louisiana move would codify bad policies on the state level.

If a federal court strikes down the health-care law, the bill would re-codify virtually all of Obamacare’s major insurance regulations on the state level in Louisiana, including:

  • A prohibition on pre-existing condition exclusions;
  • Limits on rates that insurers can charge;
  • Coverage of essential health benefits “that is substantially similar to that of the essential health benefits required for a health plan subject to the federal Patient Protection and Affordable Care Act as of January 1, 2019,” including the ten categories spelled out both in the text of Obamacare and of the Louisiana bill;
  • “Annual limitations on cost sharing and deductibles that are substantially similar to the limitations for health plans subject to the federal Patient Protection and Affordable Care Act as of January 1, 2019”;
  • “Levels of coverage that are substantially similar to the levels of coverage required for health plans subject to the federal Patient Protection and Affordable Care Act as of January 1, 2019”;
  • A prohibition on annual and lifetime limits; and
  • A requirement for coverage of “dependent” children younger than age 26.

The Louisiana bill does allow for slightly more flexibility in age rating than Obamacare does. Obamacare permits insurers to charge older individuals no more than three times younger enrollees’ premiums, whereas the Louisiana bill would expand this ratio to 5-to-1. But in every other respect, the bill represents bad or incoherent policy, on several levels.

First, the regulations above caused premiums to more than double from 2013 through 2017, as Obamacare’s main provisions took effect. Reinstating these federal regulations on the state level would continue the current scenario whereby more than 2.5 million people nationwide were priced out of the market for coverage in a single year alone.

Second, the latter half of the Louisiana bill would create a “Guaranteed Benefits Pool,” essentially a high-risk pool for individuals with pre-existing conditions. Given that the bill provides a clear option for individuals with pre-existing conditions, it makes little sense to apply pre-existing condition regulations—what the Heritage Foundation called the prime driver of premium increases under Obamacare—to Louisiana’s entire insurance market. This provision would effectively raise healthy individuals’ premiums for no good policy reason.

Third, the legislation states that the regulations “shall be effective or enforceable only” if a court upholds the Obamacare subsidy regime, “or unless adequate appropriations are timely made by the federal or state government” in a similar amount and manner. Curiously, the bill does not specify who would declare the “adequa[cy]” of such appropriations. But should a court ever strike down most or all of Obamacare, this language provides a clear invitation for Democratic Gov. John Bel Edwards to demand that Louisiana lawmakers raise taxes—again—to fund “adequate appropriations” reinstating the law on the state level.

As on the federal level, conservatives in Louisiana should not fall into the trap of reimposing Obamacare’s failed status quo for pre-existing conditions. Liberal organizations don’t want to admit it, but the American people care most about making coverage affordable. Obamacare’s one-size-fits-all approach undermined that affordability; better solutions should restore that affordability, by implementing a more tailored approach to insurance markets.

Recognizing that they will get attacked on pre-existing conditions regardless of what they do, conservatives should put forward solutions that reduce people’s insurance costs, such as those previously identified in this space. Conservatives do have better ideas than Obamacare’s failed status quo, if only they will have the courage of their convictions to embrace them.

This post was originally published at The Federalist.

Inside the Federal Government’s Health IT Fiasco

Recent surveys of doctors show a sharp rise in frustrated physicians. One study last year analyzed a nearly 10 percentage point increase in burnout from 2011 to 2014, and laid much of the blame for the increase on a single culprit: Electronic health records. Physicians now spend more time staring at computer screens than connecting with patients, and find the drudgery soul-crushing.

What prompted the rise in screen fatigue and physician burnout? Why, government, of course. A recent Fortune magazine expose, titled “Death by 1,000 Clicks,” analyzed the history behind federal involvement in electronic records. The article reveals how electronic health records not only have not met their promise, but have led to numerous unintended and harmful consequences for American’s physicians, and the whole health care market.

Electronic Bridge to Nowhere

The Fortune story details all the ways health information technology doesn’t work:

  • Error-prone and glitch-laden systems;
  • Impromptu work-arounds created by individual physicians and hospitals make it tough to compare systems to each other;
  • An inability for one hospital’s system to interact with another’s—let alone deliver data and records directly to patients; and
  • A morass of information, presented in a non-user-friendly format, that users cannot easily access—potentially increasing errors.

The data behind the EHR debacle illustrate the problem vividly. Physicians spend nearly six hours per day on EHRs, compared to just over five hours of direct time with patients. A study concluding that emergency room physicians average 4,000 mouse clicks per shift, a number that virtually guarantees doctors will make data errors. Thousands of documented medication errors caused by EHRs, and at least one hundred deaths (likely more) from “alert fatigue” caused by electronic systems’ constant warnings.

Other anecdotes prove almost absurdly hysterical. The EHR that presents emergency room physicians 86 separate options to order Tylenol. The parody Twitter account that plays an EHR come to life: “I once saw a doctor make eye contact with a patient. This horror must stop.” The EHR system that warns physicians ordering painkillers for female patients about the dangers of prescribing ibuprofen to women while pregnant—even if the patient is 80 years old.

What caused all this chaos in the American health care market? One doctor explained his theory: “I have an iPhone and a computer and they work the way they’re supposed to work, and then we’re given these incredibly cumbersome and error-prone tools. This is something the government mandated” (emphasis added). Therein lies the problem.

Obama’s ‘Stimulus’ Spending Spree

In June 2011, when talking about infrastructure projects included in the 2009 “stimulus” legislation, President Obama famously admitted that “shovel-ready was not as shovel-ready as we expected.” Electronic health records, another concept included in the “stimulus,” ran into a very similar problem. Farzad Mostashari, who worked on health IT for the Obama administration from 2009-11, admitted to Fortune that creating a useful national records system was “utterly infeasible to get to in a short time frame.”

At the time, however, the Obama administration billeted electronic health records as the “magic bullet” that would practically eliminate medical errors, while also reducing health costs. Every government agency had its own “wish list” of things to include in EHR systems. Mostashari admitted this dynamic led to the typical bureaucratic problem of trying to do too much, too fast: “We had all the right ideas that were discussed and hashed out by the committee, but they were all of the right ideas” (emphasis original).

Meanwhile, records vendors saw dollar signs, and leapt at the business opportunity. As Fortune notes, many systems weren’t ready for prime time, but vendors didn’t focus on solving those types of inconsequential details:

[The] vendor community, then a scrappy $2 billion industry, griped at the litany of requirements but stood to gain so much from the government’s $36 billion injection that it jumped in line. As Rusty Frantz, CEO of EHR vendor NextGen Healthcare, put it: ‘The industry was like, ‘I’ve got this check dangling in front of me, and I have to check these boxes to get there, and so I’m going to do that.’’

The end result: Hospitals and doctors spent billions of dollars—because the government paid them to do so, and threatened to reduce their Medicare and Medicaid payments if they didn’t—to buy records systems that didn’t work well. These providers then became stuck with the systems once they purchased them, because of the systems’ cost, and because providers could not easily switch from one system to another.

David Blumenthal, who served as national coordinator for health IT under Obama, summed up the debacle accurately when he admitted that electronic health records “have not fulfilled their potential. I think few would argue they have.”

Electronic health records therefore provide an illustrative cautionary tale in which a government-imposed scheme spends billions of dollars but fails to live up to its hype, and alienates physicians and providers in the process. When the same thing happens under Democrats’ next proposed big-government health scheme—whether single payer, or some “moderate compromise” that only takes away half of Americans’ existing health coverage—don’t say you weren’t warned.

This post was originally published at The Federalist.

Lowlights of Democrats’ New Single-Payer Bill

Some might think that, having embraced socialism and taking away the health coverage of millions of Americans, the Democratic Party couldn’t move further to the left. Think again.

House Democrats introduced their single-payer bill on Wednesday, and claimed that it’s a “significantly different” bill compared to versions introduced in prior Congresses. It definitely meets that definition—because, believe it or not, it’s gotten significantly worse.

What Remains

Abolition of Medicare—and Most Other Insurance Coverage: As I noted last year, the bill would still eliminate the current Medicare program, by prohibiting Title XVIII of the Social Security Act from paying for any service (Section 901(a)(1)(A)) and liquidating the current Medicare trust funds (Section 701(d)). Likewise, the bill would eliminate the existing insurance coverage of all but the 2.2 million who receive care from the Indian Health Service and the 9.3 million enrolled veterans receiving care from the Veterans Administration.

Taxpayer Funding of Abortion: As before, Section 701(b)(3) of the bill contains provisions prohibiting “any other provision of law…restricting the use of federal funds for any reproductive health service” from applying to the single-payer system. This language would put the single-payer system outside the scope of the Hyde Amendment, thereby permitting taxpayer funding for all abortions.

Lack of Accountability: As with the prior bill, the legislation would give massive amounts of power to bureaucrats within the Department of Health and Human Services (HHS). For instance, the legislation would establish new regional directors of the single-payer system—none of whom would be subject to Senate confirmation.

What Lawmakers Added

More Spending: Section 204 of the new bill federalizes the provision of long-term supports and services as part of the single-payer benefit package. Prior versions of the bill had retained those services as part of the Medicaid program, implemented by states with matching funds from the federal government.

In addition, the revised bill eliminated language in Section 202(b) of the Sanders legislation, which permitted co-payments for prescription drugs to encourage the use of generics. With the co-payments (capped at an annual maximum of $200 in the Sanders bill from last Congress) eliminated, the bill envisions the federal government providing all health services without cost-sharing. This change, coupled with the federalization of long-term supports and services, will result in increased spending—as more people demand “free” health care.

Faster Elimination of Private Coverage: Rather than envisioning a four-year transition to the single-payer system, the revised bill would eliminate all private health insurance within a two-year period. Over and above the myriad philosophical concerns associated with single-payer health care, this accelerated transition period raises obvious questions about whether the new system could get up and running so quickly. After all, Obamacare had an implementation period of nearly four years—yet healthcare.gov failed miserably during its initial launch phase.

In theory, moving away from a fee-for-service method of paying medical providers would eliminate their incentive to perform more procedures—a worthy goal. But in practice, global budgets could also lead to de facto rationing, as hospitals that exceed their budgets might have to stop providing care to patients—just as under-funding within Britain’s National Health Service (NHS) has led to chronic hospital overcrowding.

Compensation Caps: Section 611(b)(5) of the new bill would limit “compensation costs for any employee or any contractor or any subcontractor employee of an institutional provider receiving global budgets,” by applying existing pay restrictions on government contractors to hospitals and facilities in the single-payer program. These restrictions might lead some to wonder whether hospitals could truly be considered independent entities, or merely an arm of the state.

Effective Abolition of For-Profit Medicine: Section 614(a) of the revised bill states that “payments to providers…may not take into account…or be used by a provider for” marketing; “the profit or net revenue of the provider, or increasing the profit or net revenue of the provider;” any type of incentive payment—“including any value-based payment;” and political contributions prohibited by government contractors.

Liberals would argue that eliminating the profit motive will encourage doctors to provide better care, by focusing on patients rather than ways to enrich themselves. But the profit motive also encourages individuals to invest in health care—as opposed to other sectors of the economy—by allowing them to recover a return on their investment.

Effective Elimination of Patents: Section 616(c)(1) of the bill states that “if the manufacturer of a covered pharmaceutical, medical supply, medical technology, or medically necessary assistive equipment refuses to negotiation a reasonable price, the Secretary shall waive or void any government-granted exclusivities with respect to such drug or product,” and shall allow other companies to manufacture the product. By allowing the federal government to march in on a whim and seize a company’s intellectual property, the bill would discourage individuals from investing in such intellectual property in the first place.

“Reasonable” Prices and Rationing: As noted above, Section 616 of the bill requires HHS to determine when the prices of drugs and medical devices are “not reasonable,” by taking into account among other things “the therapeutic value of the drug or product, including cost-effectiveness and comparative effectiveness.” This provision could lead to the federal government denying patients access to drugs deemed too expensive, as occurs currently within Britain’s National Health Service.

This post was originally published at The Federalist.

Did Obamacare Increase the National Death Rate?

Researchers have raised legitimate questions about whether a policy change included in Obamacare actually increased death levels nationwide.

Some may recall that two years ago, liberals engaged in no small amount of hyperbolic rhetoric insisting that repealing Obamacare would kill Americans. They viewed that fact as a virtual certainty, and spent more time arguing over precisely how many individuals would die under the law’s repeal.

About the Readmissions Program

The Obamacare change sparking the policy debate involves the law’s hospital readmissions program. Section 3025(a) of the law required the Department of Health and Human Services to reduce Medicare payments to hospitals with higher-than-average readmission rates. The program began in October 2012, and since October 2014 has reduced payments by 3 percent to hospitals with high readmission rates for three conditions: heart failure, heart attacks, and pneumonia.

The program intended to make hospitals more efficient, and encourage them to treat patients correctly the first time, rather than profiting on poor care by receiving additional payments for “repeat” visitors. However, several data points have called into question the effectiveness of the policy.

First, a recent article in the journal Health Affairs concluded that data proving the readmissions program’s effectiveness “appear to be illusory or overstated.” The study noted that, right before the readmissions program took effect, hospitals could increase the number of diagnoses in claims submitted to Medicare. After controlling for this difference, the Harvard researchers concluded that at least half of the “reduction” in readmissions came due to this change.

By contrast, a December study in the Journal of the American Medical Association found an even darker outcome. The JAMA study, which examined a total of 8.3 million hospitalizations both before and after the readmissions penalties took effect, found that the program “was significantly associated with an increase in 30-day postdischarge mortality after hospitalization for [heart failure] and pneumonia, but not for” heart attacks. This study suggests that, rather than incurring penalties for “excess” readmissions, hospitals instead chose to stop readmitting patients at all—and more patients died as a result.

Is This ‘Alarmist’ Rhetoric?

In a blog post analyzing the debate at the New England Journal of Medicine, former Obama administration budget director Peter Orszag pointed out the two studies arrive at conclusions that are likely mutually contradictory. After all, if the readmissions policy didn’t affect patient outcomes, as the Health Affairs analysis suggests, then it’s hard simultaneously to argue that it also increased patient mortality, as the JAMA paper concludes.

But Orszag also criticizes The New York Times for an “unduly alarmist” op-ed summarizing the JAMA researchers’ results. That article, titled “Did This Health Care Policy Do Harm?” included a subheading noting that “a well-intentioned program created by the Affordable Care Act may have led to patient deaths.”

  • Washington Post: “Repealing the Affordable Care Act Will Kill More than 43,000 People Annually”
  • Chicago Tribune: “Repealing Obamacare Will Kill More than 43,000 People a Year”
  • Vox: “Repealing Obamacare Could Kill More People Each Year than Gun Homicides”

These headlines don’t even take into consideration the comments from people like former Sen. Harry Reid (D-NV), who said, “If you get rid of Obamacare, people are going to die.” Then there were the “analyses” by organizations like the Center for American Progress, helpfully parroted by Sen. Bernie Sanders (I-VT), that said “getting rid of Obamacare is a death sentence.”

Alongside this rhetoric, the supposedly “alarmist” Times article seems tame by comparison. It didn’t use the word “Obamacare” at all, and it couched its conclusions as part of a “complex” and ongoing “debate.” But of course, the contrast between the mild rhetoric regarding hospital readmissions and the sky-is-falling tone surrounding Obamacare repeal has absolutely nothing to do with liberal media bias or anything. Right?

Democrats, the Science Deniers

The Times article concludes by “highlight[ing] a bigger issue: Why are policies that profoundly influence patient care not rigorously studied before widespread rollout?” It’s a good question that Democrats have few answers for.

Liberals like to caricature conservatives as “science deniers,” uninformed troglodytes who can barely stand upright, let alone form coherent policies. But the recent studies regarding Obamacare’s hospital readmissions policy shows that the Obama administration officials who created these policies didn’t have any clue what they were doing—or certainly didn’t know enough to implement a nationwide plan that they knew would work.

Given this implementation failure, and the staggering level of willful ignorance by the technocrats who would micro-manage our health care system, why on earth should we give them even more power, whether through a single-payer system or something very close to it? The very question answers itself.

This post was originally published at The Federalist.

Do House Republicans Support Socialized Medicine?

Health care, and specifically pre-existing conditions, remain in the news. The new Democratic majority in the House of Representatives has lined up two votes — one last week and one this week — authorizing the House to intervene in Texas’ lawsuit against the Affordable Care Act, also known as Obamacare. Speaker Nancy Pelosi, D-Calif., claims that the intervention will “protect” Americans with pre-existing conditions.

In reality, the pre-existing condition provisions represent Obamacare’s major flaw. According to the Heritage Foundation, those provisions have served as the prime driver of premium increases associated with the law. Since the law went into effect, premiums have indeed skyrocketed. Rates for individual health insurance more than doubled from 2013 through 2017, and rose another 30-plus percent last year to boot.

As a result of those skyrocketing premiums, more than 2.5 million people dropped their Obamacare coverage from March 2017 through March 2018. These people now have no coverage if and when they develop a pre-existing condition themselves.

A recent Gallup poll shows that Americans care far more about rising premiums than about being denied coverage for a pre-existing condition. Given the public’s focus on rising health care costs, Republicans should easily rebut Pelosi’s attacks with alternative policies that address the pre-existing condition problem while allowing people relief from skyrocketing insurance rates.

Unfortunately, that’s not what the Republican leadership in the House did. Last Thursday, Rep. Kevin Brady, R-The Woodlands, offered a procedural motion that amounted to a Republican endorsement of Obamacare. Brady’s motion instructed House committees to draft legislation that “guarantees no American citizen can be charged higher premiums or cost sharing as the result of a previous illness or health status, thus ensuring affordable health coverage for those with pre-existing conditions.”

If adopted — which thankfully it was not — this motion would only have entrenched Obamacare further. The pre-existing condition provisions represent the heart of the law, precisely because they have raised premiums so greatly. Those premium increases necessitated the mandates on individuals to buy, and employers to offer, health insurance. They also required the subsidies to make that more-expensive coverage “affordable” — and the tax increases and Medicare reductions needed to fund those subsidies.

More to the point, what would one call a health care proposal that treats everyone equally, and ensures that no one pays more or less than the next person? If this concept sounds like “socialized medicine” to you, you’d have company in thinking so. None other than Kevin Brady denounced Obamacare as “socialized medicine” at an August 2009 town hall at Memorial Hermann Hospital.

All of this raises obvious questions: Why did someone who for years opposed Obamacare as “socialized medicine” offer a proposal that would ratify and entrench that system further?

Republicans like Brady can claim they want to “repeal-and-replace” Obamacare from now until the cows come home, but if they want to retain the status quo on pre-existing conditions then as a practical matter they really want to uphold the law. Conservatives might wonder whether it’s time to “repeal-and-replace” Republicans with actual conservatives.

This post was originally published in the Houston Chronicle.

Exclusive: Inside the Trump Administration’s Debate over Expanding Obamacare

Last August, I responded to a New York Times article indicating that some within the Trump administration wanted to give states additional flexibility to expand Medicaid under Obamacare. Since then, those proposals have advanced, such that staff at the Centers for Medicare and Medicaid Services (CMS) believe that they have official sign-off from the president to put those proposals into place.

My conversations with half a dozen sources on Capitol Hill and across the administration in recent weeks suggest that the proposal continues to move through the regulatory process. However, my sources also described significant policy pitfalls that could spark a buzz-saw of opposition from both the left and the right.

The Times reported that some within the administration—including CMS Administrator Seema Verma and White House Domestic Policy Council Chairman Andrew Bremberg—have embraced the proposal. But if the plan overcomes what the Times characterized as a “furious” internal debate, it may face an even tougher reception outside the White House.

How It Would Work

After the Supreme Court made Medicaid expansion optional for states as part of its 2012 ruling upholding Obamacare’s individual mandate, the Obama administration issued guidance interpreting that ruling. While the court made expansion optional for states, the Obama administration made it an “all-or-nothing” proposition for them.

Under the 2012 guidance—which remains in effect—if states want to receive the enhanced 90 percent federal match associated with expansion, they must cover the entire expansion population—all able-bodied adults with incomes under 138 percent of the federal poverty level (just under $35,000 for a family of four). If states expand only to some portion of the eligible population, they would only receive their regular Medicaid match of 50-76 percent, not the enhanced 90 percent match.

The Internal Debate

The August Times article indicated that, after considering partial expansion, the administration postponed any decision until after November’s midterm elections. Since that time, multiple sources disclosed to me a further meeting that took place on the topic in the Oval Office late last year. While the meeting was originally intended to provide an update for the president, CMS staff left that meeting thinking they had received the president’s sign-off to implement partial expansion.

Just before Christmas, during a meeting on an unrelated matter, a CMS staffer sounded me out on the proposal. The individual said CMS was looking for ways to help give states additional flexibility, particularly states hamstrung by initiatives forcing them to expand Medicaid. However, based on my other reporting, I believe that the conversation also represented an attempt to determine the level of conservative opposition to the public announcement of a decision CMS believes the president has already made.

Why Liberals Will Object

During my meeting, I asked the CMS staffer about the fiscal impacts of partial expansion. The staffer admitted that, as I had noted in my August article, exchange plans generally have higher costs than Medicaid coverage. Therefore, moving individuals from Medicaid to exchange coverage—and the federal government paying 100 percent of subsidy costs for exchange coverage, as opposed to 90 percent of Medicaid costs—will raise federal costs for every beneficiary who shifts coverage under partial expansion.

The Medicare actuary believes that the higher cost-sharing associated with exchange coverage will lead 30 percent of the target population—that is, individuals with incomes from 100-138 percent of poverty—to drop their exchange plan. Either beneficiaries will not be able to afford the premiums and cost-sharing, or they will not consider the coverage worth the money. And because 30 percent of the target population will drop coverage, the partial expansion change will save money in a given state—despite the fact that exchange coverage costs more than Medicaid on a per-beneficiary basis.

Why Conservatives Will Object

I immediately asked the CMS staffer an obvious follow-up question: Did the actuary consider whether partial expansion, by shifting the costs of expansion from the states to the federal government, would encourage more states to expand Medicaid? The staffer demurred, saying the actuary’s analysis focused on only one hypothetical state.

However, the CMS staffer did not tell me the entire story. Subsequent to my “official” meeting with that staffer, other sources privately confirmed that the actuary does believe that roughly 30 percent of the target population will drop coverage.

But these sources and others added that both the Medicare actuary and the Congressional Budget Office (CBO) agree that, notwithstanding the savings from current expansion states—savings associated with individuals dropping exchange coverage, as explained above—the partial expansion proposal will cost the federal government overall, because it will encourage more states to expand Medicaid.

For instance, the Council of Economic Advisers believes that spending on non-expansion states who use partial expansion as a reason to extend Medicaid to the able-bodied will have three times the deficit impact as the savings associated with states shifting from full to partial expansion.

Because the spending on new partial expansion states will overcome any potential savings from states shifting from full to partial expansion, the proposal, if adopted, would appreciably increase the deficit. While neither CBO nor the Medicare actuary have conducted an updated analysis since the election, multiple sources cited an approximate cost to the federal government on the order of $100-120 billion over the next decade.

One source indicated that the Medicare actuary’s analysis early last summer arrived at an overall deficit increase of $111 billion. The results of November’s elections—in which three non-expansion states voted to accept expansion due to ballot initiatives—might have reduced the cost of the administration’s proposal slightly, but likely did not change the estimate of a sizable deficit increase.

A net cost of upwards of $100 billion, notwithstanding potential coverage losses from individuals dropping exchange coverage in current expansion states, can only mean one thing. CBO and the Medicare actuary both believe that, by lowering the cost for states to expand, partial expansion will prompt major non-expansion states—such as Texas, Florida, Georgia, and North Carolina—to accept Obamacare’s Medicaid expansion.

Who Will Support This Proposal?

Based on the description of the scoring dynamic my sources described, partial expansion, if it goes forward, seems to have no natural political constituency. Red-state governors will support it, no doubt, for it allows them to offload much of their state costs associated with Medicaid expansion onto the federal government’s debt-laden dime. Once CMS approves one state’s partial expansion, the agency will likely have a line of Republican governors out its door looking to implement waivers of their own.

But it seems unlikely that Democratic-led states will follow suit. Indeed, the news that partial expansion would cause about 30 percent of the target population to drop their new exchange coverage could well prompt recriminations, investigations, and denunciations from Democrats in Congress and elsewhere. Because at least 3.1 million expansion beneficiaries live in states with Republican governors, liberals likely would object to the sizable number of these enrollees who could decide to drop coverage under partial expansion.

Conversely, conservatives will likely object to the high net cost associated with the proposal, notwithstanding the potential coverage losses in states that have already expanded. Some within the administration view Medicaid expansion, when coupled with proposals like work requirements, as a “conservative” policy. Other administration officials view expansion in all states as something approaching a fait accompli, and view partial expansion and similar proposals as a way to make the best of a bad policy outcome.

But Medicaid expansion by its very nature encourages states to discriminate against the most vulnerable in society, because it gives states a higher match for covering able-bodied adults than individuals with disabilities. In addition to objecting to a way partial expansion would increase government spending by approximately $100 billion, some conservatives would also raise fundamental objections to any policy changes that would encourage states to embrace Obamacare—and add even more able-bodied adults to the welfare rolls in the process.

Particularly given the Democratic takeover of the House last week, the multi-pronged opposition to this plan could prove its undoing. Democrats will have multiple venues available—from oversight through letters and subpoenae, to congressional hearings, to use of the Congressional Review Act to overturn any administration decisions outright—to express their opposition to this proposal.

A “strange bedfellows” coalition of liberals and conservatives outraged over the policy, but for entirely different reasons, could nix it outright. While some officials may not realize it at present, the administration may not only make a decision that conservatives will object to on policy grounds, they may end up in a political quagmire in the process.

This post was originally published at The Federalist.

Ocasio-Cortez Suddenly Realizes She Doesn’t Like Paying Obamacare’s Pre-Existing Condition Tax

On Saturday evening, incoming U.S. representative and self-proclaimed “democratic socialist” Alexandria Ocasio-Cortez took to Twitter to compare her prior health coverage to the new health insurance options available to her as a member of Congress.

It shouldn’t shock most observers to realize that Congress gave itself a better deal than it gave most ordinary citizens. But Ocasio-Cortez’ complaints about the lack of affordability of health insurance demonstrate the way liberals who claim to support Obamacare’s pre-existing condition “protections”—and have forcibly raised others’ premiums to pay for those “protections”—don’t want to pay those higher premiums themselves.

She’s Paying the Pre-Existing Condition Tax

I wrote in August about my own (junk) Obamacare insurance. This year, I have paid nearly $300 monthly—a total of $3,479—for an Obamacare-compliant policy with a $6,200 deductible. Between my premiums and deductible, I will face paying nearly the first $10,000 in medical costs out-of-pocket myself.

Of course, as a fairly healthy 30-something, I don’t have $10,000 in medical costs in most years. In fact, this year I won’t come anywhere near to hitting my $6,200 deductible (presuming I don’t get hit by a bus in the next four weeks).

As I noted in August, my nearly $3,500 premium doesn’t just fund my health care—or, more accurately, the off-chance that I will incur catastrophic expenses such that I will meet my deductible, and my insurance policy will actually subsidize some of my coverage. Rather, much of that $3,500 “is designed to fund someone else’s medical condition. That difference between an actuarially fair premium and the $3,500 premium my insurer charged me amounts to a ‘pre-existing conditions tax.’”

Millions of People Can’t Afford Coverage

Because I work for myself, I don’t get an employer subsidy to pay the pre-existing condition tax. (I can, however, write off my premiums from my federal income taxes.) Ocasio-Cortez’s tweet referred to her coverage “as a waitress,” but didn’t specify where she purchased that coverage, nor whether she received an employer subsidy for that coverage.

However, a majority of retail firms, and the majority of the smallest firms (3-9 workers), do not offer coverage to their workers. Firms are also much less likely (only 22 percent) to offer insurance to their part-time workers. It therefore seems likely, although not certain, that Ocasio-Cortez did not receive an employer subsidy, and purchased Obamacare coverage on her own. In that case she would have had to pay the pre-existing condition tax out of her own pocket.

That pre-existing condition tax represented the largest driver of premium increases due to Obamacare, according to a March paper published by the Heritage Foundation. Just from 2013 (the last year before Obamacare) through 2017, premiums more than doubled. Within the last year (from the first quarter of 2017 through the first quarter of 2018) roughly 2.6 million people who purchased Obamacare-compliant plans without a subsidy dropped their coverage, likely because they cannot afford the higher costs.

Lawmakers Get an (Illegal) Subsidy to Avoid That Tax

Unsurprisingly, however, members of Congress don’t have to pay the pre-existing condition tax on their own. They made sure of that. Following Obamacare’s passage, congressional leaders lobbied feverishly to preserve their subsidized health coverage, even demanding a meeting with the president of the United States to discuss the matter.

Senators and representatives do have to purchase their health insurance from the Obamacare exchanges. But the Office of Personnel Management (OPM) issued a rule allowing members of Congress and their staffs to receive an employer subsidy for that coverage. That makes Congress and their staff the only people who can receive an employer subsidy through the exchange.

Numerous analyses have found that the OPM rule violates the text of Obamacare itself. Sen. Ron Johnson (R-WI) even sued to overturn the rule, but a court dismissed the suit on the grounds that he lacked standing to bring the case.

Liberals’ Motto: ‘Obamacare for Thee—But Not for Me’

Take, for instance, the head of California’s exchange, Peter Lee. He makes a salary of $436,800 per year, yet he won’t buy the health insurance plans he sells. Why? Because he doesn’t want to pay Obamacare’s pre-existing condition tax unless someone (i.e., the state of California) pays him to do so via an employer subsidy.

Ocasio-Cortez’ proposed “solution”—fully taxpayer-paid health care—is in search of a problem. As socialists are wont to do, Ocasio-Cortez sees a problem caused by government—in this case, skyrocketing premiums due to the pre-existing condition tax—and thinks the answer lies in…more government.

As the old saying goes, when you’re in a hole, stop digging. If Ocasio-Cortez really wants to get serious, instead of complaining about the pre-existing condition tax, she should work to repeal it, and replace it with better alternatives.

This post was originally published at The Federalist.

The Sordid History of the FDA’s Menthol Decision

Late last week, The New York Times reported that the Food and Drug Administration (FDA) will issue a regulation proposing a ban on menthol flavoring in cigarettes, potentially this week. This represents merely the latest development in a long and winding history of the mint-flavored additive lasting nearly a decade.

The Times report quoted FDA Commissioner Scott Gottlieb saying “it was a mistake for the agency to back away on menthol” regulation. Depending upon one’s perspective, the “menthol loophole” either represents a reasonable example of legislative compromise, or policymakers in both the legislative and executive branches valuing African-American lives less dearly than the lives of other Americans.

A Troubled Legislative History

Beginning 3 months after the date of enactment of the Family Smoking Prevention and Tobacco Control Act, a cigarette or any of its component parts (including the tobacco, filter, or paper) shall not contain, as a constituent (including a smoke constituent) or additive, an artificial or natural flavor (other than tobacco or menthol) or an herb or spice, including strawberry, grape, orange, clove, cinnamon, pineapple, vanilla, coconut, licorice, cocoa, chocolate, cherry, or coffee, that is a characterizing flavor of the tobacco product or tobacco smoke.

That language created two policy problems. First, as I noted in my summary of the bill at the time, because the bill banned other cigarette flavors manufactured overseas, while permitting menthol-flavored cigarettes manufactured domestically, the law would likely result in World Trade Organization (WTO) complaints for unfair trade practices. Indeed, Indonesia, which manufactures clove cigarettes, filed just such a complaint following the law’s passage—and won its case at the WTO.

The Times alluded to the other complication presented by the “menthol loophole” in its article this week: “According to the N.A.A.C.P.’s Youth Against Menthol campaign, about 85 percent of African-American smokers aged 12 and up smoke menthol cigarettes, compared with 29 percent of white smokers, which the organization calls a result of decades of culturally tailored tobacco company promotion.”

That “decades of culturally tailored tobacco company promotion” also included contributions to organizations like the NAACP and the Congressional Black Caucus Foundation. Industry documents released as part of the 1998 master settlement agreement demonstrated that “the tobacco industry established relationships with virtually every African-American leadership organization”—both to increase tobacco use, and to head off tobacco control efforts.

The FDA Looked the Other Way

Despite the condemnation from the HHS secretaries for its double standards against African-Americans, the bill passed as written in 2009. In an irony of ironies, the first African-American president signed it into law in June that year.

While it did not ban menthol outright, the legislation required a study on its effects, and gave the FDA the authority to ban the additive. Despite occasional rumors that FDA might outlaw menthol—and appeals from the African-American community for a ban—the Obama administration did not take action on the matter.

As a small government conservative, I question the value of establishing and maintaining an FDA bureaucracy to regulate an inherently unhealthful product. I by no means condone the decades of deception the tobacco industry used to sell their products.

This post was originally published at The Federalist.

How an Obscure Regulatory Change Could Transform American Health Insurance

Between the election campaign and incidents of terrorism ranging from attempted bombings to a synagogue shooting, an obscure regulatory proposal by the Trump administration has yet to captivate the public’s attention. However, it has the potential to change the way millions of Americans obtain health insurance.

In the United States, unique among industrialized countries, most Americans under age 65 receive health coverage from their employers. This occurs largely due to an Internal Revenue Service (IRS) ruling issued during World War II, which excluded health insurance coverage from income and payroll taxes. (Businesses viewed providing health insurance as one way around wartime wage and price controls.)

The Trump administration’s proposed rule would, if finalized, allow businesses to make a pretax contribution towards individual health insurance—that is, coverage that individuals own and select, rather than employers. This change may take time to have an impact, but it could lead to a much more portable system of health insurance—which would help to solve the pre-existing condition problem.

How Would It Work?

Under the proposed rule, employers could provide funds through a Health Reimbursement Arrangement (HRA) to subsidize the purchase of individual health insurance. Employers could provide the funds on a pretax basis, and—provided that the workers purchase their coverage outside of the Obamacare exchanges—employees could pay their share of the premiums on a tax-free basis as well.

In practical terms, some employers may choose to provide a subsidy for health coverage—say, $300 per month, or $5,000 per year—in lieu of offering a firm-sponsored health plan. Individuals could go out and buy the plan they want, which covers the doctors whom they use, rather than remaining stuck with the plan their employer offers. And employers would get better predictability for their health expenses by knowing their exposure would remain fixed to the sums they contribute every year.

Could Employers Game the System?

The proposed rule acknowledged the possibility that employers might try to “offload” their costliest patients into individual health coverage, lowering expenses (and therefore premiums) for the people who remain. The rule contains several provisions designed to protect against this possibility.

Employers must choose to offer either an HRA contribution towards individual coverage or a group health plan. They cannot offer both options, and whatever option they select, they must make the same decision for an entire class of workers.

A “class” of workers would mean all full-time employees, or all part-time employees, or all employees under one collective bargaining agreement. Hourly and salaried workers would not count as separate “classes,” because firms could easily convert workers from one form of compensation to another. These provisions seek to ensure that firms will offer some employees health insurance, while “dumping” other employees on to individual coverage.

Can Workers Buy Short-Term Coverage with Employer Funds?

Yes—and no. The proposed rule would allow HRA funds to purchase only individual (i.e., Obamacare-compliant) health insurance coverage, not short-term insurance.

However, the rule creates a separate type of account to which employers could contribute that would fund workers’ “excepted benefits.” This term could include things like long-term care insurance, vision and dental insurance, and the new short-term plans the Trump administration has permitted. But employers could only fund these accounts up to a maximum of $1,800 per year, and they could create these special “excepted benefits” accounts only if they do not offer an HRA that reimburses workers for individual insurance, as outlined above.

Will Firms Drop Health Coverage?

Some firms may explore the HRA option over time. However, the extent to which businesses embrace defined-contribution coverage may depend upon the viability of the individual health insurance market, and the status of the labor market.

However, if and when more insurers return to the marketplace, firms may view the defined-contribution method of health coverage as a win-win: employees get more choices and employers get predictability over health costs. Particularly if unemployment ticks upward, or one firm in an industry makes the move towards the HRA model, other businesses may follow suit in short order.

Will the Proposal Cost Money?

It could. The proposed rule should cost the federal government $29.7 billion over the first ten years. That estimate assumes that 800,000 firms, offering coverage to 10.7 million people, will use the HRA option by 2028. (It also assumes an 800,000 reduction in the number of uninsured Americans by that same year.)

The cost, or savings, to the federal government could vary widely, depending on factors like:

  • Whether firms using the HRA option previously offered coverage. If firms that did not offer coverage take the HRA option, pretax health insurance payments would increase, reducing tax revenues. (The rule assumes a reduction in income and payroll tax revenue of $13 billion in 2028.)
  • Whether individuals enrolling in individual market coverage via the HRA option are more or less healthy than current enrollees. If the new enrollees are less healthy than current enrollees, individual market premiums will rise, as will spending on Obamacare subsidies for those individuals. (The rule assumes a 1 percent increase in individual market premiums, and thus exchange subsidies.)
  • The extent to which HRAs affect eligibility for Obamacare subsidies. If some low-income individuals whose employers previously did not offer coverage now qualify for HRA subsidies, they may lose eligibility for Obamacare subsidies on the exchanges. (The rule assumes a reduction in Obamacare subsidies of $6.9 billion in 2028.)

Given the many variables in play, the rule has a highly uncertain fiscal impact. It could cost the federal government billions (or more) per year, save the federal government similar sums, or have largely offsetting effects.

An Overdue (and Welcome) Change

The proposed rule would codify the last element of last October’s executive order on health care. It follows the release of rules regarding both short-term health insurance and association health plans earlier this year.

Ironically, the Trump administration represents but the most recent Republican presidency to examine the possibility of defined-contribution health insurance. While working on Capitol Hill in 2008, I tried to encourage the Bush administration to adopt guidance similar to that in the proposed rule. However, policy disagreements—including objections raised by, of all places, scholars at the Heritage Foundation—precluded the Bush administration from finalizing the changes.

Since I’ve fought for this concept for more than a decade, and included it in a series of regulatory changes the administration needed to make in a paper released shortly before Trump took office, I can attest that this change is as welcome—and needed—since it is overdue. Although overshadowed at the time of its release, this rule could have a substantial effect on Americans’ health insurance choices over time.

This post was originally published at The Federalist.

Will Disclosing Prescription Drug Prices in TV Ads Make Any Difference?

Why did the Trump administration last Monday propose requiring pharmaceutical companies to disclose their prices in television advertisements? A cynic might believe the rule comes at least in part because the drug industry opposes it.

Now, I carry no water for Big Pharma. For instance, I opposed their effort earlier this year to repeal an important restraint on Medicare spending. But this particular element of the administration’s drug pricing plan appears to work in a similar manner as some of the president’s tweets—to dominate headlines through rhetoric, rather than through substantive policy changes.

Applies Only to Television

The rule “seek[s] comment as to whether we should apply this regulation to other media formats,” but admits that the administration initially “concluded that the purpose of this regulation is best served by limiting the requirements” to television. However, five companies alone accounted for more than half of all drug advertisements in the past year. Among those five companies, the advertisements promoted 19 pharmaceuticals—meaning that new disclosure regime would apply to very few drugs.

If the “purpose of this regulation” is to affect pharmaceutical pricing, then confining disclosures only to television advertisements would by definition have a limited impact. If, however, the “purpose of this regulation” is primarily political—to force drug companies into a prolonged and public legal fight on First Amendment grounds, or to allow the administration to point to disclosures in the most prominent form of media to say, “We’re doing something on drug costs!”—then the rule will accomplish its purpose.

Rule Lacks Data to Support Its Theory

On three separate occasions, in the rule’s Regulatory Impact Analysis—the portion of the rule intended to demonstrate that the regulation’s benefits outweigh its costs—the administration admits it has very few hard facts: “We lack data to quantify these effects, and seek public comment on these impacts.”

It could encourage people to consume more expensive medicines (particularly if their insurance pays for it), because individuals may think costlier drugs are “better.” Or it could discourage companies from advertising on television at all, which could reduce drug consumption and affect people’s health (or reduce health spending while having no effect on individuals’ health).

Conservative think-tanks skewered several Obamacare rules released in 2010 for the poor quality and unreasonable assumptions in their Regulatory Impact Analyses. Although released by a different administration of a different party, this proposed regulation looks little different.

Contradictions on Forced Speech?

Finally, the rule refers on several occasions to the Supreme Court’s ruling earlier this year in a case involving California crisis pregnancy centers. That case, National Institute of Family and Life Advocates v. Becerra, overturned a California state law requiring reproductive health clinics, including pro-life crisis pregnancy centers, to provide information on abortion to patients.

The need for that distinction arises because the pharmaceutical industry will likely challenge the rule on First Amendment grounds as an infringement on their free speech rights. However, a pro-life administration attempting to force drug companies to disclose pricing information, while protecting crisis pregnancy centers from other forced disclosures, presents some interesting political optics.

A Political ‘Shiny Object’

Ironically enough, most of the administration’s actions regarding its prescription drug pricing platform have proven effective. Food and Drug Administration Commissioner Scott Gottlieb has helped speed the approval of generic drugs to market, particularly in cases where no other competitors exist, to help stabilize the marketplace.

Other proposals to change incentives within Medicare and Medicaid also could bring down prices. These proposals won’t have an immediate effect—as would Democratic blunt-force proposals to expand price controls—but collectively, they will have an impact over time.

This administration can do better than that. Indeed, they already have. They should leave the political stunts to the president’s Twitter account, and get back to work on more important, and more substantive, proposals.

This post was originally published at The Federalist.