Senator Cassidy's King v. Burwell Obamacare Alternative Should Be A WinnerCommentary by John R. Graham
May 20, 2015
Senator Bill Cassidy. MD (R-LA) has introduced the Patient Freedom Act, in anticipation of the Supreme Court deciding for the plaintiffs in King v. Burwell, the lawsuit that seeks to force the administration to obey the law by not paying tax credits to health plans operating in states using a federal health insurance exchange (i.e. healthcare.gov).
Victory for the plaintiffs this summer would cause significant disruption in health insurance in the 34 to 37 states without their own exchanges because premiums for up to nine million people would increase significantly. Many would choose to drop coverage if and when they have to face paying full premium for their policies.
Congress must have an alternative to Obamacare ready because President Obama will immediately propose an amendment to change the law to accord with how he is executing it. Let tax credits continue to flow through healthcare.gov and just forget the money paid since January 2014 was illegal. It would be a very simple amendment – just a few sentences. The risk of Congress panicking and simply voting for that amendment, and finally surrendering to Obamacare, is unacceptable.
Americans have had their health coverage upended not only by the Affordable Care Act, but also by the allegedly illegal execution of the law by the administration. Congress has a duty to respond to a court victory with a new law. However, it has to be one that the president will sign, but will not leave the Republican-majority Congress’ fingerprints on Obamacare. This is a tricky needle to thread.
Dr. Cassidy believes he can achieve this by restoring federal funding to states that will lose tax credits, but freeing them from Obamacare. If a state wants to restore the Obamacare tax credits, it would be free to do so by establishing a state-based exchange. However, state-based exchanges are a proven failure, which no responsible governor should institute in 2015. It would be an obvious choice to take Dr. Cassidy’s other option: Receive the federal dollars and use them in a way that empowers patients, rather than the federal government.
Having made that choice, the state can then take one of two paths. It can either choose individual tax credits deposited in patients’ Health Savings Accounts (HSAs) or per capita block grants. What it cannot do is take the federal dollars and bury them in the state’s own bureaucracy. Operationally, the tax credit version leaves the state almost completely out of the picture, because the IRS would process the tax credits. The block grant version would allow a state’s healthcare agency to process the grants to individuals and keep a little more control over safety-net funding.
The advantages of this proposal are significant. First, it eliminates Obamacare’s damaging effect on the labor market. Because Obamacare’s tax credits drop off dramatically as household income increases, it imposes a very high marginal income tax burden on workers who increase their hours. The Congressional Budget Office predicted this would lead to 2.5 million fewer full-time equivalent jobs. Businesses in states that adopt Dr. Cassidy’s proposal will have a competitive advantage over states stuck in Obamacare because they will find it easier to add workers when demand increases.
Second, a dollar in federal funding to patients in a state that takes Dr. Cassidy’s offer will go a lot farther than a dollar in a state still in Obamacare, because because Dr. Cassidy removes Obamacare’s expensive mandates. For example, Obamacare forces insurers to charge 64-year-olds premiums no greater than three times the cost charged to 18-year-olds. Given the difference in average medical costs between the two ages, a range of five to one would be more appropriate. Insurers respond by hiking premiums for younger workers. Ed Haislmaier and Drew Gonshorowski estimate that removing the 3:1 restriction would lead to a 44 percent drop in premiums for individuals in their twenties.
Under Obamacare, net premiums are artificially low because of tax credits that are consumed by health insurers. Under Dr. Cassidy’s proposal, health insurers would take fewer of those dollars, and young people would control more through their HSAs, which they can spend directly on medical care or save.
Senator Ron Johnson (R-WI) has introduced another proposal in case President Obama is defeated in King v. Burwell. It would restore Obamacare tax credits for two years, while reducing some of Obamacare’s regulatory burden. Dr. Cassidy’s proposal overcomes many (perhaps all) of the shortcomings of Mr. Johnson’s proposal.
However, in seriously gutting Obamacare, Dr. Cassidy risks building a bridge too far for President Obama to cross. The president’s willingness to do so will depend on how clearly governors, businesses and individuals express their demand for that bridge out of Obamacare. Congressional Republicans just might be on the path to a successful response to the Supreme Court finally striking a significant blow to Obamacare.
John R. Graham is a Senior Fellow at the National Center for Policy Analysis and Co-Organizer of the Health Technology Forum: DC.