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A New Beginning or Obamacare Lite?

08 Mar 2017

The House of Representatives has now publicly rolled out its “Repeal and Replace” bill for the elimination of Obamacare and a new health care law.  President Trump seems to like it, while Democrats, predictably, hate it, though I cannot see how they have had time to read it, and some Republicans, such as Rand Paul, have called it “Obamacare Light” because it still contains too much welfare statism.  The bill, to be marked up soon enough, is to its credit, only 123 pages long, though it most certainly will grow by the time it makes it through Congress–if it does.

What is in this bill?  It is H. R. 1277 introduced into the House a day or so ago.  For the full text see https://www.congress.gov/bill/115th-congress/house-bill/277/text.  As I did with the 2010 Obamacare bill, I read this bill, a little less painfully, but still with some grimaces and head-scratching.  I will summarize the content below and then make a few comments.

The Patient and Affordable Care Act of 2010 is amended, not repealed.  One can see this as one reads through the bill and notes the many changes to other statutes.   .

  1. The bill allows a standard deduction form health insurance costs, with conditions and   limits (see section 224)
  2. A qualified health care plan is defined in section 224 (d) (1) and (2), but somewhat broadly and a bit vaguely.
  3. There are reporting requirements if one claims deductions (section 6050X).
  4. Subtitle B deals with “Enhancement of Health Savings Accounts,” with various categories of individuals (e.g., Medicare recipients) with limits on distributions from the HSA as well as new allowable uses for the HSAs.
  5. Subtitle B, section 242 addresses abortion, but does not prohibit it.  Amounts from HSAs distributed to pay for abortions are to be treated as gross income, with exceptions.
  6. Title III, Subtitle A, entitled “Improving Access to Insurance for Vulnerable Americans,” eliminates the insurance mandate.
  7. Subtitle B ensures that preexisting conditions are covered by insurance (This is problematic, since it is no longer insurance, but some sort of subsidy–I will address this below).
  8. Title IV, Subtitle A addresses sales of insurance policies in a state, but does not allow insurance companies to cross state lines to sell insurance.  This is a very long section.
  9. Title IV, Subtitle C requires “Medicare price transparency.”  
  10. Title IV, Subtitle E, section 441, states: “Nothing in this Act shall be construed to interfere with the doctor-patient relationship or the practice of medicine.”  This provision would leave such authority of regulation to the states alone, but would not prohibit state interference.
  11. Most, but not all,  Obamacare taxes are eliminated.
  12. The mandate to purchase health insurance is abolished.

What is missing?

The competition of insurance companies across state borders is a big missing piece and conservative Republicans are not pleased it was left out.

Overall, the bill contains a few promising provisions, such as the elimination of the insurance mandate and expanded Health Savings Accounts.  There ia also a significant restriction on government funding of abortions.  But the bill also has some problems that have led the House and Senate Freedom Caucus to say the bill is a non-starter without significant changes.  First, it did not amount to a complete repeal of the much-hated Obamacare.  However, Obamacare is not hated by all.  The “winners” in the redistributive law were quite happy with it.  Second is the provision keeping coverage for pre-existing conditions.  I repeat myself that this by definition is not insurance but a big subsidy by insurance companies.  The way to solve this problem is not through insurance but some other means that does not distort or even kill the insurance market and lead to a single-payer system.  In addition, the bill continues to allow children to remain covered until age 26–why?  This is just a political giveaway that has no actual benefit except to young people in the form of a subsidy.  Medicaid is to be sure capped, but that only shows the political fear Republicans have in refusing to address a growing and unsustainable system.  Medicaid (and Medicare) need to be dealt with as separate policy problems without using the healthcare market (or non-market) to address their failures.  Moreover, the tax deductions/credits, intended to enable those who can’t afford health care insurance to purchase it, again fail to realize that they are distorting an entire sector of the economy to aid a relatively small number of people, assuming actual competition is introduced.  It is a long held and important principle of economic and social policy analysis that one ought to separate problems of inability to pay from more general policy problems.  If we can identify people by income level who can’t afford health insurance, use a different and separate program to help them that doesn’t affect everyone unnecessarily and with costly consequences. Finally, why didn’t the House bill include the allowance for insurance companies to engage in free interstate competition?  That is a big omission.  We need competition among insurance providers to help keep costs down.

But there are many other policies that are also needed to move health care back to the market–and a functioning market at that.  The President and House leadership appear to have backed off just a bit on their insistence that this is it.  I am sure at any rate that amendments will come fast and furious, especially from the more conservative and libertarian wings of the party.  If they are not taken seriously, the bill simply cannot pass.  Do Republicans really want to risk that outcome?  Does the President?   I hardly think so.

Democrats by and large will object at every turn.  They seem bent on protecting a failed legacy just for the sake of it, even though some must realize it has in fact failed.

In the end, I am convinced that the best way to proceed would have been simultaneously to repeal Obama care in its entirety while making the necessary structural changes that would lead to a true market for health care and would also and separately address the poverty problem which is not the same as the health care problem.     There is still too much regulation and unneeded bureaucracy.