A Rational, Market-driven Alternative to Obamacare

The recently proposed Patient Choice, Affordability, Responsibility, and Empowerment Act would provide consumers with greater insurance choices, reduce healthcare costs, and severely rein in government interference in the healthcare market.

During the State of the Union address, President Obama called out Republicans for continuing to oppose the Affordable Care Act (ACA). He implied that their opposition to the ACA consisted of little more than do-nothing obstructionism when he said, “if you have specific plans to cut costs, cover more people, and increase choice—tell America what you’d do differently. Let’s see if the numbers add up.”

The President’s speech echoed similar complaints that have been raised by Democrats over the last 3 years, during which there have been 47 votes in the Republican-controlled House to defund and dismantle the ACA. Although Republicans in Congress and the Senate have offered several alternatives to the law they are seeking to repeal and replace—for example, House Republicans produced a 219-page healthcare overhaul bill back in 2009, Rep. Paul Ryan (R-WI) introduced HR 2502 later that year, and the Republican Study Committee recently released a proposal titled “The American Health Care Reform Act”—the perception created by the Obama administration is that opponents of the ACA have not come up with a serious proposal of their own.

Republican leaders are aware of this, with Sen. Mike Enzi (R-WY) recently telling TIME that “the main thing (now) is to counter this thing where the Democrats say the Republicans don’t have any ideas.”

Now, with the introduction of the Patient Choice, Affordability, Responsibility, and Empowerment (Patient CARE) Act, opponents of the ACA can make an even stronger case in support of replacing the president’s signature piece of legislation with a more pragmatic, less intrusive package of reforms that would actually achieve some of the goals of the ACA at a fraction of the cost and loss of economic freedom.

Proposed by Sens. Orrin Hatch (R-UT), Richard Burr (R-NC), and Tom Coburn (R-OK), the Patient CARE Act features targeted reforms designed to lower costs and expand access to quality care. According to Burr, this alternative to the ACA will empower individuals and their families to make their own healthcare decisions, instead of empowering the government to make those decisions for them.

Hatch said the Patient CARE Act would ensure greater economic security for Americans by “driving down costs and expanding access to high-quality care through increased insurance market competition and reforms.” He said the Patient CARE Act would be sustainable and achievable “without the tax hikes, mandates, and budget-busting spending that have made Obamacare so unpopular with the American people.”

The Patient CARE Act would repeal many provisions of the ACA, including:

• The individual and employer mandates

• The mandate that insurance plans offer a government-determined set of health benefits

• Burdensome insurance rating restrictions that prevent companies from adjusting premiums based on risk, health status, lifestyle, and other factors

• Taxes on medical devices and drugs

• Federal insurance exchanges

Another important change would be the elimination of the requirement that insurance companies cover any applicant, regardless of pre-existing health condition. For uninsured consumers, the bill includes a one-time, 6-month open enrollment period during which they’ll be able to purchase coverage regardless of their health status or pre-existing conditions.

The Patient CARE Act would create “continuous coverage protection,” which would prevent consumers who move from one health plan to another from being medically unwritten and denied a plan based on a pre-existing condition. However, this would apply only to consumers who had maintained health coverage for the previous 18 months or longer. The bill’s authors claim this provision would “reward good behaviors” and encourage consumers to “act responsibly” by keeping their health coverage.

Several of the more popular elements of the ACA would be retained under the Patient CARE Act, including the option covering dependents up to age 26 and the elimination of lifetime limits on insurance benefits.

What’s in the bill?

Specific market-oriented provisions in the Patient CARE Act include:

• Age-adjusted tax credits for consumers with annual income up to 300% of the Federal Poverty Level (FPL) ($34,470 in 2013). The value of the tax credit would be reduced in value as an individual’s income increased between 200% to 300% of the FPL, and would be indexed to the Consumer Price Index plus one percentage point.

• Targeted federal funding to allow states to leverage high-risk pools “as a tool for ensuring that the patients with the costliest conditions have access to coverage while balancing the cost impact for other consumers in that state.” States would be allowed to enter into interstate compacts to “facilitate greater pooling and ease the administrative burden of advancing innovative plan designs,” in turn giving consumers the ability to shop for insurance plans across state lines.

• Small businesses would be permitted to band together to negotiate small business health plans

• Caps on federal spending on Medicaid, with more flexibility for states in administering the programs.

• The requirement for hospitals that participate in Medicare to provide to consumers with transparent pricing information, including the average amount paid by uninsured and insured patients for the most common inpatient and outpatient procedures performed at those hospitals.

Perhaps the most controversial component of the Patient CARE Act is the mechanism by which it will be funded: capping the tax exclusion for employees’ health coverage at 65% of an average plan’s costs. This means that 35% of the health insurance benefits that are currently tax-free for consumers would instead be considered taxable income.

(Indeed, this key portion of the proposal has already been modified. The amended version of the plan would “institute a modest cap on the exclusion for the most generous high-cost plans.” Specifically, it would cap it at 65% of “the average market price for an expensive high-option plan.” In the absence of specific numbers provided by the bill’s authors as to what falls under the definition of a “most generous high-cost plan,” one can assume that if these are analogous to the Cadillac plans taxed under the ACA, then the Patient CARE Act would increase taxes on millions of Americans.)

The sponsors of the Patient CARE Act assert that “economists across the political spectrum largely agree” that the current practice of fully excluding employer-provided health coverage from a worker’s taxes is a distortion in the tax code that helps to artificially inflate the growth in healthcare costs.

Under the Patient CARE Act, employers would still be incentivized to provide health coverage to their employees, because it would be tax deductible for the business.

A complete summary of the Patient CARE Act is available here.

But would it work?

Using sophisticated economic models, the Center for Health and Economy (CHE) evaluated the Patient CARE Act’s potential impact on health insurance premium prices, insurance coverage, patient access to providers, and the federal budget.

In the summary of its findings, the CHE reported that:

• The Patient CARE Act would produce lower average insurance premiums when compared to the ACA.

• The number of insured individuals under the Patient CARE Act would be nearly equal to the ACA in 2017, and actually be 1% higher by 2023.

• The Patient CARE Act would result in a 17% decrease in the Medicaid population by 2017, compared to the ACA.

• Patients would have similar levels of access to providers under the Patient CARE Act as under the ACA.

• Compared to the ACA, the Patient CARE Act would yield an estimated 10-year net savings of $1.4 trillion.

Several high-profile health policy analysts have singled out the Patient CARE Act for praise. Avik Roy at Forbes called it “the most thoughtful and constructive plan yet developed to repeal and replace Obamacare,” because it is a proposal “grounded in the real-world tradeoffs that all serious reformers must make.” Larry Levitt, senior vice president for special initiatives at the Kaiser Family Foundation, said the Patient CARE Act is “the most comprehensive and most serious alternative” to the Affordable Care Act since it was introduced.

The Patient CARE Act has yet to be scored by the Congressional Budget Office, so despite the fairly optimistic projections from CHE it remains to be seen if the estimates and assumptions of the bill bear up under further scrutiny. Nevertheless, it is a significant entry into the debate surrounding the ACA that could reverse the damage caused by this example of massive government overreach, and prevent future damage to the health and wealth of the American people.

One thing is clear heading into the 2014 mid-term elections and on to the 2016 presidential elections: the people of this country now have a clear alternative to Obamacare that offers, in the words of scholars at the American Enterprise Institute, a “decentralized, less regulatory and more consumer-driven approach to health care reform that has the potential to cover millions of Americans with insurance at far less cost than Obamacare.”