At issue in the U.S. Supreme Court case of King v. Burwell is whether people who purchased insurance on an Obamacare exchange that is not “state-based” are eligible for premium subsidies. The plaintiffs in the case maintain that Obamacare allows subsidies to flow only to exchanges established by a state government. If the Court rules in favor of the plaintiffs, look for over 7 million people in the 37 states without state-based exchanges to lose their subsidies.
At the same time, look for panic to break out on Capitol Hill and in state capitals. Politicians from affected states won’t be eager to face voters in 2016 who lost their subsidies and, likely, their insurance altogether.
Such a political crisis will be doubly difficult for Republicans. The Obama administration, undoubtedly with an assist from the mainstream media, will pressure them to simply amend the law so that subsidies can flow to federal and “state-partnership” exchanges. However, if the GOP merely turned the subsidies back on, it would risk alienating a political base adamantly opposed to Obamacare.
State legislators and governors in those 37 states will also be feeling pressure to get the subsidies turned back on by establishing a state exchange. But, just like the Congressional GOP, Republican legislators and governors risk alienating their base if they set up an exchange.
Fortunately, some Republicans on Capitol Hill are releasing contingency plans in the event that King v. Burwell does deal a major blow to Obamacare. While there are many good ideas, the best one, both in terms of policy and politics, is the “Patient Freedom Act” advanced by Senator Bill Cassidy (R-LA) and Representative Ralph Abraham (R-LA). It offers temporary assistance to states where the subsidies are cut off. States are then given three options: 1) Do nothing; 2) establish a state exchange; or 3) opt-in to the Patient Freedom Act.
The third option gives states access to the same amount of money they would have received under Obamacare for exchange subsidies and the Medicaid expansion. But, under the Patient Freedom Act, states would have to give the money directly to individuals and families in the form of a “health savings deposit.” States could choose to have the health savings deposits delivered in the form of a refundable, advanceable federal tax credit, or as part of a block grant. States choosing the block grant option would also be able to take about two percent of the funding for public health initiatives.
The health savings deposit would be put into health savings accounts (HSAs) owned by individuals and families. The HSAs can be used to purchase health insurance or spent directly on health care expenses. Low-income individuals would, in certain instances, also be able to use a portion of the HSAs to pay for the employee portion of their employer-based insurance.
The health savings deposit would not be means-tested, meaning that anyone of any income level could get it. It would, however, vary with age based on the average health care cost of an individual’s age bracket. Only people of higher incomes with employer-based insurance would not be able to take advantage of the health savings deposit.
States that went along with the Patient Freedom Act would be required to allow insurers to offer a low-cost, high-deductible health plan coupled with an HSA. Beyond that, states would be free to regulate their health insurance markets as they see fit.
The Act also forbids insurers from denying coverage to people who have been continuously insured, including those who have pre-existing conditions. It also forbids insurers from taking health status into account when setting premiums for those continuously insured. The uninsured will initially only have access to the low-cost, high-deductible health plan. They will be able to access other types of insurance only after a waiting period lasting as long as the period of time they were uninsured.
Finally, citizens in the states that opt in to the Patient Freedom Act will no longer be bound by the individual or employer mandates. They will have access to insurance that is no longer encumbered with costly Obamacare regulations such as the essential benefits mandates, community rating, and actuarial value.
While this plan has much to offer, it’s prudent to look at a few of its drawbacks. First, forcing states to offer a low-cost, high-deductible health plan may seem like a good idea in theory. While it may yet prove to be a good idea, unintended consequences are often the result when the federal government forces the states to do something,
Second, forbidding insurance companies to take health status into account for people who are continuously insured means the cost of insuring those with pre-existing conditions will be distributed to healthier policyholders. This will result in higher premium costs for those policyholders, which may discourage them from buying insurance in the first place. A better idea would be to allow the health savings deposit to be used to purchase “pre-existing condition insurance” that would help people who developed serious health conditions pay for higher health insurance premiums. The Cato Institute has advocated this idea, calling it “Health-Status Insurance.”
Finally, the Act keeps the Obamacare prohibitions on annual and lifetime limits on insurance and allows those up to age 26 to stay on their parents’ insurance.
Despite the drawbacks, the Patient Freedom Act moves our health care system in the direction of free markets. First, it sends the money directly to the individual or family—not through an exchange, insurance company, or government program. Individuals and families will be in charge of how best to spend their deposit, whether to save it in an HSA or purchase insurance. They will also have a broader array of insurance options to choose from relative to the Obamacare exchanges. It can also liberate some of the people on Medicaid by enabling them to leave Medicaid’s command-and-control structure for the benefits for private insurance.
Furthermore, the Patient Freedom Act begins the process of evening out the tax inequity between the employer-based market and individual market. Previously, people only received a tax break on health insurance if they received it though their employers. This legislation will allow people in the individual market to receive a tax break as well.
Finally, insurers will be able to offer more insurance choices as they did prior to the creation of the Obamacare exchanges. They will no longer be forced to offer policies that fit into one of only five categories—catastrophic, bronze, silver, gold, or platinum. They will also be able to cover benefits desired by consumers instead of ones mandated by the federal government. Want to purchase a policy without maternity coverage? Insurers will now be able to offer that option.
Politically this plan makes the most sense for a post-King decision against Obamacare. If congressional Republicans got behind it, it would have little trouble passing the House. The question is whether it could overcome a filibuster in the Senate? There are 74 senators representing the 37 states without a state-based exchange, and 25 of them are Democrats. Six can probably be found to get the 60 votes necessary for cloture. The reason is that the Patient Freedom Act gives Democrats who are wary of Obamacare’s electoral impact a way saying that they voted for a bill that gives states more options, yet still allows them to save face with their base by saying that they voted for a bill that lets states keep an Obamacare exchange if they wish.
There are also 91 House Democrats from those states, including a few moderates. Combined with some of 25 Democratic senators, they might be able to exert pressure on President Obama to sign the bill.
But would Obama yield to such pressure, even from within his own party?
The president’s early behavior toward Obamacare suggests that he might be willing to compromise. For example, Obama signed legislation repealing the 1099 tax provision of Obamacare, and, during the exchange rollout debacle in late 2013, he allowed insurers to reinstate plans to people who had lost them because of Obamacare’s grandfather regulations.
As of late, though, Obama’s been far more obstinate. He issued a veto threat earlier this year against a congressional plan to scale back the employer mandate. More recently, he took a dismissive—if not condescending—attitude toward Democrats who challenged his plans for trade promotion authority. Now that Obama is in the final 18 months of his term and cannot run for reelection, he seems to have lost whatever little inclination he once had for negotiation.
Yet obstinacy could prove to be a risky strategy for Obama. With the Patient Freedom Act, Republicans have an answer for what can be done in the wake of King v. Burwell, and—if they play their cards right—they could use it to portray Obama as the one who is stubborn and unwilling to come to the table to fix health care policy.
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