For years Republican critiques of the Affordable Care Act have zeroed in on the effect it has had on the individual heath insurance market. But the GOP lawmaker who will likely lead the Department of Health and Human Services has long championed a major overhaul to the much bigger employer-based insurance system in order to push consumers to buy their own plans.
The legislation HHS nominee Rep. Tom Price (R-GA) has offered over the years include mainstays of GOP plans that would usher in a drastic change in how most people receive their health care coverage. The employer-based insurance market covers seven times more people than the individual market.
“What he’s getting at here, and a lot of Republicans feel pretty strongly about this, to get a functioning insurance market, you have to get away from businesses buying the insurance,” explained Joe Antos, a health policy scholar at the right-leaning American Enterprise Institute. “The philosophy is, ultimately, you want to transition, in some orderly way, to where everybody is buying their own insurance.”
Price’s proposal for doing this, via his Empowering Patients First Act, would make employer-plans less financially appealing while incentivizing workers to buy their own plans in the individual markets. It’s in the same spirit of Speaker Paul Ryan’s Better Way outline for health care reform released last year as well as other GOP proposals, but perhaps is more relevant in that, as actual legislation, it lays down concrete markers. Price, a former Budget Committee chair, has played down his past legislation as he has gone through the nomination process. Nevertheless, his plan highlights the stark differences between the Republican approach to health care and the middle ground sought by the Affordable Care Care.
The goal of the conservative approach, according to Urban Institute health policy scholar Linda Blumberg, is “to move away from more sharing of risks and towards more segmenting and separation of risks.”
“What this does is it helps you when you are young, when you are perfectly healthy. But we don’t stay that way,” Blumberg said. “The costs go up tremendously and access decreases tremendously when you have health care needs.”
Price’s plan would tweak the way insurance plans are offered by employers from two different angles. First, he would cap the amount employers can contribute to health plans without it being taxed as if it were income. This limit is known as a tax exclusion cap, and the idea is not dissimilar from the Cadillac tax included in the Affordable Care Act. It is also a staple among GOP Obamacare replacement proposals, including Ryan’s. Price’s 2015 legislation, however, placed the cap at $20,000 annually for family plans, not far above the current average, $17,000. The cap would rise according to CPI, the inflation index, but because health care costs increase at a faster rate, more and more employer plans would be subject to taxes.
“Effectively, the real value of the exclusion would drop over time until at some point, there would effectively not be a substantial subsidy through that route,” Antos said, while pointing to tax subsidies Price’s plan offers on the individual market. “At some point there is no question: it doesn’t make any sense to stay with employer plans from a financial standpoint.”
The second notable proposal in Price’s legislation is one that would let employers, on a voluntary basis, offer to their workers the amount of money they would have spent on their employer-based plan for worker to use to buy their own insurance on the individual market. That’s on top of a tax credit Price’s plan offers for the individual market which would grow by age but not by income — meaning its available for anyone.
“If you cap the exclusion, that sort of incentivizes one to go someplace else,” said Karen Pollitz, a senior fellow at the Kaiser Family Foundation. “Secondly, you then allow employers to offer you money to go someplace else and to include that in the definition of what counts as a qualified group plan under federal tax law.”
Pushing more people into the individual markets fits in with the broad strokes of rhetoric GOP lawmakers have used to describe their plans for replacing Obamacare. They have stressed “access” and “choice” and “affordability,” but not universal coverage.
The idea is that, by having more people choosing their own plans — and by having insurers freed of many of the ACA’s regulations — younger and healthier people will be able to get cheaper, but skimpier plans.
Part of the point, according to Antos, is “to really get consumer involvement” in selecting health care plans, as opposed to their employers. That, in turn, sends “the message to insurance companies about what’s a good plan, what’s not a good plan.”
However, that approach comes with its downsides. With younger and healthier people shifting to more meager plans, the risk pools for people who need more comprehensive care — the older and the sicker — decrease in size while growing in average cost. For them, Price proposes a high-risk pool set-up by the states, though the amount of federal money he’s willing to invest in them is dwarfed by what it’s expected they’d cost.
“There’s a lot here that is oriented towards separating the cost of people who have health issues from people who don’t,” Blumberg said.
Under the current system, employer plans funnel young and healthy people into the same risk pools as older and sicker people on the basis of where they work. The Affordable Care Act, in turn, sought to grow the risk pool of the non-group market through its individual mandate as well as regulations to ensure that sicker people weren’t blocked from getting coverage.
“[Employer plans are a] convenient way to share health care risks,” Blumberg said. “The non-group market is not a natural way to do that, which is why all the reforms were put into place by the ACA to force that pooling.”
At a hearing Wednesday in front of the Senate Committee on Health, Education, Labor and Pensions, Price stressed his role as a cabinet secretary would be to administrate whatever law Congress passes, though he will still be in charge of the regulations that determine the shape of both employer-based and non-group plans.
An overhaul of employer-based plans, which insure about half of the total population, might be too big of a bite for Republicans, who have hit road bumps even in their initial steps to repeal the ACA.
Antos predicted that capping the tax exclusion of employer-based plans would be “a real stretch politically” during the Trump administration, especially after Republicans claim victory over repealing the ACA’s Cadillac Tax.
“Adding a tax, which is what a cap on the exclusion essentially does, that is very difficult,” Antos said.
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