The Health Care Security And Freedom Act Of 2017 – Investor’s Business Daily

After years of subjecting ObamaCareto the harshest criticism, the Senate GOP's struggles to come up with a replacement over the past several weeks havebeen a revelation:A critical mass of Republican senators seem to be saying that wresting the health care security provided by the law from their constituents is a nonstarter.

That leaves Congresswith two possible paths forward. The most likely path is a form of triage that would try to control the bleeding, rather than address ObamaCare'sunderlying problems that explain why enrollment was weak even before premiums spiked, and why the law was unpopular before"mean" TrumpCare came on the scene.

Stabilizing insurance markets, principally by providing protection for insurers against high-claims customers, is a good idea and an important step. But let's be clear about what that won't achieve: It won't create a robust nongroup insurance market with rules that Americans can broadly support, and that work reasonably well for the finances of healthy and sick, old and young, working class and middle class.

To create a robust nongroup insurance market with lower premiums that serves people well will require taking the other potential path forward: transforming the Affordable Care Act, largely byinjecting the ingredient that Republicans say the law is most sorely lacking freedom.

While ObamaCare has helped thenear-poor and those with chronic conditions who otherwise might be stuck without affordable coverage, it gives a bad deal to pretty much everyone else, which iswhy the exchanges' pool of customers is too small, too old and too costly, and premiums have soared asinsurers likeUnitedHealth Group (UNH),Aetna (AET) andHumana (HUM) have mostly exited the markets.

Simply stabilizing theturbulent insurance-exchange markets wouldn't do anything to ameliorate ObamaCare's harshest reality:Even among working-class households earning 150% to 250% of the poverty level, supposedly among the law'sbiggest beneficiaries, just 1 in 3 people who lack insurance from other sources are getting coverage that will protect them from financial disaster. Most of the other two-thirds are uninsured, either because they or a spouse work full time and don't qualify for exchange subsidies, or else they've spurned subsidized bronze plans that carry $6,000-$7,000 deductibles despite the threat of a individual-mandate penalty.

While Americans aren't crying out for the freedom to buy the skimpiest coverage that insurers can dream up, and pretty much everybody would rather have insurance than not if the price is right many people would benefit from greater flexibility than the ACA allows, and the entire country would benefit from a bipartisan consensus on health reform that helps those who have fallen through ObamaCare's wide cracks.

That is whythe very best step for public policy, within the realm of what might be possible, would be to give people a choice between the comprehensive coverage that Democrats want them to have and that many people with chronic conditions or low incomes clearly need and the consumer-driven model that Republicans believe in, which allows people to opt for high-deductiblecoverage and set aside funds to cover basic medical needs.

This would involve turning ObamaCare's cost-sharing support into something more akin to working-class tax cuts and removing ObamaCare's heaviest-handed mandates, while preserving the ACA's critical protections and support.

A central problem with ObamaCare is that the rules stacked the deck in favor of those needing comprehensive coverage, leaving far too many in the working class with three unappealingoptions: a silver plan that costs too much; a bronze plan that won't pay their medical bills until long after they're in financial distress;or anindividual-mandate penaltyfor opting against coverage that may be of little use.

Think ofa couple, age 30, in St. Louis with income of $40,000 (about 200% of the poverty level) and a child covered by Medicaid. For this couple, the cheapest silver plan under ObamaCare offers pretty solid coverage but costs$2,430 likely too much for a young family that's probably already struggling to save anything. The cheapest bronze plan, costing $1,068, might be doable, but the $13,300deductible ($6,650 per person) could make a hospital stay financially devastating.

The chasm between ObamaCare's silver and bronze deductibles $700 vs. $13,300 is by design, though clearly a poor one. ObamaCare provides extra cost-sharing subsidies that shrink deductibles for modest-income households, but only if they buy silver plans. Those cost-sharing subsidies work exactly like premium subsidies, paid directly from the government to insurers each month, even if the policyholder gets no medical care.

Looking through the lens of these 30-year-olds in St. Louis, a bipartisan replacement, merging Republican principles and Democratic values, is easy to identify.

First, don't get rid of the comprehensive option. If this couple is trying to have a second child or one spouse has a chronic condition, they will be desperate for a low-deductible plan with a wide range of essential benefits.

Second, offer people the flexibility to choose a Republican option. A replacement for ObamaCare could give young, modest-income families the chance to set aside some savings for health expenses with two simple tweaks. Relax ObamaCare's age-rating restrictions that inflate insurance costs for the young, but only for high-deductible plans, keeping comprehensive plans affordable for older adults. (That could mean silver plans with a 3:1 age rating, bronze 4:1 and catastrophic 5:1.)

Next, let people use cost-sharing subsidies to reduce premiums, if they prefer, effectively making it a tax cut. Those two steps would shrink that St. Louis couple's bronze premium to zero, and they'd have about $900 left to put in a Health Savings Account to defray medical expenses not nirvana, but a dramatic improvement over what ObamaCare offers. Yes, this family would still be subject to very high deductibles, but no greater than under ObamaCare, and they'd have a $2,000 head start on their medical bills, giving them a chance to put aside some savings not because their tax credits are more generous than under ObamaCare but because they would be more usable.

From 100% to150% of the poverty level (about $12,000-$18,000 for a single), roughly90% of exchange enrollees sign up for silver coverage. Bronze-level deductibles would bealmost too extreme to bother if not for the mandate penalty though some percentage don't bother and remain uninsured. So here's a beautiful compromise that would inject some freedom and flexibility but not too much into the ACA.

ACA cost-sharing subsidies, which are even higher for this income tier, turn silver plans to ultra-low-deductible platinum plans.That option would still be available, but they also could opt to use their cost-sharing subsidy to cover a basic silver-plan premium and deposit the extra amount in a Health Savings Account. What's beautiful about this is that the bar on minimum coverage would risecompared to the ACA, yet people would still have more freedom to pick a plan that works for their finances and their health status.

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We also should do something about thesteep drop-off in cost-sharing subsidies that acts as a disincentive to earn above 200% of the poverty level and is an especially big deal for people with significant medical needs. A more gradual phase-out by300% of the poverty level would provide more constructive incentives, while delivering modest tax cuts to income-tax-paying households. Premiums could essentially be free for everyone up to 250% of the poverty level if a catastrophic-planoption is made available to people above 200% of the poverty level and they opt to apply their cost-sharing subsidy to the premium for the lowest-cost plan, roughly around the "copper" option proposed by the insurance industry and some moderate Democrats.

This is another compromise in which both sides win.Above 200% of the poverty level, ObamaCare's cracks widen in a serious way. The percentage of the uninsured under ObamaCare takes a big jump, and so does take-up of bronze coverage.Easing the cost-sharing subsidy cliff won't only make it more attractive for people to get coverage, albeit higher-deductible coverage, but it will allow people who need comprehensive coverage to get a better policy than they do under ObamaCare, since the bigger cost-sharing subsidy will effectively turn a silver plan to gold.

Meanwhile, freedom to choose a catastrophic plan with a 5:1 age-rating should satisfy the GOP that the reformed insurance markets will provide sufficient flexibility to meet the needs of all comers. Democrats should acknowledge that it's far better to let a young adult member of the working class get a higher-deductible plan for free than pay a penalty for going uninsured, and the broader, healthier risk pool will serve to hold down premiums for everyone.

As for the individual mandate, among the biggest issues of contention, if people earning up to 250% of the poverty level can get high-deductible coverage essentially for free and in most cases get extra cash on top there should be no need to threaten them with fines.

Above 250% of the poverty level, an alternative to the individual mandate is well worth considering. Among the reasons that the ObamaCare individual mandate doesn't work very well is that relatively young and healthy people who gamble on going without coverage can reasonably expect to win their bet and end up with a financial gain. ObamaCare encourages this kind of short-term calculation, sinceonly those who get sick pay a price.

A more logical approach would eliminate the incentive to go without coverage when one is young and healthy, then sign up when one's health starts deteriorating. Much like Medicare's late-enrollment penalties, the idea would be to very gradually shrink future tax subsidies based on how long people go without coverage. This should apply to both the individual market and employer market, or else people would have reason not to get coverage between jobs that offer insurance. The key for this to work in the constructive way intended is that subsidies must be sufficient to make coverage affordable, or else people would opt out for legitimate financial reasons and their future cost of coverage would gradually become even less affordable.

Even without this more constructive incentive, it's important to give members of the middle class a better deal than they get now. Those who earn too much to receive ObamaCare subsidies including young adults earning well below the official cut-off at 400% of the poverty level should be treated more equitably relative to their peers covered through the workplace.

A fiscally responsible solution would be to put a floor on tax credits for anyone buying coverage on the individual market equal to 25% of the cost of a silver plan, while limiting the income-tax benefit to 25% of the cost of employer-provided coverage and capping that benefit for high-income households. People in the 25% tax bracket (up to $91,151 for singles and $151,900 for married couples) who get coverage from an employer wouldn't be touchedby the tax change, while there would be minimal effect on those in the 28% bracket (up to $190,150 for singles and $231,450 for couples).

The sad reality today is that ObamaCare throws millions of modest-wage, full-time workers under the bus. There are some4.5 million uninsured full-time workerswho along with their spouses don't qualify for exchange subsidies, even if bronze-level workplace coverage costs close to 10% of income, which ObamaCare deems "affordable" but clearly isn't. That can amount to five times what people pay on the subsidized exchanges, sometimes even more. That's why perhaps a million other modest-wage earners solid numbers arehard to come by opt for"skinny" coverage at work that won't pay for hospitalization or surgerybut will keep them from having to pay a mandate penalty. This is worth repeating: The skimpy coverage that Democrats hate is exactly the kind of insurance-in-name-only-coverage that a lot of low-wage, full-time workers are settling for under ObamaCare.

Theemployer mandate is easy to dodgeand ends up harming the low-wage workers it was supposed to help. Getting rid of it is a progressive thing to do especially if it is done while fixing the individual insurance market.

Finally, we shouldallowstates that haven't expanded Medicaid to do so whilelimiting the expansion to 100% of the poverty level, easing the fiscal burden of the expansion on states, as suggested by Urban Institute scholars.

The Health Care Security & Freedom Act wouldn't deliver gold-plated insurance to most people, but it is the least we can do. All of these features would create a broad, stable risk pool, with affordable coverage options and plenty of flexibility to let people get the coverage that they believe suits them best. While they entail a fiscal cost, we can tackle that while stillputting the nation on a sounder fiscal courseand strengthening the social safety net.

Having a robust nongroup market for insurance that serves people well should be a priority for the nation. The dynamism of our economy will be better served if entrepreneurs and idealists who are willing to step out on a limb don't have to fear that their health insurance support will come crashing down. Demographic changes make it increasingly important for people to have the flexibility to step back from full-time work to help care for an aging parent or a sick child. Amid minimum-wage pressures and health care mandates, ultra-competitive markets and the advance of technology threaten to widen the cracks in our employer-centric insurance system that millions of workers, many with modest wages, are already falling into. And don't forget that we're entering the ninth year of an economic expansion. When the next recession hits, all of these pressures will multiply and millions more people will depend on insurance outside the employer system.

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The Health Care Security And Freedom Act Of 2017 - Investor's Business Daily