After months of anticipation, House Speaker Paul Ryan, R-Wis., and other house republican leaders finally released their plan to repeal and replace Obamacare: the American Health Care Act. Many healthcare experts hoped their legislation would contain crucial features from Ryan’s Better Way plan and other Republican proposals. But the opening draft lacks many market-based reforms necessary to bring down healthcare costs.
For starters, the AHCA makes zero changes to the number-one driver of rising healthcare costs: the tax exclusion for employer-sponsored health insurance. Since World War II, the federal tax code has allowed employers to deduct the cost of employee health benefits from their tax liability. This deduction encourages employers to provide extremely generous health plans and divorces 150 million workers and dependents from their healthcare costs.
The draft bill that Politico leaked last week caps the employer tax exclusion for 10 percent of the country’s most expensive health plans. Ending the exclusion’s open-ended nature would drive employers to offer less expensive health plans in order to avoid exposing their benefits to new taxes. Now it looks like House Republicans bowed to pressure from large employers and unions that provide generous taxpayer-subsidized health benefits.
Amazingly, the only cost-control measure this bill offers for employer-sponsored insurance is Obamacare’s “Cadillac tax.” The AHCA maintains Obamacare’s excise tax on insurance plans that cost more than $10,200 for individuals and $27,500 for families. However, it delays the tax from taking effect until 2025. And given strong bipartisan opposition, it’s doubtful this tax would ever take effect at all.
The AHCA also lacks many free-market proposals from Ryan’s Better Way plan that empower individuals to shop for less expensive health insurance outside of the employer system. For instance, Better Way called for removing state regulatory barriers to the interstate sale of health insurance. Healthcare economists from the University of Minnesota estimate that letting individuals shop for insurance across state lines would intensify competition among insurers, lower premiums, and reduce the uninsured population by 17 million people. Unfortunately, the AHCA allows states to prohibit residents from accessing more affordable plans in other states.
Ryan’s Better Way also supported letting civic groups like churches, charities, and alumni associations pool their members into Association Health Plans that would negotiate lower prices from providers. According to the Congressional Budget Office, AHPs could reduce health insurance premiums as much as 25 percent and expand coverage to 5.7 million previously uninsured individuals. This patient-centered reform was also noticeably absent from Ryan’s plan.
To its credit, the AHCA expands health savings accounts which incentivize patients to cost-effectively shop for healthcare with pre-tax dollars. The bill would increase HSA contribution limits from $3,400 to $6,550 for individuals and from $6,750 to $13,000 for families.
However, the bill preserves a variety of federal restrictions that curtail individuals from using HSAs to their full effect. Individuals would still be prohibited from spending HSA dollars on health insurance premiums. In addition, HSA holders will still be mandated to purchase high-deductible health plans, which limits their appeal to older and sicker patients.
In contrast, Sen. Rand Paul’s plan removes these artificial restraints on HSAs.
A forward-thinking Republican healthcare agenda should free Americans to make their own healthcare decisions independent of third-parties like employers and the federal government. Unfortunately, the AHCA overlooks many consumer-driven ideas in Congress that would make healthcare less expensive and better tailored to the needs of individual patients.
Charlie Katebi is a contributor to the Washington Examiner’s Beltway Confidential blog. He is an advocate at Young Voices and a policy fellow at the Millennial Policy Center.
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