Another ACA Alternative: Patient Freedom Act of 2017

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Sens. Bill Cassidy of Louisiana and Susan Collins of Maine brought forth the first major Congressional alternative to the Affordable Care Act of this Congress, as they unveiled their Patient Freedom Act of 2017.  The full text of the bill can be read here. The senators promise the plan would designate more power and regulatory decisions to the states, and in turn hopefully increasing patient access and affordability.

This plan echoes a similar plan proposed by Sen. Cassidy in 2015.  That plan, notably, was written in the heated discussion over what would have happened to Obamacare customers if the Supreme Court had ruled against the Obama administration in the King v. Burwell case (the Court ultimately upheld the Obama Administration’s view, and Obamacare was left intact).

What makes this alternative quite different from the other Republican plans is that it would maintain most of the funding mechanism that existed under the Affordable Care Act. Cassidy and Collins state that there is simply no simple way to fund any system in the short-term without maintaining those taxes.  95% of the current funding per capita per state promised under the ACA would continue under this plan; the remaining 5% of funds would be used for health savings accounts and other expenditures.  Cassidy argues that he would be open to replacing that tax structure in the future, but only in approach of a larger tax reform bill. So overall expenditure under the plan would be quite similar to that under the Affordable Care Act, assuming no further tax changes.

Political negatives aside, by retaining the tax funding mechanism, the Senators are able to offer an alternative that no one else in the GOP is currently offering: allowing some states to keep Obamacare.

The plan would largely shift the decision-making on health care reform to the states. States would have one of three choices. States such as New York and California who are perfectly happy with the status quo can choose the first option and keep their current systems, with their funding remaining as defined by the Affordable Care Act of 2010. In short, little to nothing significant would change for them.

Option two would allow states to build their own health care plans, centered around individually owned Health Savings Accounts (HSA). Cassidy would provide a pre-funded HSA to all individuals in the form of an advanceable tax credit. The insurance plans would have to meet some basic requirements, such as guaranteeing catastrophic coverage, basic pharmaceutical coverage, mental health coverage, and some level of coverage for preventative care. One key attraction of this option? States that opt for this would not only receive all Federal funds that they would have received for subsidies through the Obamacare exchanges, but in addition would receive the full federal matching funds they would have received from Medicaid expansion, whether or not they decide to actually expand Medicaid. In short, this system would allow states to create a system using the private sector, and cover the poor in that manner, totally bypassing Medicaid, and retaining most of the federal funding while doing so.

The third option for states would be to opt out of federal funding all together. They would receive no federal funds, but would also be exempt from most of the federal regulations written into the bill.

Sen. Collins did make clear that some consumer protection provisions such as coverage from parents’ insurance until age 26 and prohibition from lifetime caps would be maintained across the board, regardless of what option states choose. For example, out of network excessive hospital charges, an issue that has been gaining greater attention over the past year, would be eliminated under their bill, something the ACA never even referred to.

Notably, they would not maintain the consumer insurance protections regarding pre-existing conditions, leaving that choice up to the states. There would be no individual mandate on the federal level, but a ‘Continuous coverage’ rule would require patients to avoid gaps of more than 63 days, or face being subject to late enrollment penalties and other costs.

There are other smaller provisions that could potentially lower overall health care costs. For example, states that allow universal health savings accounts would receive 2% of their total funding to population health initiatives, that could be used to treat any public health threat, such as opioid abuse or sexually transmitted diseases.

There are significant positives to Cassidy’s approach. First and foremost, it takes a more decentralized approach to health care reform. It allows states to tailor-make their plans to their populations, allowing them to avoid onerous federal regulations that may or may not be beneficial in their circumstance. It would maintain federal funding, basically through the equivalent of block grants, and that funding would be the equivalent per capita as those states that maintain Obamacare.

Cassidy would also give states the option to auto enroll their citizens into basic health care plans. It would allow patients to opt out, but they would have to actively pursue that course of action if they chose to do so. This is an important detail of the plan. It allows states to guarantee a high rate of insured among the population, without relying on the much despised individual mandate to achieve that goal.

There are aspects of the plan that are problematic however. Because of its accounting procedural changes, coverage of older and sicker patients would probably be less than under Obamacare. The program would allocate approximately $5,000 per person for people under 55, and $6,000 per person for those aged 55-65. That would likely dramatically increase out-of-pocket costs for that older aged and sicker subset.

Politically, Cassidy makes a very strong point: by allowing the option of liberal blue states to keep the Obamacare regimen, he has a better likelihood of drawing some Democrat Senators when a full plan comes to a vote in the Senate. I am largely pessimistic about the chances of Democrats crossing the aisle on anything as long as President Trump is in office. For example, Senate Minority Leader Chuck Schumer (D-NY) described it as “an empty facade that would create chaos.” That is not the greatest first impression one could have received from Democrat leadership. However, that may also be the opening salvo in a long debate on health care reform.

Across the aisle, some conservatives will argue that it maintains too much of the Affordable Care Act. The tax regimen would not change, and that is a major issue for some such as the Freedom Caucus.  Some federal regulations that are popular would remain, but some conservatives feel that such federal rules help distort the free market. Finally, this plan is not cheap, as it largely maintains the overall federal costs that would have been incurred under Obamacare. Are conservative Republicans willing to maintain that level of federal funding? That remains an open question.

In short, the Patient Freedom Act is a well thought out piece of legislation, and any fair-minded reader would have difficulty in saying that both Sens. Cassidy and Collins have not honestly put forth a solid effort in providing a plan that would answer most critics’ questions.  That said, like every health care reform plan, it has costs and benefits; there is simply no way to escape that.  It provides both states and individuals more freedom of choice than Obamacare, but in turn, provides slightly less benefit for some patients, especially the sick and the elderly.  It also maintains the ACA taxes in the short run, which will put off many hard-core conservatives. This is a trade-off, and politicians will  have to decide if that trade-off is worth it.  But in toto, it is a valiant effort that should be taken seriously as we move forward in the coming reform debate.