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GOP senators unveil first health care plan in an Obamacare world

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Beltway Confidential,Opinion,Philip Klein,Obamacare,Health Care,Tom Coburn,Orrin Hatch

Republican senators on Monday unveiled a plan to replace President Obama's health care law that reflects the limitations on GOP health policy created by the rollout of Obamacare.

Sens. Tom Coburn, R-Okla., Richard Burr, R-N.C., and Orrin Hatch, R-Utah, would repeal Obamacare as part of the Patient Choice, Affordability, Responsibility and Empowerment Act. But in crafting a replacement, the lawmakers were cognizant of both the popular and unpopular aspects of Obamacare.

On the one hand, they wanted to provide some sort of assistance to many of those who are benefiting now that Obamacare is in place. But, on the other hand, considering the backlash against the sweeping nature of Obamacare in general and Obama's specific broken promise that Americans could keep their health plans if they liked them, the proposal isn't as bold and disruptive (in a free market direction) as it may have been in a pre-Obamacare world.

Under the replacement proposal, as is the case with Obamacare, insurers would be barred from imposing lifetime limits on medical claims and required to allow individuals to remain on their parents’ policies until the age of 26.

Under the rules of Obamacare, insurers can only charge three times as much to older Americans as they charge younger Americans, one of the factors that has driven up the price of insurance for the young. The Coburn-Burr-Hatch proposal would create a federal benchmark allowing insurers to charge older Americans five times as much. However, states would be permitted to set their own ratio below that amount, or opt out of the requirement altogether.

To address those with pre-existing conditions, who have been among the major targeted beneficiaries of Obamacare, the GOP proposal would require insurers to offer coverage to anybody who has applied as long as they have maintained continuous coverage, regardless of whether they are switching health plans or shifting from employer-based health care to the individual market. The theory is that this would offer some protection to those with pre-existing conditions without having the same effect on premiums as Obamacare’s full ban on the practice. At the same time, the idea is that this would create an incentive for everybody to maintain their insurance coverage, thus negating the need for the individual mandate.

For years, most free market health care proposals began with the idea of ending the discrimination in the tax code that gives an unfair advantage to those who obtain health insurance through their employers. But in consideration of the backlash against the way that Obamacare has disrupted people’s insurance coverage, the new GOP proposal would maintain the employer health insurance bias. Instead of scrapping the employer health insurance tax exclusion, the proposal would merely cap it at 65 percent of the average plan’s costs.

The savings generated by capping the exclusion would be used to help finance tax credits to be offered to individuals earning up to 300 percent of the federal poverty level (or annual earnings of about $35,000 for an individual). A new division of the U.S. Department of Treasury known as the Office of Health Financing would administer the credits. Obamacare’s subsidies are more generous and go up to 400 percent of the federal poverty level.

In cases where individuals qualify for a tax credit high enough to cover the cost of a plan but never sign up for insurance, states have the option of automatically enrolling them in a default policy, though the individuals would also have the ability to opt out.

The proposal would also expand the use of tax free health savings accounts, for instance, by allowing funds to be withdrawn to pay premiums for long-term care insurance and COBRA.

Instead of expanding Medicaid, as Obamacare does, the Coburn-Burr-Hatch proposal would reform it to give more flexibility to states and allow Medicaid beneficiaries the option of using their tax credit to purchase private coverage.

In addition, the proposal encourages states to adopt medical malpractice reforms and requires hospitals and insurers to improve price transparency.

The Congressional Budget Office has not evaluated the proposal, which hasn't been put into legislative text. But the authors argue it would be “roughly budget-neutral over a decade” and “competitive” with Obamacare when it comes to how many people would be covered.

My guess is that if the CBO were to score it, the proposal would be found to spend less than Obamacare and reduce premiums relative to Obamacare, but cover fewer people.

Interestingly, a previous plan introduced by Burr and Coburn in 2009, while Obamacare was still being debated, fully equalized the tax treatment of health insurance, regardless of employment status, and also gave grants to states to set up health insurance exchanges.

Unsurprisingly after the botched rollout of Obamacare, the new plan doesn’t offer any incentives for states to establish exchanges, though nothing in the proposal would prevent them from doing so.

Ultimately, the new Coburn-Burr-Hatch plan would not usher in a free market for health insurance in the United States, which would require fully ending the distortion of the tax code and removing far more regulations. What it does do is offer individuals more freedom than now exists under Obamacare.

Though it isn’t likely to become law anytime soon, the proposal provides a useful insight into how Republicans are attempting to grapple with health care policy in a world where Obamacare now represents the status quo.

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