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Commentary By Chris Pope

The Senate Should Put The Needy First In Obamacare Reform

Health Affordable Care Act

Instead of just fiddling with ObamaCare, wouldn't it be better to focus on those who need the help the most? 

Barely a day goes by without news stories of rising costs and deteriorating access to care under health insurance arrangements established by the Affordable Care Act. The House GOP's proposed replacement to the ACA contains valuable reforms, but has struggled through lack of a clear unifying theme, and concerns remain that it provides inadequate coverage for those with pre-existing conditions.

The Senate can greatly improve on the ACA by concentrating that legislation's sprawling subsidies on the subset of the American population that is unable to purchase insurance on an actuarially priced and competitive market.  It should similarly support attempts to concentrate Medicaid funds on the most essential services by building on reforms to that program proposed by the House.

By demonstrating a core commitment to prioritizing care for the sickest Americans, the Senate GOP can make clear that its reforms will lower costs and guarantee that support will be effective where it is most needed.

As Democrats defend the ACA, their rallying point has been the protection it provides for individuals with pre-existing conditions. CBO has estimated that, under current law, around $100 billion per year will be spent subsidizing the premiums and cost-sharing of individuals enrolled on the ACA's exchanges.

Yet this spending is very poorly focused on the purpose at hand. Only 2 million out of the 10 million on the exchange have pre-existing conditions, but 9 million are currently receiving subsidies.

This vast inefficiency provides the key opening for the GOP. Health insurance subsidies should be concentrated on those who need them, rather than spread so broadly. In the American Health Care Act, the House took a good step in this direction by establishing a Patient and State Stability Fund of $10 billion to $15 billion per year to defray the costs of covering the chronically ill. A variety of stakeholders have suggested this amount is inadequate to cover the aggregate costs involved.

Yet the House bill also created a broad new tax credit, expected to cost over $60 billion per year.  This provides $2,000 to $4,000 for Americans to purchase "qualified health plans" on the individual market, but the money would be far better spent if reallocated to the PSSF.

This would allow states to support the coverage of the chronically ill who are unable to afford actuarially priced insurance, whether by expanding reinsurance, restructuring cost-sharing subsidies, or another method for targeting assistance at the neediest beneficiaries.

To ensure that subsidies remain reserved for those who most need them, the Senate GOP should remove any barriers that discourage those who can afford to purchase unsubsidized health insurance through a competitive, actuarially priced market from doing so.

The Secretary of Health and Human Services has the regulatory authority to roll back an October 2016 regulation by which the Obama administration had prohibited the sale of 364-day-long and renewable plans on the competitively priced "short-term" market.

This would allow all individuals without major pre-existing conditions to purchase attractive and affordably priced coverage in a well-functioning market, and leave the exchange's subsidies focused on the small pool of the chronically ill who genuinely need further government support.

The Senate should follow the House in supporting these efforts by repealing the individual mandate penalty, which the ACA had imposed on individuals who had only purchased these plans, and repeal any other tax disadvantages to which they are subject.

The AHCA allowed states to continue claiming matching funds for the expansion of Medicaid to able-bodied childless adults, but reduced the rate at which the federal government subsidizes the coverage of additional such beneficiaries in the future to bring it in line with the rates of subsidy for services provided to children, the disabled and pregnant women.

This was a sensible compromise, which treats both expansion and nonexpansion states fairly, and the Senate would be well-advised to strike a similar balance.

But given that the expansion of Medicaid coverage to low-income, able-bodied, childless adults increased the program's costs by only 12%, while overall expenditures are projected to increase by 64% over the next decade, the broader trajectory of the program is ultimately a more important issue. For this reason, the AHCA proposed to cap the rate by which each state can increase spending every year.

Medicaid was intended to provide health care coverage to those who can afford it least. However, by distributing funds according to the amount that states are themselves able to put in, it has ensured that the wealthiest states receive the largest federal subsidies.

In 2015, Vermont received an average of $13,720 in federal Medicaid funds per person under the poverty level, but Alabama only $4,070.

The Senate could enhance the House's Medicaid provision by splitting its per-capita caps into two tracks: a higher growth rate for the program's core set of hospital and physician services (which varies relatively little between states), and a lower one for support services (which have been expanded disproportionately by the wealthiest states).

This would prevent cuts from biting hardest in states that begin with the most meager allotments, focus the pressure to trim budgets on the states with the most inflated expenses, and by doing so make the majority of future members of Congress less eager to find pay-fors to override the caps in the budget every year.

This piece originally appeared on Investor's Business Daily


Christopher Pope is a senior fellow at the Manhattan Institute.

This piece originally appeared in Investor's Business Daily