President-elect Donald Trump and Congress should seriously consider adopting the “Obamacare Replacement Act,” the latest and possibly best Republican proposal aimed at repealing and replacing the Affordable Care Act (ACA). The plan would lower the cost of insurance by eliminating various mandates and increasing patients’ health care buying power by expanding the use of health savings accounts (HSAs).
Senator Rand Paul (R-KY) tweeted a photograph of the first page of the draft bill on Saturday, January 14, with the caption, “Coming this week: THE Obamacare replacement bill. Done drafting the bill & will be discussing on @CNN Sunday AM and all week next week.”
Although Paul has yet to introduce his plan as legislation in the new Congress, he revealed its central components this week on various television networks, reiterating guideposts he sketched in an op-ed for the news and commentary site Rare on January 2. Paul wrote:
“What should we replace Obamacare with? Perhaps we should try freedom:
1. The freedom to choose inexpensive insurance free of government dictates.
2. The freedom to save unlimited amounts in a health savings account.
3. The freedom to buy insurance across state lines.
4. The freedom for all individuals to join together in voluntary associations to gain the leverage of being part of a large insurance pool.”
These points boil down to putting patients, instead of government and industry cronies, at the center of our health care system. Paul’s freedom strategy would increase the influence consumers have over the products insurers price and sell. It would open up insurance-buying opportunities for consumers other than the binary “employer-sponsored” and “individual” markets. And it would make consumers instead of their employers the target audience of insurance products, and help people pay for their health care and insurance, too.
The key to insuring a greater number of people than are insured under ACA is “to legalize the sale of inexpensive insurance,”which means “getting rid of Obamacare mandates on what you can buy,” Paul told Jake Tapper on State of the Union on January 15. As a rule, ACA fines people who have not purchased an insurance plan compliant with the law’s 10 mandates for minimum essential coverage.
Each ACA-compliant plan must cover outpatient care, emergency room services, hospitalization, pregnancy and newborn care, mental health and substance abuse treatment, prescription drugs, post-injury rehab, labs, preventive care, and pediatric care (including oral and vision care for children), according to Healthcare.gov.
Moreover, the law’s “guaranteed issue” and “community rating” mandates require insurers to sell insurance to johnny-come-latelies who wait to buy it until they are very sick, at the same price insurers sold it to other customers.
These mandates raise the cost of insurance for people who don’t want coverage for services they may never, and in some cases can never, use. Eliminating those mandates would lead to an influx of plans offering so-called catastrophic coverage with high deductibles for lower premiums than the least expensive Bronze plan offered on the Obamacare exchanges.
Expanding HSAs alongside eliminating these insurance mandates will not only give many (if not all) people tax breaks for dollars they spend on health care. It will reinforce the salubrious effects of making patients aware of the costs of their health care.
For example, a natural byproduct of allowing insurers to offer, and patients to buy without penalty, only catastrophic coverage would be people’s tendency to use insurance less frequently to pay for health care needs. This would make not only insurance, but health care itself, cheaper, for three reasons.
First, people with catastrophic-level deductibles would not try to max out their deductibles each year, which many people now try to do under the illusion they will get free (to them) health care the rest of the year. Instead of chasing their maximum deductible, people would be more likely to pay providers directly for any services they can afford. This would raise price awareness as people calculate whether they should pay providers directly or use insurance instead.
Second, price awareness creates demand for price transparency. Most customers, including and especially responsible low-income people on tight budgets, want to know prices before they buy. To please these patients and earn their business, providers would increasingly post their prices up front, just as the Surgery Center of Oklahoma and Oregon Coast Dermatology do.
Third, an increasingly price-conscious customer base would give providers a greater incentive to compete on price and quality than the current system gives them, in which patients try to pay as much as possible to make their insurance plan worth the premium. Instead, people would be more inclined to shop around for the best value and even negotiate with providers, who can afford to charge cash patients less when not funneling money through middle-man insurers, and providers would be more responsive to patient negotiations.
The current broken system’s overreliance on insurance for routine services prompts many to conclude, erroneously, that health care markets do not function as other markets do. The opposite is true. The health care market doesn’t look like other markets because regulations have distorted it. We are witnessing the result of policies distancing consumers from knowledge of prices. Our national leaders for at least the past eight years (but actually the past 74 years) have accomplished this using labyrinthine laws implemented by unaccountable bureaucracies.
Paul’s proposal contains important clues for escaping the Obamacare labyrinth. Trump and Congress should grab hold of it, lest we remain stuck here long after President Barack Obama has escaped.
— Michael T. Hamilton (email@example.com), @MikeFreeMarket) is a Heartland Institute research fellow and managing editor of Health Care News, author of the weekly Consumer Power Report, and host of the Health Care News Podcast.