GOP replacement plans are likely to be much more expensive for millions of Americans with little if any benefit. This article dives into how the Patient Freedom Act of 2017, introduced on January 23 in the Senate, sets up health insurance “access” in a way that adds unnecessary expenses and increases insurance costs and fees—all for much higher financial and health risks to Americans.
In part 1, I discussed the gist of the PFA of 2017 and how it fails to prohibit discrimination based on pre-existing conditions or health status by including a continuous coverage loophole and penalty fees.
This loophole is likely to greatly increase costs for millions of Americans by enabling insurance companies to deny or exorbitantly increase premiums based on pre-existing conditions on top of fees for not maintaining continuous coverage. With the high deductibles of the default auto-enrollment plan, the working poor and some in the middle class might not even be able to use the insurance in practice, so the higher costs come with little to no benefit.
But that is not the only way the Patient Freedom Act is likely to increase costs for Americans.
Auto-enrollment Is a Mandate with a Different Name
Although Option 2 of the PFA of 2017 (the key option in the bill, between  retaining ACA or  foregoing federal funding altogether) removes the ACA’s individual mandate, requiring most Americans to have health insurance, it replaces it with auto-enrollment of uninsured residents in a default high-deductible state plan.
This is functionally no different than the mandate. You can opt out of the state plan, but you could also get an exemption from the mandate, although the mandate exemptions did not apply to everyone, while the opt out does.
But if you opt out, you are essentially choosing not to be insured at all. You could hypothetically opt out and get your insurance separately, without federal/state funding, but then you enter the “continuous coverage” loop without the funds to help you maintain coverage.
Default Plans Likely to Be Expensive and, for Many, Useless
The premium and deductible amounts are unclear beyond the bill specifying a “high-deductible” plan with a prescription drug plan “limited to a Tier 1 formulary benefit (as commonly understood) for a limited number of chronic conditions.” The bill refers to the Internal Revenue Code of 1986 to define a high-deductible plan, which specifies in section 223(c)(2)(A) a minimum $1,000 deductible for individuals.
With GOP plans to significantly revise the tax code, however, we have no way of knowing whether these definitions will change before an ACA replacement plan is enacted.
What the default plan covers appears to be left up to the states except for the stipulation of Medicare Advantage provider access requirements, which may change in Congress, and childhood immunization coverage, which is itself at risk under the Trump administration, especially if Tom Price is confirmed as head of Health and Human Services.
So to sum up, we don’t know what the premiums and deductibles will cost individuals for the default plan beyond knowing the deductible will be at least $1,000 for individuals, and we know very little about what care the default plan will cover.
Roth HSAs Add Unnecessary Expense and Risk for Little to No Value to Millions
States choosing Option 2 will set up a Roth health savings account (HSA) for all residents (including those already insured on their own or through employer plans), with regular deposits (federal or state) to be used for healthcare expenses, including premium payments, healthcare payments toward the deductible, out-of-pocket expenses, and so forth.
Note: These deposits are taxable as income.
How much individuals will receive in their Roth HSAs is unknown, but we do know that it is likely to be less than the amount people have received as subsidies and tax credits under ACA because the federal funding will be spread out among all residents, including those on employer health plans, except those who opt out.
Representative Pete Sessions (R-TX) spoke to the House on the same day the PFA of 2017 was introduced in the Senate by Bill Cassidy (R-LA). Sessions described the following amounts:
So one of the ideas that I have–and I shared this plan with Senator Bill Cassidy from Louisiana—is that what we would like to do is to provide a $2,500 tax credit for adults and a $1,500 tax credit for dependent children that would be advanceable, assignable, and
The tax credit refers to the amount that would go to HSAs, and the PFA of 2017 specifies that monthly payments are an option. This means that parents might have $125 a month (ignoring potential fees) to pay both the premium and their child’s health care costs toward a minimum $1,000 deductible, and that adults would have $250 a month to go toward their premium and a minimum $1,000 deductible.
In practice, this leaves millions of Americans paying a premium for health insurance that they won’t be able to use because they can’t afford the $1,000 out-of-pocket costs, and that’s just for health care that is covered by this limited benefits plan. The problem is compounded for couples and families.
Once enrolled, if individuals do not maintain continuous coverage, they will not only be charged a monthly late enrollment penalty and lose the pre-existing condition and health status protections, they will also have to pay a 10% penalty on contributions to the HSA.
Further, the PFA bill includes a “special rule” for low-income people who have insurance through their employer to which the employer contributes. The rule decreases the federal/state funding in the individual’s Roth HSA. The threshold for “low income” is not defined, and no similar rule exists for people who are not “low income” but have similar employer-sponsored coverage. I don’t see any legitimate purpose to this beyond being a giant middle finger to low-income working-class Americans.
People of all income levels who qualify for government-funded Roth HSAs may be vulnerable to another recession, which seems increasingly likely under the Trump administration and GOP-led Congress, which is already planning to gut Dodd-Frank, the regulations put in place to prevent banks from engaging in the practices that led to the 2008–2009 recession.
Further, the Roth HSAs will need to be managed by a third party, likely banks, which introduces a completely unnecessary cost and complication that taxpayers will have to cover one way or another, not to mention the possible fees banks may tack on.
The costs of introducing and managing the Roth HSAs and the default coverage auto-enrollment are also unknown. Who will pay for this more complicated system and how? Will it further reduce the funding that goes into Roth HSAs, or will the additional cost be passed on to states and taxpayers, including those who opt out completely?
Roth HSAs and auto-enrollment in a default high-deductible plan appears to be more expensive for all taxpayers. For millions in the lower and middle classes, the decision to opt in could start them on a cycle of unmanageable health-care costs that could easily lead to difficulties maintaining continuous coverage. This in turn would add even more costs in penalties and in much higher premiums or denial of coverage for pre-existing conditions.
Millions of Americans will have to decide whether to take the risk of having health insurance that might bankrupt them or forgoing health insurance altogether and gambling on the unlikely scenario of not getting sick or injured—a choice that for many is a choice between their money or their lives.
Featured image courtesy of http://401kcalculator.org