Senate Better Care Act: A Big Bunch of Sausage Meat Loaf

Backroom policy deals have been described as akin to making sausage. You don’t really want to see it done or you’d lose your appetite. The new senate health bill is more like meat loaf than sausage, however. By that I mean a recipe composed of delicious ingredients mushed together with really distasteful ones in an unappetizing blob that could have been a great burger but wasn’t. Remember that 1977 song “Two Out of Three Ain’t Bad” by the band Meat Loaf? That pretty much sums up the senate health reform bill.

The Better Care Reconciliation Act of 2017 (BCA) proposes a couple good changes: repeals the Obamacare mandates and associated taxes, sort of caps Medicaid growth but does nothing to make health coverage a better deal for most people. First and foremost BCA does not attack the rout cause of high premiums. These are the regulations requiring insurers to accept customers they do not want and make up the difference by overcharging desirable ones. The catch: gouging good customers makes them less likely to enroll since their perceived need for health coverage is lower. Without profitable customers, premiums must rise to cover all the unprofitable ones.

To be precise, the Better Care Act does not repeal Obamacare’s costly guaranteed issue / community rating regulations. Everywhere these regulations have been tried, they resulted in adverse selection. Adverse selection is a condition where sicker than average consumers are most likely to join because it’s a bad deal for everyone else. This causes medical claims to skyrocket, requiring premium increases to compensate. Each successive round of premium hikes causes a fresh round of healthy people to drop out — leading to more premium hikes. For the small number of sick people, Obamacare is a bargain, but it’s a huge ripoff for the majority of people without health problems.
It sounds mean spirited to expect people with ongoing health conditions to pay higher premiums. But that’s not the case. Either way sick people’s premiums are going to be high. It’s just that prior to Obamacare, healthy people could also get coverage that reflected their health risk. Today, healthy people shun Obamacare, which is why premiums are high for all that remain.

The BCA would tweak the subsidies Americans receive for health insurance, This appears to be a slight improvement. Subsidies would be a function not only of income but also age. The benchmark plan is also based on an actuarial value of 58% rather than 70%. Democrats believe this is far too stingy, while conservative Republicans believe it too costly for taxpayers.

On plus side, the BCA repeals the individual and employer mandates. Also on the plus side, the BCA would repeal most Obamacare taxes. This is a huge deal. I’ve heard Obamacare supporters claim this is a huge redistribution from the poor and middle class to the rich. That’s bogus: Obamacare was a huge redistribution from the rich and middle class to a rat hole, with the poor benefiting a little. This change just redirects the former taxes back to taxpayers. The bill would repeal the Cadillac tax for several years and allow it to come back. There are differing opinions whether this is good or bad.
Small employers could also band together and form Association Health Plans, allowing numerous small firms to leverage their community to get insurance rates similar to what large employers obtain. The bill would also boost health savings accounts (HSAs), allow higher contributions and catchup payments. Consumers could even use their HSAs and FSAs to pay for over-the-counter drugs.

For their part, insurers would get cost-sharing reduction payments for several years but these would be phased out. The essential health benefit package would also be phased out and states would have more authority to decide the benefits that must be covered. I hope this means consumers could decide which benefits they’re willing to pay for.
States would receive a stabilization fund to shore up their insurance markets. This would also give states more leeway to apply for waivers to tweak some insurance regulations, such as medical loss ratio, age bands and (according to some) cost-sharing. This seems too little, too late. States need the right to innovate and respond to consumer needs rather than be stuck with Obamacare rules that are causing individual insurance to fall into disarray.

Arguably the most important change would be a cap on future Medicaid growth. States would have the option to accept per capita block grants with some stipulations. States could also impose work requirements if they wanted, but it’s not mandatory. Further Medicaid expansion would be curtailed. In several years those that have already expanded eligibility to single adults would have their matching rate ratcheted down. In 2023 the federal government would still pay 75% of expansion populations. That doesn’t really go far enough. States should on the hook for expansion and bells & whistles, with the federal government covering only the core needs of the poor.

The Better Care Act is a disjointed hodgepodge of good, bad and ugly provisions. Many observers rightly criticize it as being more of an Obamacare change bill than a repeal or replace bill. It’s not a bad start but certainly not a good one. Congress needs to go back and finish the job they were elected to perform.

Comments (8)

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  1. Ron Greiner says:

    The BCA continues the ACA’s scam on the American population. Blue Cross of Iowa will continue to collect $27,000 a year, year after year, from taxpayers for a 30-year-old State employee with a child and when she gets too sick to work taxpayers pay again to switch her off Blue Cross to a different insurance company to pay the expensive medical treatment. This is not insurance Devon.

    The history books of the future will call the ACA the biggest scam in American history. This is not complicated.

    The TRUTH is like Katrina and blows the LIES away!

  2. Jimbino says:

    I continue to find it amazing that so little is said about the foolishness and high cost of insurance. Throughout history, man has lived his four-score and ten without insurance of any kind.

    Health insurance is one of the worst. For starters, it’s a total misnomer: fire insurance insures against fire, flood insurance against flood; health insurance should be called “sickness insurance” just as life insurance is really “death insurance.”

    But the lack of Truth in Insurance doesn’t stop there. Amerikans pay a fortune for health care that is the most expensive in the world. If the average market cost of an Amerikan colonoscopy is $2000, the average insured pays $2500 for the procedure under Obamacare, since the “loss-ratio” of Obamacare on the exchanges is 80%.

    • Devon Herrick says:

      Jimbino you raise an important point. Throughout history insurance was pooling of similar (but unknown) risks. Your risk of fire was unknown but probably similar to your neighbors. One fire could wipe you out. So 100 neighbors could pool the risk and each pay 1% of the risk each year.

      Employers changed medical coverage and made it into pre-paid medical care due tot he tax advantage (45% off). That in turn enticed the government to convert individual insurance into a charity cross-subsidy for poor, sick people. Obamacare is a type of socialized medicine where individual in three separate cohorts all pay similar rates and nobody can be turned away. Obviously this is a mechanism to force people to subsidize others.

      The result is people are now increasingly paying all of their day-to-day medical care out of pocket. They (like many I’ve talked to) will decide insurance that does them no good is something they don’t need. Maybe it will cause more people get rid of insurance. The optimal amount of insurance is not unlimited coverage that pays for the multi-million dollar claims. That just encourages the health care system to develop multi-million dollar treatments.

      • Lee Benham says:

        Devon,

        You are correct. However Obamacare is not insurance. 100 people banded together and paid 1% for fire insurance because 1% was worth it to them to transfer the risk of covering 100% of the fire. When the cost of insurance and the additional out of pocket risks are so high people will not transfer the risk.

  3. Jimbino says:

    You both ignore one important point that I make. The 100 that banded together would each pay around 1.25% of the value of the loss incurred, assuming a loss-ratio of 80% equal to that of Obamacare. In 2001, I was able to use gummint figures (now no longer available) to determine the loss-ratio of NFIP flood insurance to be some 65%–even worse–especially considering that flood losses are supposed to be partially indemnified by the gummint.

    I read that the loss-ratio for title insurance is some 2%, though title insurers actually do (a little?) more work to earn their 98% premium, while health insurers earn their 20% by just staring at actuarial tables while sucking at the gummint tit.

  4. Ron Greiner says:

    NCPA Newsflash: The European Central Bank (ECB) has announced as of June 23rd, that it was declaring two Italian banks insolvent. Veneto Banca SpA and Banca Popolare di Vicenza SpA have failed since the two banks repeatedly violated the regulatory capital requirements.

    USA Troubles: Chicago’s police pension fund won’t have enough money to pay benefits to retirees in 2021, according to a projection by Local Government Information Services (LGIS). At the end of 2020, LGIS estimates that the Policemen’s Annuity and Benefit Fund of Chicago will have less than $150 million in assets to pay $928 million promised to 14,133 retirees the following year.

    This is the fate of state and local pension funds. There is a storm gathering on the horizon and of course these state and local governments will be raising taxes to try to stay afloat. The system is collapsing and it is totally unsustainable. This is the very same crisis that destroyed the Roman Empire.

  5. Paul Nelson says:

    With or without ACA 2010 or AHA 2017 or …. , we will not equitably and justly solve the HEALTH needs of each citizen with an economic plan that expects the healthcare industry to mitigate the over-all Unstable HEALTH problems within every community. Universal health insurance is still a goal but must be associated with a broader means to ameliorate the social determinants of Unstable HEALTH, community by community. There is absolutely no reason to believe or predict that our CURRENT paradigm strategy for healthcare reform will ever solve its over-all cost and quality problems. Remembering the Roman Empire as above, health spending by our nation is critically out of control.

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