On May 23, 2016. Congressman Pete Sessions (R. Texas) and Senator Bill Cassidy (R. La.), introduced the “Healthcare Accessibility, Empowerment, and Liberty Act of 2016,” (HAELA), which with Trumpian exuberance they christened “the World’s Greatest Health Care Bill Ever.” Although Affordable Care Act (ACA) opponents and presidential candidates of both parties have in recent months offered general proposals for health system change, they have avoided reducing these proposals to specific legislative language. It takes some courage to propose specific legislation, as once a bill is reduced to text, it becomes an easy target for critics who can begin to project how it would actually work out in reality.

For the past six years we have experienced how the ACA—which was not only reduced to legislative language but actually adopted into law—has worked in reality. It has in fact been an easy target for relentless criticism. An honest and realistic appraisal of the law must acknowledge that it has achieved much. It has reduced the proportion of the population that remains uninsured to historic low levels—to 9.1 percent according to a recent government report. It has offered secure health coverage to many Americans previously excluded from insurance markets by pre-existing conditions or by the cost of coverage. It has done this without significantly increasing national health expenditures, indeed health care expenditures have grown at historically low levels for most years since its adoption. Medical debt borne by consumers and the uncompensated care burden of providers have been reduced. Consumers enrolled in marketplace plans report generally being satisfied with their coverage.

On the other hand, the ACA is incredibly complicated and its implementation has proven difficult. These difficulties were most obvious in the problem-plagued launch of the marketplaces in 2013, but are also evident in the problems that tax credit recipients have experienced in dealing with the tax reconciliation process. The ACA has also been disruptive: previously insured individuals lost ACA non-compliant coverage; young, healthy consumers have experienced substantial premium increases; enrollees in narrow network plans have had to find new health care providers. Many middle and moderate income Americans remain without truly affordable coverage — facing high cost-sharing and increasing premiums.

Any ACA replacement plan must be judged as to how it compares to the ACA. Would it maintain or build on the coverage expansion achieved by the ACA? Would it be more or less successful in restraining cost growth? Will it make care more or less accessible and affordable? Does it increase or reduce complexity? Is it more or less disruptive of current arrangements than the ACA?

What’s In—And Not In—The Sessions-Cassidy Bill?

The HAELA is a bold and unconventional proposal. It is 117 pages long  — far shorter than the ACA, but also far less comprehensive in its reach. Unlike most Republican proposals it does not purport to repeal the ACA. It would repeal the individual and employer mandates and a number of the consumer protections of the ACA, but would leave much of the infrastructure in place, including the ACA’s marketplaces and income-based premium tax credits, Medicare reforms, and tax increases.

The HAELA omits many Republican health reform hardy perennials. It does nothing about limiting malpractice litigation and says almost nothing about abortion (other than that Medicaid is prohibited from funding any abortion — no exceptions). It does not promote sale of insurance across state lines; indeed, it gives states almost absolute authority to regulate insurance within their borders, including allowing the imposition of coverage mandates which interstate sales are meant to undermine.

It does not embrace high risk pools or association health plans. It does promote health savings accounts (HSAs), but “Roth” HSAs with back-end tax benefits rather than traditional HSAs with front-end benefits. It imposes a per-capita cap on Medicaid funding, but does so using an incredibly complex approach that would ease the transition from the current program and in the short-run ease the burden on the states. It undermines the current tax exclusions that support our employer-sponsored health coverage system, which covers most Americans, but leaves tax-exclusion-financed employer coverage available as an option for existing employers who still want to offer it.

The contents of the Sessions-Cassidy bill are spelled out in detail in the appendix below.

The HAELA vs. The ACA

So how does the Sessions/Cassidy HAELA plan stack up against the ACA? Without more detail it is impossible to know whether it would increase or decrease coverage. Certain aspects of HAELA should expand coverage — universal tax credits; auto-enrollment by the states; penalties for not maintaining continuous coverage; and the availability of low cost (but low value) insurance. Moreover, in the short term, individuals and families currently covered by income-based tax credits and the Medicaid expansions would be grandfathered.

On the other hand, provisions of the HAELA cutting Medicaid eligibility levels, imposing a per-capita cap on and eventually reducing Medicaid funding to the states, limiting access to income-based tax credits, repealing the individual and employer mandates, and encouraging employers to drop tax exclusion subsidized employer-sponsored coverage, would tend to increase the number of the uninsured.

A lot would depend on how the geographic and age adjustments to the tax credits were handled. Similar Republican tax credit proposals tend to provide more generous subsidies for young people, less help for older people. In the end, the legislation, like most Republican proposals, would provide more generous help for wealthier Americans, who benefit most from tax shelters like HSAs and from flat dollar tax credits, but provide less help for the low-income Americans who have benefited most from the ACA and would have to pay substantially more for coverage and for care.

It is also difficult to determine how the HAELA would affect health care costs. Imposing a per-capita cap on Medicaid funding clearly puts some limit on federal Medicaid expenditures, although it may simply shift those costs to the states, providers, and poor people. It would seem that adding fixed-dollar tax credits on top of the income-based tax credits that are already available, and leaving employers the option of continuing to offer tax-exclusion-financed employer-sponsored coverage subject only to the Cadillac excise tax, would increase rather than decrease federal spending, at least in the short run. Limited benefit plans (and skimpy coverage plans that will blossom with the repeal of the essential health benefit requirements) would offer reduced premiums but mainly shift costs to consumers who need health care as medical debt and to providers as uncompensated care. Price transparency may encourage individuals who are wealthy enough to save money in health reimbursement arrangements (HRAs) to shop for lower cost services, but most health care expenditures are for high-cost services whose cost will substantially exceed any HSA savings.

The ACA has been much criticized for its complexity and the regulatory burden it imposes. The HAELA seems far more complicated, however, and if anything imposes a greater regulatory burden. Under the HAELA the IRS has not only to administer an income-based tax credit system, but also to manage the flat-dollar, age and geography-adjusted tax credits and their relationship with employer coverage tax exclusions. Beyond that, it would need to monitor expenditures from the ROTH HSAs and, together with HHS, transparency requirement compliance by providers.

The individual mandate would go away but states could auto-enroll individuals in health plans and in Roth HSAs. Federal EHB requirements would be abolished, but only to be replaced by state mandates. Creditable coverage would need to be defined and then continuously tracked for establishing eligibility for Roth HSAs and for guaranteed enrollment in coverage without penalties. If it were even possible to design a risk adjustment program that can work without benefit and actuarial value mandates, such a program would likely add significantly to the cost healthy individuals would pay for low-premium coverage.

Finally, the HAELA would likely to be even more disruptive of current arrangements than the ACA has been. The ACA has been loudly criticized for the disruptive effects it has had on the individual and small group markets. However, it wisely left largely untouched employer-sponsored health benefits, through which most Americans get health coverage. The HAELA would likely cause many Americans to lose employer coverage, leaving them to find whatever coverage they could in the individual market using their tax credits. Individuals who lost employer coverage might well also lose existing provider relationships as they move to the nongroup market. One lesson of the ACA (and of the Clinton plan before it) is that politicians pay a high political price for disrupting, or even threatening to disrupt, existing health care arrangements with which voters are satisfied.

While congressional Republicans continue to promise further details on ACA replacement plans, the HAELA demonstrates why it might be wise rather to stick to vague generalities at least until after the fall elections. Specific legislative language clarifies the specific impacts that legislation will have on specific individuals and interests. The HAELA would reduce costs and regulatory requirements and increase access for some, but would increase costs and regulatory requirements and reduce access for others. It is an interesting—and bold—proposal. But it would likely face political headwinds at least as great as those that have faced the ACA if it were to move toward enactment.

Appendix: Drilling Down Into The HAELA

The key provisions of the Sessions-Cassidy bill would:

  • Repeal the ACA’s employer and individual mandate and related reporting provisions;
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  • Repeal the ACA’s consumer protections other than:
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    • the elimination of lifetime and annual limits (except for limited benefit insurance plans, described below);
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    • The ACA’s requirement for coverage of dependents up to age 26;
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    • Guaranteed availability (but only if an individual has been continuously insured for the 12 months preceding enrollment. If an individual has not been continuously enrolled, premiums would have to be increased by 20 percent for each prior consecutive 12-month period during which the individual was without coverage for up to 3 times the length of the most recent time the individual was without coverage. States may seek waiver of this provision if they have alternative means of securing continuous coverage).
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    • Guaranteed renewability;
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    • The prohibition against preexisting condition exclusions;
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    • The prohibition against health status underwriting, subject to exceptions; and
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    • The ACA’s prohibition against discrimination based on professional licensure type.
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  • Permit states flexibility to:
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    • Establish open enrollment periods (including an initial open enrollment period without penalties), permit premium differentials based on age and other factors, and impose other requirements to stabilize their non-exchange market;
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    • Continuing to enforce other ACA insurer reforms;
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    • Waive exchange provisions imposed by the ACA.
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  • Allow states to auto-enroll uninsured residents in “default health insurance coverage” defined as high-deductible coverage that covers limited generic drugs, qualifies for payment of premiums from a health savings account (HSA), has an “adequate” provider network, and covers childhood immunizations without cost; as well as in a “Roth HSA” (described below). Individuals could opt out of this coverage.
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  • Repeal the ACA’s essential health benefit requirements, although states could continue to require EHB coverage. (Note two ramifications of this—first although continuous coverage would be required to avoid an increased premium penalty for noncoverage, an individual could maintain continuous coverage in a minimal cost plan with minimal benefits and then upgrade to a comprehensive plan once high medical costs were incurred. That is, adverse selection would be permitted. Second, nothing in the legislation would allow insurers to evade state mandates by selling across state lines, a common proposal in other Republican plans.)
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  • Establish a risk adjustment program that would apply to insurers in the individual market modeled initially on the Medicare Advantage risk adjustment program (subject to transitional provisions for new insurers). A risk adjustment program makes sense as a means for addressing adverse and favorable selection, but it would seem that in the absence of standardized benefits and cost-sharing designing such a program would be very difficult and would result in large transfers from inexpensive plans to more comprehensive plans.)
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  • Create a “basic health insurance” program to offer limited benefit health coverage.
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    • This is one of the bill’s most creative proposals. Basic health insurance would have low annual limits as specified by regulation. Although the bill does not say this specifically, this coverage could also have low cost sharing since the insurer would be protected from risk exposure for high-cost claims. Many low-income people with limited assets might prefer low-cost-sharing, low annual limit coverage.
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    • Once an insured with limited benefit health insurance coverage reached the coverage limit, the insured would only be liable for the cost of subsequently incurred health care services to the extent that the bankruptcy valuation of the insured’s estate (taking into account exemptions allowed under the bankruptcy law) exceeded the annual limit on the policy. (Thus if an individual had a bankruptcy estate with $100,000 and coverage to $100,000, the individual would owe nothing.) Providers, on the other hand, would have no obligation to treat individuals protected by this provision without advance or guarantee of payment once coverage was exhausted, except in emergencies. Although one would expect that providers would routinely obtain payment guarantees, thus evading the law’s protections, interesting ethical conundrums involving abandonment would arise for providers who failed to do so.
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  • Offer all individuals with creditable coverage an annual “universal tax credit” of up to $2500 for an individual and an additional $2500 for a spouse, plus $1500 for child dependents, payable on a monthly basis either directly to an insurer or into a Roth HSA, up to the amount the individual paid for premiums or into an HSA.
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    • The tax credit is reduced for individuals who purchase only limited benefit coverage. It would also be adjusted for age and geographic location, although the aggregate amount of the tax credits would not be changed by these adjustments. Tax credits would be reduced by any income or payroll tax subsidies allowed for employer-sponsored coverage.
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    • Tax credits would be reconciled on an annual basis to recapture any income and payroll tax subsidies afforded taxpayers for employer-sponsored coverage that exceed the amount of the universal tax credit, unless the employer opted to provide health coverage subject to current tax exclusions in lieu of the tax credit, in which case the credit would not be available.
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    • Tax credits received through advance payments for premiums or into an HSA would be reconciled at tax filing time, as they are under the ACA, with repayment of excess advance payments subject to caps. The amount of the credit will be adjusted annually for growth in the gross domestic product (not growth in health care costs).
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    • Employers in existence before the adoption of the HAELA could opt to retain existing tax exclusions, but remain subject to the high-cost, “Cadillac” plan excise tax. The tax exclusion for employer coverage would not be available for new employers and their employees.
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    • Individuals who purchased through the exchanges could continue to receive the ACA’s income-based tax credits, but if they opted at any time for the universal tax credit could return to income-based credits.
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  • Allow employers to offer HRAs to allow employees to purchase individual coverage. It is not clear to me how the tax subsidies afforded HRAs relate to the other tax credit provisions.
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  • Distribute one quarter of any tax credits that remain unclaimed by the residents of a state to that state for purchasing indigent care.
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  • Establish “Roth HSAs.”
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    • Deposits into Roth HSAs would be taxed, although their income would not be not subject to taxation. Monthly deposits into Roth HSAs would be limited to 1/12 of $5000 for each family member covered by “creditable coverage,” plus $1000 for each member over age 55. Contributions would be reduced by amounts contributed to other tax-favored health accounts.
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    • Roth HSAs would only be available to individuals who maintained “creditable coverage,” some form of public or private, group or individual, health insurance coverage. Absent disability or death, if an individual with a Roth HSA became uninsured, any contributions made during the time the individual lacked creditable coverage would become taxable and subject to a 10 percent penalty.
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    • Funds from a Roth HAS spent on qualified medical expenses, including health insurance premiums, would not be subject to taxation. Roth HSA distributions not spent on qualified medical expenses would be taxable and subject to a 10 percent excise tax. After an individual reached Medicare eligibility age, Roth HSA funds could be spent for any purpose without imposition of the excise tax.
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  • Permit no further pretax contributions to be made to traditional HSAs after the end of 2016 except for individuals who were covered by tax-subsidized employer coverage rather than tax credit coverage.
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  • Eliminate the current medical expense tax deduction.
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  • Allow HSA funds to be used to pay monthly fees for concierge medicine, which would expressly not be considered health insurance under federal law.
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  • Require health care providers to post prices for purchasing services from Roth HSAs. Payments cannot be made from HSAs to providers who fail to post prices. Health care providers would be prohibited from charging prices in excess of these amounts (or, if less, 110 percent Medicare payment rates or 85 percent of UCR for physician services) for services provided in an emergency.
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  • Grant HHS authority to waive any provision of the Stark self-referral law or state licensure or certification laws if doing so would increase competition within or reduce the cost or improve the quality of health care.

Finally, the legislation would impose a per-capita cap on Medicaid funding using a complicated formula under which the federal government would initially bear three quarters of the cost, the states one quarter, but with the growth of federal contributions limited and federal per-capita contribution rates gradually equalizing among the states. In general, non-pregnant, non-disabled adults under 65 would only be eligible if their income did not exceed 100 percent of poverty, although the current Medicaid expansion population would be grandfathered in as long as beneficiaries maintained continuous coverage.