The Rand Paul Healthcare Bill

The house withdrew the AHCA today. After seven years of screaming about repealing the ACA, it looks like they can wait longer. I had made some criticisms of Ryan’s plan and so a friend asked me what I thought of Rand Paul’s healthcare bill. There are some good ideas in there, but also some bad ones, and some ones that I’m not so convinced would work out, even though they sound good. So here are my thoughts on it in no particular order.

I liked the Charity and Bad Debt deduction for physicians. Basically, physicians can deduct up to 10% of their gross income for amounts they would have otherwise charged for charitable care or for those with bad debt. I think this may help drive down some healthcare costs, while also helping out people who aren’t able to afford healthcare. But I think this whole issue of healthcare costs itself needs to be looked at more (for example, drug costs).

Paul’s plan is pretty bad for poor or unemployed people in general. It brings back the HIPAA protection for pre-existing conditions, but that is tied to the time you were employed. So if you haven’t been able to get a job for a while, you’re screwed. It also takes away the ACA’s essential health-benefits requirements, community rating restrictions, rating reviews, medical-loss ratio, and other mandates. I think these mandates are necessary because otherwise the system is setup so that it is more profitable for companies to deny coverage than provide it. Not only that, without the individual mandate, healthy or younger people don’t really have any incentive to sign up (not that the individual mandate was doing much in that regard). This means that the individual market is not that profitable for insurance companies, and most Americans get their insurance through employers anyway. So I don’t see how market forces will drive prices down, enough to where younger or healthy people don’t feel like it is such a burden to get insurance, or even to where it is affordable for poor people.

One of Paul’s other proposals is to open competition across state lines. I think that may help drives the prices down a bit, but since purchasing individual-coverage is still largely disincentivized, I still don’t see much change happening. This is also not going to happen immediately, so in the meantime, it will be more profitable for insurance companies to deny coverage to risky (in the sense of costs to the insurer) individuals. This will stress out an already expensive market, because these people will inevitably get sick enough to where they need care. They won’t be able to afford it, and will go bankrupt, causing someone to eat the costs, which forces prices to go up even more as they try to offset the difference. He also mentions expanding the Medicaid Waiver program, which lets states change their Medicaid plans without approval by the HHS. This can allow states to experiment with different coverage-rules, but my admittedly-cynical expectation is that they will change rules in an effort to save costs and not expand coverage, which I think will make the problem I mentioned earlier even worse.

He does propose a tax-related benefit; basically you are allowed to deduct your premiums from your taxable income. But I don’t know if that really would be an incentive. Note that you will end up saving more money if you didn’t get insurance and held onto what you would have paid in premiums, than you would by getting insurance, and then claiming the premium as a tax deduction. To encourage participation in the individual market, there’s stuff in there about Individual Health Pools and Association Health Pools, where a bunch of people can get together and pool their money. It sounds like a good idea in theory, but without more details I can’t say whether it would help or not.

There’s a bunch of stuff related to HSAs, but HSAs are only useful for people with steady income, and most definitely not for people making minimum-wage. He does also propose removing limits, but that won’t help someone making minimum wage either. There’s a funny bit where you can use your HSA to pay for insurance premiums I guess, but why not just pay for it directly if you’re going to be putting money into an HSA? I don’t think HSAs in general work; at least not for a healthcare market with the kinds of costs we see today. People don’t have the information to predict what kind of healthcare they would need. Not only that, people have no idea how much such care would even cost. So how does it really help if you’ve been putting away $200 a month for a year, only to get surgery in December that costs $6000? This is not outside the realm of possibility.

Overall, I think Rand Paul’s plan is worse than the ACA, because it will effectively start off by denying coverage to a bunch of people. Some of the ideas sound good in theory, but I am not convinced they will work out. Some of the ones that may work out, will take too long to do so, which means that a lot of people are going to be without coverage in the meantime; it seems unethical to write them off simply because the market needs time to “correct”. However, I think there are some good ideas in there that could be rolled into ACA — some of the tax-related ideas are good, although I would much prefer a refundable tax-credit for premiums compared to a deduction. The tax benefits for physicians that provide charitable care is also good, and I think it would be helpful to expand those to apply to all sorts of healthcare providers.