Tom Price and his Empowering Patients First Act

President-Elect Donald Trump has chosen Congressman Tom Price, M.D. to be Secretary of Health and Human Services in his administration.[1] First elected in November 2004, Congressman Tom Price, M.D. represents Georgia’s 6th District. For twenty years, he cared for patients as an orthopaedic surgeon in the Atlanta area.

Dr Tom Price has introduced the ‘Empowering Patients First Act’ in each of the last four Congresses (111th to 114th). Now known as H.R. 2300, the Bill was introduced for the first time in July 2009 and most recently in May 2015. On his website, Dr Price provides the text and an overview of the Bill.[2] What does this Bill contain and how does it compare to President-Elect Donald Trump’s pre-election proposals?[3]


In 2003, Dr Price gave an overview of his Bill.

Empowering Patients First Act – Main Points

  • Full repeal of the Affordable Care Act (Obamacare)
  • Tax credit to buy health insurance
    • Provides a tax credit to buy health insurance in the individual market.
    • Tax credit rises with age: $1,200 for 18 to 35, $2,100 for 35 to 50, $3,000 for over 50 and $900 per child up to age 18.
    • Only for citizens or lawful permanent residents.
    • Allows individuals to opt-out of Medicare, Medicaid, TRICARE, VA, FEHBP or employer subsidised group plan to receive tax credit for individual insurance instead.
  • Expand Health Savings Accounts (HSAs)
    • One time $1,000 tax credit to HSA to encourage use.
    • HSA can be rolled over to spouse, child, parent, or grandparent upon death.
    • Protected from seizure in bankruptcy proceedings.
    • Contributions to HSAs are already tax deductible.[4]
  • Limited deductions for employer provided health insurance
    • Employers may deduct employee health insurance expenses from their taxable income up to a limit of: $20,000 for family coverage, $8,000 for individual coverage.
  • Limitations on abortion funding
    • From the overview of the legislation, “no federal funds authorized under, or credits or deductions allowed under … this bill may be used to pay for abortion (exceptions if the pregnancy endangers a women’s life or was the result of rape or incest) or cover any part of the costs of any health plan that includes coverage of abortion”.
    • In addition, it “prohibits discrimination against any individual or health care entity that does not provide, cover, or pay for abortions, and allows for accommodations of the conscientious objection of a purchaser or health care provider when a procedure is contrary to the religious beliefs or moral convictions of such purchaser or provider.”
  • Grants to States for high risk patients
    • States receive grants for coverage through a high-risk pool, a reinsurance pool, or other risk adjustment mechanism, used for subsidising the purchase of personal health insurance.
    • These government run plans are for people with existing medical conditions who cannot find affordable private health insurance.
    • In the Bill introduced in May 2015, the section providing grants to States would sunset on 1 October 2018.
  • Establish Association Health Plans (AHPs)
    • Through their membership of a trade or professional association, small businesses can form Association Health Plans (AHPs) across state lines to purchase health insurance for their families and employees.
  • Interstate market for health insurance
    • Allows insurers licensed in one state to offer health insurance to residents of another state.
    • Allows customers to purchase health insurance from another state.
  • Medical lawsuit reform
    • The Secretary of Health and Human Services shall issue clinical guidelines endorsed by medical specialty societies. Only guidelines approved and submitted by medical specialty societies shall be included in the guidelines.
    • Adherence to clinical guidelines endorsed by medical specialty societies can be used as a defence in a medical lawsuit.

Major Similarities and Differences

Both proposals:

  • fully repeal the Affordable Care Act (Obamacare),
  • allow health insurance policies to be sold across state lines.
  • extend access to Health Savings Accounts, with tax-deductible contributions, and rollover to family members upon death.

The proposals differ on one major issue. For health insurance premiums, the Empowering Patients First Act offers tax credits whereas the Trump proposal provides tax deductions. Tax credits work like a voucher, allowing many more people the ability to afford private health insurance. This may have a greater impact on the Federal government budget, but save on funding public hospital facilities.

The Empowering Patients First Act makes more detailed proposals not necessarily in conflict with The Trump proposal. The Empowering Patients First Act:

  • provides an initial $1,000 tax credit into a new HSA,
  • protects an HSA from seizure in bankruptcy proceedings,
  • limits deductions employers can make for health insurance premiums,
  • limits Federal government funds that can be used for abortions,
  • provides States with money for higher risk patients for a limited time, and
  • changes the burden of proof in medical lawsuits.

 

[1] Office of the President Elect, President-Elect Donald J. Trump Intends to Nominate Congressman Tom Price as Secretary of Health and Human Services and Seema Verma as Administrator of the Centers for Medicare and Medicaid Services, 29 November 2016, https://www.greatagain.gov/news/president-elect-donald-j-trump-intends-nominate-congressman-tom-price-secretary-health-and.html

[2] Congressman Tom Price, M.D., Price Introduces Empowering Patients First Act, Press Release, 13 May 2015, https://tomprice.house.gov/HR2300

[3] In this article, I have reviewed the overview of the Empowering Patients First Act and my own previous analysis of President-Elect Donald Trump’s pre-election proposals.

[4] 26 U.S. Code § 223 – Health savings accounts, https://www.law.cornell.edu/uscode/text/26/223

Trump Healthcare Policy Review

US Presidential Candidate Donald J. Trump released a policy for healthcare reform on Wednesday 2 March 2016.[1] The policy presents seven main points. Here, I will review the three main points of the policy as presented.

Repeal ‘Obamacare’, Eliminate Individual Mandate

“Completely repeal Obamacare” and “eliminate the individual mandate” to buy insurance.

Obamacare (or the Patient Protection and Affordable Care Act) requires insurance companies to provide a minimum standard of coverage to all applicants at the same rates without regard to pre-existing conditions. These requirements lead to higher premiums as they encourage higher risk people to purchase insurance while lower risk people are priced out of the market. To counter this effect, the law also requires an individual to purchase insurance or pay a penalty, bringing lower risk people into the insurance pool. Without the individual mandate, insurance premiums would rise even faster, leading more people to drop out or take policies with even higher deductibles.

In order to keep insurance affordable, the Trump proposal to eliminate the individual mandate would also require some combination of limiting coverage for pre-existing conditions, lowering minimum standards of coverage, or allowing risk factors to play a role in premium calculation. The combination of options taken would be determined by the states according to the next aspect of the policy proposal.

Allow the Sale of Health Insurance Across State Lines

Allow “the sale of health insurance across state lines”. “As long as the plan purchased complies with state requirements, any vendor ought to be able to offer insurance in any state.” This is understood to mean that, for example, if a health insurance policy offered by a New York firm complies with New York state law, then a person from any other state should be able to purchase this health insurance policy.

This is the key to more affordable insurance and wider coverage. Not only would the proposal deliver more competition between health insurance companies, more importantly, it would also allow for regulatory competition between states as well. Patients, able to purchase across state borders, would seek affordable coverage for relevant insurable risks. States that mandated coverage of irrelevant items or uninsurable risk would find their tax base shrinking as business departed for other states. In order to attract more business, states would likely reduce mandated coverage of uninsurable risk, making insurance more affordable.[2] Healthy behaviour may also be encouraged by allowing risk factors to play a role in premium calculation. Of course, states may decide to keep mandated coverage or offer other welfare programs for uninsurable risks outside the insurance market. This would lead to a situation of separating insurance from welfare programs, rather than trying to achieve both through a hampered insurance market.

Allow Premiums to be Tax Deductible

“Allow individuals to fully deduct health insurance premium payments from their tax returns under the current tax system.”

Expenses for medical care are deductible against taxable income if they are incurred by the employer, but not deductible if incurred by the employee. How did employer funded healthcare come about? When the income tax was introduced in 1913, the Internal Revenue Service (IRS) treated employer expenses for health insurance as a nontaxable fringe benefit.[3] During World War Two, the United States government imposed wage and price controls while financing spending through the creation of new money. A labour shortage was created, as the price of labour was unable to rise with the inflation. Employers offered medical care as a fringe benefit to secure labour services and get around the price controls. [4] In 1953, IRS ruled that employer contributions be included in the employee’s taxable income. However Congress, responding to the objections made by employees, legislated that medical care provided by employers be tax deductible.[5]

This connection between health insurance and employment has various effects. While employers can buy in bulk and keep administrative costs low, employees may lose their health insurance if they lose their job.[6] In addition, when insured with low or no co-payments, doctors and patients can make healthcare decisions with little consideration of cost. Patients will consume healthcare services until the benefit is lower than their co-payment. Doctors may also service beyond the point of no additional benefit in order to avoid malpractice suits. This extra service may also benefit doctors if their income is based on the number of services provided. However, as this puts pressure on premiums to rise, the insurer will likely ration care in some other way.[7]

Making insurance deductible to the individual would make it more likely that individuals take out their own insurance rather than accept health insurance through their employer. Individuals may even prefer buying insurance themselves as this enables them to change or end employment without ending health insurance. It would also offer them more choice in the type of policy they choose. Policy options would be even broader if policies could be sold across state lines. People without work or without insurance provided by their employer would also be more likely to take up insurance, making them less dependent on government or their own savings.

Allow Individuals to use Health Savings Accounts (HSAs)

“Allow individuals to use Health Savings Accounts (HSAs).” Currently in the USA, a person is eligible to open an HSA if they have a high-deductible health insurance plan (where the deductible is at least $1,300 for an individual or $2,600 for a family).[8] It is understood that this policy would allow Health Savings Accounts to every individual.

The use of Health Savings Accounts would encourage patients to source their funding of healthcare from their HSA rather than their insurance policy. Use of the HSA would preserve patient choice of doctor, promote professional independence and therefore avoid managed care.[9] The use of HSAs would also tend to promote higher quality and lower cost as patients spend their own money on themselves.[10]

Conclusion

The proposed healthcare policies create a dynamic and competitive health insurance market, offering lower premiums for insurable events and therefore widening access to this market. Under these policies, welfare would be separated from insurance, allowing a broad insurance coverage, leaving a smaller number of uninsured people dependent on welfare. The broad use of health savings accounts would promote higher quality healthcare at lower cost, avoid managed care and support the doctor-patient relationship.

[1] Healthcare Reform to Make America Great Again, 2 March 2016, https://www.donaldjtrump.com/positions/healthcare-reform

[2] Hans-Hermann Hoppe, Uncertainty and Its Exigencies: The Critical Role of Insurance in the Free Market, 7 March 2006, https://mises.org/library/uncertainty-and-its-exigencies-critical-role-insurance-free-market

[3] Congressional Budget Office, The Tax Treatment of Employment-Based Health Insurance, March 1994, p.5, https://www.cbo.gov/sites/default/files/103rd-congress-1993-1994/reports/1994_03_taxtreatmentofinsurance.pdf

[4] Milton Friedman, How to Cure Health Care, The Public Interest, Winter 2001, http://www.thepublicinterest.com/archives/2001winter/article1.html. See also History of Health Insurance Benefits, March 2002, https://www.ebri.org/publications/facts/index.cfm?fa=0302fact

[5] Congressional Budget Office, op. cit., p.5

[6] Ibid. p. 3

[7] Ibid. p. 14

[8] Mayo Clinic, Health savings accounts: is an HSA right for you?, 8 April 2016, http://www.mayoclinic.org/healthy-lifestyle/consumer-health/in-depth/health-savings-accounts/art-20044058

[9] Jeremy Sammut, MEDI-VALUE: Health Insurance and Service Innovation in Australia – Implications for the Future of Medicare, Research Report 14, 20 April 2016, p. 25-26, https://www.cis.org.au/publications/research-reports/medi-value-health-insurance-and-service-innovation-in-australia-implications-for-the-future-of-medicare

[10] In Friedman’s classification of spending, this is category I expenditure. See chapter 4 in Milton Friedman, Free to Choose, 1980, p. 116

Brexit the Movie: the Case to Leave

On 23 June 2016, the United Kingdom has a unique opportunity to chart a new course as more free and prosperous countries by voting to leave the European Union.

Brexit the Movie makes a compelling case to Vote Leave, and offers a living education in political economy.

Setting the political background, MEP Nigel Farage informs us that the European Parliament has no power to propose new law or repeal an existing law. The power to legislate is undertaken by the unelected European Commission! This undermines a fundamental principle of English Law, that taxation requires the consent of Parliament (see the Bill of Rights Act 1689), or what in the American colonies later became known as ‘no taxation without representation’.

The economic highlight of the movie is the contrast between the historically unregulated Britain, and the regulated Britain that emerged after World War 1.  Whereas a free Britain led the world into the industrial revolution, a post-war Britain shackled itself with price controls, rationing and central direction.  Thanks to Ludwig Erhardt, a free market West Germany emerged from the remnants of World War 2 as the dynamic economic powerhouse of Europe. Meanwhile, shortages and high prices continued in Britain.

Attracted to Europe because of its prosperity, the United Kingdom voted to join the European Common Market through a referendum held on 5 June 1975. Over time, the lobbying efforts of large companies, farmers and steel producers led to trade restrictions, regulations, higher costs and lower production. Now the United Kingdom finds itself drowning in regulations related to every aspect of life, shackled to a struggling European economy, tied to a continent straining with social change and cultural conflict.

This film is a superb illustration of economic theory in action with real-life examples and an historical narrative.

The call to exit the European Union is a call to self-government, free trade and economic prosperity, a return to the roots of British culture.

Vote Leave.

The Economic Ruination of Venezuela

The government of Venezuela is sending the country into economic and social disaster.

Monetary inflation, farm seizures, price controls and subsidies have led to enormous increases in prices, shortages in food, water, medicine, energy and toilet paper. Citizens are resorting to desperate measures in order to survive.

Even with hydropower stations and large reserves of oil, a lack of capital maintenance means that these assets are falling apart and not able to produce much output.

Poor economic ideas lead to death and this is now playing out in Venezuela. Who will survive and what ideas will they have when they attempt to rebuild the country?

As outlined by Stefan Molyneux: