Hospital Impact: In GOP's next stab at healthcare reform, it must go back to basics

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For seven years, the GOP has pledged to repeal the ACA and replace it with market-friendly reforms that reduce costs, improve quality and expand access to coverage. The American Health Care Act strayed too far from those promises.

Although Congress failed to agree on a plan for repealing and replacing the Affordable Care Act before leaving for Easter recess, the GOP's healthcare reform effort is hardly over.

Republicans looking to avoid the mistakes that brought down their first attempt at reform—the American Health Care Act—would do well to remember why voters gave them control of the House, Senate and White House in three separate elections.

For seven years, the GOP has pledged to repeal the ACA and replace it with market-friendly reforms that reduce costs, improve quality and expand access to coverage. The American Health Care Act strayed too far from those promises and thus failed to attract support from House Republicans of various perspectives or the general public.

RELATED: Facing defeat, GOP pulls healthcare bill

During the Obama years, Republicans were broadly aligned behind a healthcare reform agenda that included a rollback of the ACA’s cost-inflating insurance regulations and mandates, block grants to the states for Medicaid, higher contribution limits for health savings accounts, age-based refundable tax credits to subsidize coverage, and high-risk pools for patients in the individual market who are uninsurable because of serious illness.

Such reforms were at the heart of current Health and Human Services Secretary Tom Price's "Empowering Patients First Act" and House Speaker Paul Ryan's "A Better Way" proposal.

Reforming the individual market

Consider first the thorniest issue before Republicans: pre-existing conditions. The American Health Care Act retained the ACA’s popular "guaranteed issue" mandate, which forbids insurers from denying coverage to anyone.

But the mandate has also encouraged patients to wait until they get sick to buy coverage. Combined with the ACA’s other stringent regulations—like its “community rating” rules capping premiums for older patients at three times what the young pay, or its essential health benefits requirements—guaranteed issue sent premiums soaring.

Consequently, young and healthy patients have fled the insurance market. That sent premiums even higher, creating what Aetna CEO Mark Bertolini has called a "death spiral."

Free-market conservatives have a better solution. They'd require patients to maintain coverage continuously in exchange for protection from coverage denials or excessive rate hikes. That would provide a strong incentive for young and healthy patients to get, and stay, insured.

Both Price and Ryan included continuous coverage provisions in their plans.

The AHCA, on the other hand, would have levied a 30% surcharge for one year on those applying for insurance who had failed to maintain continuous coverage. Oddly enough, that provision would have discouraged healthy people from maintaining continuous coverage. The only consumers who would have paid the surcharge are those with high health costs, for whom that extra expense would have been worthwhile.

To attract even more young and healthy people into the insurance pool, the GOP must also change the community rating age ratio from 3-1 to 5-1. Such a ratio more closely parallels actual medical costs. According to a study by the Society of Actuaries, average health spending for a 64-year-old is 4.8 times the average spending for a 21-year-old.

This arrangement would increase the cost of insurance for older Americans. That's why Price, Ryan and most of the GOP have committed to offering them greater subsidies to purchase insurance.

The AHCA would have scrapped the ACA’s complicated scheme of income-based insurance subsidies and replaced it with age-based, means-tested refundable tax credits available to all who shop on the individual market.

Some members of the conservative House Freedom Caucus attacked the tax credits as a new entitlement program. But those credits were a central component of Price's bill—which, coincidentally, the caucus' current chair, Rep. Mark Meadows, and more than half a dozen of his fellow travelers co-sponsored.

The Freedom Caucus recently showed some willingness to back these tax credits. After all, they're an attempt to mitigate the effects of a government giveaway to business. Employers have long been able to purchase coverage for their workers with tax-free dollars—an exclusion that will cost the federal government $260 billion this year alone. Those in the individual market, however, must buy coverage with after-tax dollars. This should be changed.

Age-based refundable tax credits help level the playing field.

For those who are truly uninsurable, Republicans should put federal dollars into state-run high-risk pools. These programs could provide affordable coverage to patients with costly medical conditions without driving up premiums for healthier individuals.

The "A Better Way" plan included $25 billion in dedicated federal funding for these pools over a decade. The AHCA—and proposals introduced since it was shelved—contained billions of dollars, including $15 billion over 10 years, for a “Risk Sharing Fund” that could seed high-risk pools as well.

A new approach to Medicaid

Finally, the GOP should continue its efforts to roll back the ACA’s Medicaid expansion. Research is increasingly showing that the program just doesn't deliver much bang for its buck.

According to a recent study in the New England Journal of Medicine, the expansion of Medicaid in 29 states and the District of Columbia had no noticeable effect on beneficiaries' health outcomes. 

The price tag for that kind of ineffectiveness? Across the entire program, a cool $575 billion last year.

Republicans have long sought to replace Medicaid's unlimited federal funding commitment with block grants to the states based on the size of their Medicaid populations.

This approach would give states the freedom to experiment with more care-delivery models—and encourage them to get spending under control. The power of state-level experimentation is on full display in Rhode Island, where targeted Medicaid reforms have put the state on track to improve the quality of care for low-income residents while saving $100 million. 

A way forward

President Donald Trump has reiterated on several recent occasions that the effort to repeal and replace the ACA is far from over. Whether Republicans will hold another vote before the August recess, or even before the end of the year, remains uncertain.

For this second attempt at reform to succeed, the GOP needs to get back to the market- and patient-centered basics it's spent years trumpeting to the public—and thereby lay the foundation for a competitive health insurance marketplace that offers affordable, quality care to all Americans.

Sally C. Pipes is president, CEO and Thomas W. Smith Fellow in Health Care Policy at the Pacific Research Institute. Her latest book is “The Way Out of Obamacare.” (Encounter 2016). Follow her on Twitter @sallypipes.