Bruce Westerman’s Fair Care Act: Market-Based Universal Coverage
H.R. 1332 would expand health insurance coverage while reducing costs and increasing innovation.
In Washington, it is commonly thought that the debate about health care reform is hopelessly partisan and ideologically intractable. Rep. Bruce Westerman, a third-term congressman from Arkansas, has produced an ambitious and far-reaching health reform bill, the Fair Care Act of 2019 (H.R. 1332), that could provide the basis for bridging these conventional divides.
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“The Fair Care Act,” Westerman wrote in a March op-ed, “has two primary goals: to increase the number of people with health insurance coverage, and to decrease per person health spending.”
Aside from the policy merits of expanding coverage and decreasing health spending, such a framework is the only one that can conceivably receive both Democratic and Republican support in Congress. Democrats will not vote for a health reform bill that reduces the number of Americans with health insurance, and Republicans will not vote for one that increases federal spending.
The affordability of health insurance is not merely an important issue for the 30 million U.S. residents who lack coverage. It is also a critical issue for tens of millions more who have insurance, but for whom rising premiums and out-of-pocket costs are depressing wage growth and threatening living standards.
Furthermore, the long-term solvency of the United States hinges on our ability to reduce the cost of health care, and thereby growth in public spending on health care.
The Fair Care Act seeks to address these issues in three ways.
First, the bill would expand coverage and reduce spending by reforming both private insurance and public health insurance programs.
Second, the bill seeks to reduce costs and spending by increasing the role of competition in health care, and by curbing the power of hospital and pharmaceutical monopolies.
Third, the bill would open up substantial room for innovation in pharmaceutical research and development, health care information technology, and insurance.
Moving toward universal, personalized health insurance
The Fair Care Act seeks to gradually move the fragmented U.S. health insurance system toward one in which all Americans have the ability to choose among a variety of affordable health plans.
Such a system, of course, can only come about if the individual market for health insurance is robust and affordable.
Today, only 14 million non-elderly Americans buy coverage on their own, representing 5 percent of the U.S. population under 65. Nearly all of the others have insurance chosen for them, either by Medicaid or their employers.
While the Affordable Care Act’s subsidies helped some low-income Americans afford health insurance, others saw dramatic premium increases. The ACA forced uninsured Americans who are relatively young and/or healthy to pay far more for coverage than they would be expected to consume in health care.
The ACA’s subsidies, in theory, are designed to mitigate this problem, but the subsidies gradually phase out as one ascends the income scale; those with incomes above 400% of the Federal Poverty Level are ineligible for subsidies, and for those with incomes between 250% and 400% of FPL, the subsidies are not large enough to compensate for the ACA’s higher underlying premiums.
The Fair Care Act preserves the ACA’s protections for those with pre-existing conditions, but takes several steps to restore the affordability of coverage for younger and healthier individuals.
These include widening the ACA’s “age bands” to 5:1, age-adjusting the ACA’s advance premium tax credits to improve affordability for the young, and establishing an invisible high-risk pool reinsurance program that directly subsidizes the cost of coverage for those in poor health.
Together, these measures and others move the individual market in a direction where the cost of care for sick and vulnerable populations is directly subsidized by federal spending, significantly lowering premiums for healthy individuals and reducing the need for subsidizes of insurance premiums.
By reducing the underlying cost of individually purchased health insurance, such insurance should be more attractive to those who remain uninsured today.
The Fair Care Act would also enlarge the individual market in other ways, primarily by making it easier for employers to fund Health Reimbursement Accounts that workers can use to purchase individual coverage.
A forthcoming version of the bill would require that newly incorporated businesses, beginning in 2021, deploy this model to sponsor coverage for their workers, beginning a gradual transition from defined-benefit to defined-contribution employer sponsored health insurance.
The Fair Care Act also gives patients more transparency and tools to manage their out-of-pocket costs, by expanding the utility of Health Savings Accounts and giving patients more visibility into the price of health care services.
America has a successful, thriving individual market for health insurance for the elderly population: Medicare Advantage. Today, more than one-third of Americans over 65 get their coverage from Medicare Advantage plans. Each year, during open enrollment, seniors choose among dozens of options that compete on price and benefits.
According to public statements by Rep. Westerman, a forthcoming version of the Fair Care Act will build on the success of Medicare Advantage by introducing competitive bidding into the program’s enrollment process.
Competitive bidding is designed to enable all seniors, including those in traditional fee-for-service Medicare and in Medicare accountable care organizations (ACOs), to choose among a variety of plans. This should allow seniors in competitive markets to gain coverage with lower premiums than they pay today, while also reducing the taxpayer cost of subsidizing Medicare Advantage plan sponsors: a win-win.
Truly bending the cost curve
One of the greatest single drivers of rising health care spending is monopoly power. Hospital systems that act as regional monopolies eliminate competition, and force patients and insurers to accept higher prices, especially where patients have no other alternative for care.9 Barriers to competition in the pharmaceutical industry create and extend artificial monopolies in ways that do not reward innovation.
The Fair Care Act contemplates a number of reforms that would reduce barriers to competition in both the pharmaceutical and hospital sectors. Some of these are derived from bipartisan proposals from Congress and the White House.
The Fair Care Act establishes grants to states that liberalize their hospital markets by reforming certificate of need laws and other barriers to competition, and it modernizes laws that today restrict competition for off-patent biologic drugs and other complex treatments.
The bill also considers ways of restoring competition to monopoly hospital markets, for example by strengthening antitrust enforcement, and incentivizing regional hospital monopolies to divest their subsidiaries and restore those subsidiaries’ status as independent competitors. These provisions are quite similar to those of the Hospital Competition Act of 2019, sponsored by Indiana Rep. Jim Banks.
The Fair Care Act also reforms public spending on health care entitlements, by (among other things) means-testing Medicare benefits for the wealthy, establishing an optional per-capita allotment system for Medicaid, and the aforementioned competitive bidding proposal.
Expanding innovation
Innovation in health care is essential to increasing affordability, developing new therapies, and improving the delivery of care. There are many ways in which Congressional statutes and federal regulations have stifled innovation. The Fair Care Act is designed to open up avenues for innovation in all of these areas.
For example, a forthcoming version of the bill would enable the FDA’s accelerated approval pathway to be used for a broader range of diseases, and modernize health care laws related to digital health care, telehealth, and health information technology.
The bill also includes measures that better enable physicians to engage in charity care, and to use new tools like direct primary care to serve their patients.
Conclusion
The U.S. health care system is complex and highly fragmented, with Americans receiving coverage from a multitude of overlapping programs, including employer-based coverage, Medicaid, Medicare, the ACA exchanges, and the Veterans Health Administration.
Hence, any serious effort to make health care affordable for all Americans — and sustainable for future generations — must take on a wide range of problems at once. The Fair Care Act is designed to do just that, but in a gradual and incremental way that preserves existing forms of health insurance for those who prefer them.
Over time, under the Fair Care Act’s reforms, the U.S. would evolve into a more integrated, rational health insurance model in which as many people as possible enjoy a wide range of affordable health insurance and health care options that take advantage of advances in medical and information technology.
The Fair Care Act should be seen as the beginning — not the end — of a bipartisan discussion around health reform. Rep. Westerman is a Republican; Democrats who are also oriented towards bipartisan legislation will have their own ideas and revisions.
Republicans themselves have disagreements regarding the best way forward for health reform, in particular around the legitimacy of federal involvement in the health care system.
The Fair Care Act, then, represents an important first step in establishing the framework for bipartisan reform. By expanding coverage and reducing spending, it advances the policy goals of both Republicans and Democrats, thereby providing a foundation for how Congress can make progress in addressing some of America’s most important public policy challenges.
Appendix: Key legislative provisions of the Fair Care Act
Reducing premiums in the individual market
The Fair Care Act seeks to reduce premiums in the individual market by, among other things:
- Making insurance more affordable for younger individuals, by widening the ACA’s “age bands” to 5:1 and age-adjusting the ACA’s advance premium tax credits to improve affordability for the young;
- Repealing the ACA’s health insurance premium tax and other ACA taxes that drive up premiums for consumers;
- Enabling consumers to choose affordable “Copper plans” with a 50 percent actuarial value;
- Enabling states to hold open enrollment period biennially or triennially, instead of annually, as a way of aligning insurance plans with patients’ longer-term health outcomes;
- Offering states additional flexibility to improve their individual markets;
- Establishing an invisible high-risk pool reinsurance program that directly subsidizes coverage for those with pre-existing conditions, thereby lowering premiums for healthy individual market enrollees; and
- Significantly expanding the size of the individual market (see below), creating economies of scale, a more attractive risk pool, and thereby greater insurer participation and competition.
Expanding the size of the individual market
The Fair Care Act would substantially increase the number of Americans who purchase coverage on the individual market, in particular by increasing the incentives for employers to offer their workers Health Reimbursement Arrangements that could be used to purchase individual-market coverage:
- Granting explicit statutory authority for employers to fund Health Reimbursement Arrangements that can be used to buy individual market coverage (forthcoming);
- Requiring that new businesses incorporated after 2021 sponsor insurance using the HRA method instead of by directly purchasing group insurance, so that workers at startups can make their own coverage decisions (forthcoming);
- Merging the Federal Employee Health Benefits Program into the individual market, by converting FEHBP insurance subsidies into HRA deposits for the purchase of individual market coverage;
- Allowing those with offers of employer-sponsored insurance to instead choose individual-market coverage with premium assistance; and
- Giving states the option to enroll those below the Federal Poverty Level in federally subsidized exchange-based coverage, instead of Medicaid.
Price transparency and consumer-driven health reforms
The Fair Care Act seeks to give patients more transparency into their health care spending, and more tools to manage their out-of-pocket expenses, by:
- Expanding the number of plans that can be connected to health savings accounts to include any plan with an actuarial value of 70% or less;
- Enabling HSAs and HRAs to be used to purchase direct primary care;
- Repealing the ACA taxes on contributions to flexible spending accounts and over-the-counter medications;
- Enabling states to apply for waivers to convert ACA cost sharing reduction subsidies into health savings account deposits;
- Expanding the role of employers in communicating to workers how much is being taken out of their paychecks to cover health care costs;
- Requiring hospitals to publish, in a standardized digital format, average prices for their 100 most common services; and
- Establishing a national all-payer claims database to create transparency into prices negotiated by insurers and providers, including those covered under ERISA plans exempt from state regulation.
Medicare Advantage reforms
A forthcoming version of the Fair Care Act will build on the success of Medicare Advantage by introducing competitive bidding into the program’s enrollment process.
Competitive bidding will enable all seniors, including those in traditional fee-for-service Medicare and in Medicare accountable care organizations (ACOs), to choose among a variety of plans that compete on price and quality.
Competitive bidding will enable seniors in competitive markets to gain coverage with lower premiums than they pay today, while also reducing the cost of subsidizing Medicare Advantage plan sponsors.
Prescription drug reforms
The Fair Care Act would expand price competition for prescription drugs by, among other things:
- Addressing attempts by branded companies to restrict supply of their drugs so as to prevent generic manufacturers from acquiring the samples they need to develop generic alternatives;
- Creating an abbreviated approval process for “complex generics,” such as off-patent drugs that are delivered via a specialized delivery device like an injector, a patch, or an inhaler;
- Aligning the biosimilar market with the generic drug market, such that off-patent biologic drugs can be substituted for brand-name biologics at the pharmacy level, just as generics are; and assigning a minimum of 5 years of market exclusivity to new clinical entities whether biologic or small molecule, regardless of patent status (today biologics enjoy 12 years of exclusivity regardless of intellectual property, compared to 5 years for small molecules);
- Requiring biologic drug manufacturers to disclose their relevant patents ahead of time in a transparent manner (forthcoming);
— Maximizing the number of times a single orphan drug can receive separate market exclusivities; - Ending the role of pharmacy benefit manager rebates in driving over-utilization of high-priced drugs where low-cost alternatives are available to commercially insured patients (forthcoming);
- Enabling private insurers in a given state to jointly negotiate with drug manufacturers for prices and formulary access (forthcoming);
- Directing the Center for Medicare and Medicaid Innovation to conduct a pilot program to determine the efficiency and effectiveness of an integrated drug benefit for individuals enrolled in Medicare parts A, B, and D (forthcoming); and
- Tying growth in subsidies to drug companies for physician-administered drugs under Medicare to consumer inflation (forthcoming).
Increasing hospital competition
The Fair Care Act would end the vicious cycle of hospital consolidation and price hikes, using several tools:
- Quintupling funding for the Federal Trade Commission (an additional $160 million) for the exclusive purpose of increasing the size of its antitrust staff investigating hospital consolidation;
- Prohibiting hospitals from imposing anti-competitive contract provisions, such as anti-steering clauses and gag clauses, upon payers (forthcoming);
- Providing the FTC with jurisdiction to enforce antitrust laws with regards to anticompetitive practices by non-profit hospitals;
- Authorizing the HHS Secretary to award up to $1 billion in grants to states that take specific steps to improve hospital competition, such as eliminating Certificate of Need or Any Willing Provider laws;
- Repealing incentives to form hospital-led Accountable Care Organizations that lead to highly consolidated provider markets;
- Repealing the ACA ban on the construction of new physician-owned hospitals;
- Enabling private insurers in a given state to jointly negotiate reimbursement rates and network access with regional hospital systems (forthcoming);
- Ending surprise billing by requiring out-of-network providers of emergency care to accept median in-network rates;
- Site-neutral payment from Medicare for health care services performed in a hospital-owned facility and a non-hospital-owned facility; and
- Incentivizing regional hospital monopolies to divest their subsidiaries and restore a competitive market, by requiring hospitals in extremely concentrated markets to accept Medicare Advantage rates from all payers (with higher thresholds and exemptions for rural areas).
Reducing waste, fraud, and abuse
The Fair Care Act also takes numerous steps to reform public spending on health care entitlements, by focusing public assistance more on those who need it: the poor, the sick, and the vulnerable:
- For those whose lifetime earnings exceed $10 million, ceasing eligibility for Medicare Parts B and D;
- Reducing Medicare subsidies for hospitals’ bad debt (hospitals will be expected to cover their own billing shortfalls);
- Reducing the role of accounting gimmicks like state-based provider taxes that increase federal Medicaid spending;
- Establishing a state option to receive Medicaid funding on a per-capita allotment basis, in return for broader flexibility regarding program design;
- Increasing transparency in the Medicare 340B program, which in theory allows certain hospitals to purchase prescription drugs at discounted prices while still charging patients full price; and
- Measures described in previous sections of this paper, such as competitive bidding in Medicare, site-neutral payments, and linking growth in Medicare subsidies to drug manufacturers to consumer inflation.
Expanding innovation
The Fair Care Act is designed to open up avenues for innovation across health care subsectors:
- Expanding to as many disease areas as feasible the FDA’s accelerated approval pathway, which enables drugs for HIV and cancer to gain marketing approval after phase II clinical trials (forthcoming);
- Requiring an up-or-down vote from Congress on any new FDA regulation that has an economic cost exceeding $100 million;
- Reopening the market for innovations in health insurance and delivery for the elderly, by removing Medicare eligibility for those with over $10 million in lifetime earnings;
- Creating opportunities for new innovations in the provision and payment of care through the establishment of a national all-payer claims database (forthcoming); and
- Modernizing health care laws related to digital health care, telehealth, and health information technology.
Other measures
The Fair Care Act also includes a series of long-desired reforms that, while important, do not fall into the categories described above. They include:
- Replacing the Affordable Care Act’s “Cadillac Tax” with a standard deduction for employer-sponsored health insurance, whose thresholds are equivalent to those of the Cadillac Tax;
- Enabling the establishment of Association Health Plans;
- Limiting the liability of physicians who provide charity care;
- Allowing primary care physicians to deduct from their tax liabilities certain forms of charity care;
- Reforming medical malpractice for patients enrolled in public insurance programs;
- Repealing the ACA’s employer mandate; and
- Enabling insurers to sell products across state lines, while ending the McCarran-Ferguson antitrust exemption for insurers.
