Looking at Bobby Jindal’s Health Care Proposal

Recently Louisiana governor Bobby Jindal announced a proposed plan to replace the Patient Protection and Affordable Care Act (ACA) (P.L 111-148). This plan draws on Republican proposals, including HR 3121, the American Health Care Reform Act released in September 2013 by the Republican Study Committee, but addresses some issues that the existing bill does not. Jindal claims that his proposal would protect low-income individuals and those with preexisting conditions, reduce premiums, and provide consumers more choice, including the choice not to buy insurance. What does it include?

  • Elimination of the exclusion of employer-sponsored health insurance (ESI) benefits from the gross income of employees;
  • A “standard deduction” for all health insurance purchased by the individual taxpayer, whether through an individual or group policy;
  • Bloc grants for Medicaid, with state flexibility to tailor benefits to populations and to require participation in wellness activities;
  • Increased use of Health Savings Accounts, combined with high-deductible insurance plans;
  • Premium subsidies for low-income individuals and those with preexisting conditions;
  • Allowing insurance sales across state lines without regard to mandated benefits or local capitalization requirements.

Jindal says that the first priority is to bring costs down. He attributes the higher-than-average spending on health care in the United States to several causes, including: (1) lack of transparency in pricing of items and services; (2) the exclusion of ESI from employees’ income for tax purposes; and (3) low copayments that insulate consumers from the true cost of services. To illustrate the dysfunction of our health insurance system, Jindal compared it to homeowners’ insurance. If our homeowners’ policies worked the way our health insurance does, every time a light bulb burned out, you would have to go to a specialist, who would tell you what kind of light bulb you should buy, and then drive across town to a network hardware store. Because your only cost would be your copayment, you would have no idea what the light bulb cost or whether it would have been less expensive at a neighborhood store.

But the comparison doesn’t work. Homeowner’s policies pay for repairs of serious damage, not ordinary maintenance. And regular, recurring costs of continuing prescriptions and physician visits for chronic illness aren’t equivalent to regular purchase of light bulbs.

Guaranteed Access for People with Preexisting Conditions

Jindal would repeal the guaranteed renewability requirements of the ACA. There would be no ceilings on premiums, and no minimum medical loss ratio. Covering people with preexisting conditions would not be the responsibility of insurance issuers. Rather, the states would operate high-risk pools with $100 billion of federal funds. High risk pools, by definition, insure people who would not have qualified through medical underwriting. According to CMS, a high risk pool may charge up to twice the premium that a healthy person of the same age would pay. Many, if not most, individuals in high risk pools have a deductible of $2,500 or more, according to the Kaiser Family Foundation.

In his proposal, he accuses the Obama administration of breaking its promise of guaranteed renewability to people with preexisting conditions because the government’s Preexisting Condition Insurance Plan (PCIP) froze enrollment in 2013 due to insufficient funding. A report issued January 31, 2013 stated that expenditures had increased to an average of $160 million per month by May 2012. Unlike other high risk pools, the PCIP covered preexisting conditions immediately, and it was required to charge the premiums normally charged to healthy people. Although fewer people signed up than the government originally anticipated, those who did sign up had very high expenses. In fact,according to the Washington Post, the costs per enrollee were more than twice what the actuaries predicted in 2010. A high risk pool is the ultimate in adverse selection—because enrollment is limited to people who are otherwise uninsurable, it cannot help but lose money. The ACA brings those individuals into the same pool as the rest of us, spreading the risk more evenly.

Jindal says that guaranteed renewability means being able to renew the same coverage unless the insured has committed fraud. He contends that the guaranteed renewability of the ACA is “a lie” because companies discontinued coverage that would not meet the coverage requirements of the new law. But if the coverage wasn’t comprehensive to begin with, the insurance under the ACA would offer more protection.

Equity and the Standard Tax Deduction

Jindal argues that the exclusion of health insurance benefits from employees’ income for tax purposes is unfair to people who buy coverage in the individual market. He argues that everyone should have the same tax benefit with respect to health insurance. Jindal’s proposal, which does not state the amount of the deduction, notes that a taxpayer who paid less for the insurance would still receive the full tax benefit and says that this would encourage people to shop more effectively to maximize their savings. Section 201 of H.R. 3121, the Republican proposal, would allow a standard deduction of $20,000 per month for family coverage, and $7,500 per month for individual coverage. In states with high risk pools, beneficiaries pay several hundred dollars per month. With a standard deduction of $240,000 per year, not many people who buy insurance would pay income tax at all.