Congress Just Punched a Big Hole in Obamacare

by | Dec 21, 2016

Congress Just Punched a Big Hole in Obamacare

by | Dec 21, 2016

President Obama signed the 21st Century Cures Act on December 13. Promoted as a pro-innovation bill, the new law will improve the Food and Drug Administration’s regulatory processes; as well as fund Vice-President Biden’s Cancer Moonshot, the National Institutes of Health, and steps to reduce the opioid epidemic.

However, the final version of the bill also included an important payment reform: Significantly expanding the use of Health Reimbursement Arrangements (HRAs) by small businesses. The Affordable Care Act limited employers’ use of these funding vehicles. The IRS promulgated rules levying an excise tax of up to $100 per employee per day.

The advantage of HRAs and similar funding vehicles is that they allow employers to give money directly to employees, who can spend it on medical care. This gets around health insurers’ bureaucracies, which add unnecessary administrative costs.

Obamacare was supposed to be a hand-out to health insurers. It did not quite work out that way. Nevertheless, the law forces as much health spending as possible through insurers’ claims processing. Not only does this add bureaucracy, but it inhibits proper price formation (which in a normal market takes place where the marginal supplier meets the marginal producer). Instead, U.S. health prices are determined administratively between insurers, governments, and providers.

Read the rest at the Beacon here.

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