RSC Health Plan: More Uninsured and Underinsured, Fewer Consumer Protections

July 2, 2014 at 11:58 am

With House supporters planning a new push for the Republican Study Committee (RSC) health plan (H.R. 3121), aided by RSC chairman Steve Scalise (R-LA)’s election as House majority whip, it’s worth looking at the plan’s likely impact.  Unfortunately, it would substantially expand the ranks of the uninsured and end various important consumer protections.

Impact on the Number of Uninsured

The RSC plan would repeal health reform, including its Medicaid expansion, under which the federal government will pick up nearly the full cost of covering individuals up to 138 percent of the poverty line.  The 13 million people whom the Congressional Budget Office (CBO) now estimates will gain Medicaid coverage in states that adopt the expansion would lose out.

It also would eliminate the new marketplaces through which millions of people are buying private coverage, as well as the premium tax credits and cost-sharing reductions that make marketplace coverage much more affordable for low- and moderate-income people.  The loss of these subsidies would cause millions of new marketplace enrollees to lose their health coverage.

The RSC plan would also end the tax exclusion for employer-based coverage, replacing it with a standard income and payroll tax deduction of $7,500 for individuals (and $20,000 for families) who buy coverage on their own or through their employer.  As CBO, the Joint Committee on Taxation, and others have previously estimated, this type of proposal would likely cause many people to lose their job-based coverage by encouraging employers to drop it on the assumption that their workers could use the deduction to purchase health insurance in the individual market.  (Unlike current law, the plan would not require larger employers to either offer affordable, comprehensive coverage or pay a penalty.)  But many workers in poorer health who lost employer-based insurance likely would be unable to find coverage in the individual market.

Moreover, the tax deduction would do very little to help most uninsured people gain coverage.  Most uninsured people either don’t earn enough to owe income tax or are in the 10 or 15 percent tax bracket, so they would receive an income tax benefit of no more than 15 cents for every $1 they can deduct, along with a payroll tax benefit of 7.65 cents per dollar earned.

People who lose their jobs and have no earned income would receive no benefit, while a single poor adult earning $10,000 would receive no income tax benefit and a payroll tax benefit of about $574 a year, far below the cost of insurance.  And, assuming the plan’s deduction was in place in tax year 2014, a single 64-year-old with income equal to twice the poverty line — $23,340 — would likely receive a total tax benefit of no more than about $1,530.  That’s only about one-quarter of the tax credit that health reform provides, because health reform’s tax credit is refundable, more generous at lower incomes, and adjusted for age (as older people face higher premiums).  Moreover, unlike under health reform, the RSC plan gives people with modest income no help with their deductibles and other cost-sharing charges.

The deduction would primarily benefit people in the top income tax brackets, who least need help in affording insurance and are the most likely already to have coverage.  (Also, it’s unclear whether the payroll tax deduction would effectively result in lower Social Security benefits for individuals taking it, as well as lower contributions to the Social Security and Medicare trust funds that would hasten their insolvency.)

Impact on Consumer Protections 

Health reform prohibits insurers in the individual market from refusing to cover people with pre-existing medical conditions.  In contrast, the RSC plan would allow insurers to deny coverage in such cases, except for people who have had continuous coverage (through an employer or in the individual market) for at least 18 months.  That’s only a modest improvement over the deeply flawed situation before health reform.

Thus, someone without job-based coverage who was denied coverage in the individual market because of cancer or diabetes would likely remain uninsured.

Moreover, people with pre-existing conditions who have had continuous coverage could qualify for individual-market coverage only through a high-risk pool.  Such coverage likely wouldn’t be affordable.  The high-risk pools could charge premiums twice as high as the standard premium, and standard premiums could vary based on age, with no upper limit.

More broadly, relying on high-risk pools to provide coverage would be “extremely expensive and likely unsustainable,” as the Commonwealth Fund has explained.  That’s because they pool sick individuals not with healthy individuals — as regular insurance pools do to keep premiums stable and affordable — but with even sicker individuals who cost even more to insure.

Indeed, experience with state high-risk pools shows that unless government financial support for them rises significantly over time, the pools eventually have to sharply restrict enrollment, set premiums further above what many families can afford, and/or scale back coverage by reducing benefits or increasing deductibles and other cost-sharing, in order to keep costs from spiraling out of control.  Yet the RSC plan provides no actual federal high-risk-pool funding.  (It authorizes Congress to appropriate money for this purpose, but Congress may never do so, given the caps on funding for appropriated programs and the automatic “sequestration” cuts.)

Finally, the RSC plan would eliminate all of health reform’s consumer protections and market reforms.  It would allow insurers to once again:

  • set annual and lifetime dollar limits on the coverage they provide;
  • require cost-sharing charges for preventive care;
  • have no annual limit on out-of-pocket costs;
  • limit the children whom parents can include on their plans to those 21 and younger, rather than those up to age 26;
  • charge people higher premiums in the individual and small-group markets based on their health status;
  • charge older people premiums that are more than three times what they charge younger people in the individual and small-group markets (the limit under health reform is 3 to 1); and
  • charge women higher premiums than men in the individual and small-group markets.  

In another reversal, the RSC plan would allow insurers to leave big coverage gaps in the individual and small-group markets by omitting critical benefits such as prescription drug coverage or maternity care, as they could do before health reform.  And by allowing out-of-state insurers to sell insurance within a state without complying with the state’s consumer protections, the plan also would undermine the insurance market reforms and protections that a number of states had put in place before health reform.

The bottom line?  The RSC’s proposal would be a very large step backward that would drive millions of Americans, especially people of limited means, into the ranks of the uninsured and the underinsured.

Year-End Revenue Numbers More Proof of Kansas’ Failed Tax Cut Experiment

July 1, 2014 at 2:11 pm

Kansas officials yesterday announced that state revenue dropped more than expected again in June, adding even more to the damage we previously documented from the tax cuts that Kansas put in place last year.  All told, Kansas brought in $338 million less than it expected in fiscal year 2014, which ended yesterday for the state.

Kansas policymakers should have seen this coming when they enacted the tax cuts.  For one thing, as we wrote at the time, the package included an especially wasteful provision: eliminating taxes on profits passed through from businesses to their owners, an idea that has been widely panned, most recently by the New York Times’ Josh Barro.

The latest news also draws further attention to the damage that economist Arthur Laffer and his employer, the American Legislative Exchange Council (ALEC), are doing to states. Laffer was the architect of Kansas’ plan, and ALEC continues to push for similarly damaging tax cuts in other states ― as Paul Krugman and my colleague Jared Bernstein recently pointed out.

Kansas’ disappointing 2014 revenue results provide another piece of evidence that should give pause to other states considering similar ALEC-backed tax cut plans.

New Report Documents Growing “Crisis of Affordability” for Renters

June 30, 2014 at 3:59 pm

More than 80 percent of households earning under $15,000 a year — roughly equivalent to full-time work at the minimum wage — paid more than 30 percent of their income for housing in 2012, a new report by Harvard’s Joint Center for Housing Studies finds.  The federal government and many private-sector landlords and lenders consider housing unaffordable if it exceeds 30 percent of household income.

The shortage of affordable housing, which is hitting the lowest-income families the hardest, seems to be growing worse.  The number of households earning under $15,000 paying more than half of their income for housing jumped by over 2 million from 2002 to 2012 (see chart).  In fact, in that latter year, 69 percent of households earning under $15,000 paid more than half of their income for housing.

The report documents a growing “crisis of affordability” for renters, driven by a widening gap between rental costs and renter incomes.  The gap began growing well before 2007 but worsened during the Great Recession.  The median renter income plummeted 13 percent between 2001 and 2012, while median rents rose 4 percent.

Federal policymakers have made things worse by cutting rental assistance.  For example, the number of families using Housing Choice Vouchers, the most common form of federal rental assistance, fell by more than 70,000 in 2013 due to across-the-board sequestration cuts.  Congress provided funds to restore up to half of these vouchers in 2014, but the 2015 spending bills that the House and Senate appropriations committees have approved for the Department of Housing and Urban Development don’t renew all of those vouchers and risk locking in the full sequestration cuts.

Some 5 million low-income households receive federal rental assistance, mostly working families with children, seniors, and people with disabilities.  Studies show that vouchers and other types of rental assistance are extremely effective at reducing poverty, homelessness and housing instability.  With a stable home — the foundation necessary for families to thrive —becoming unaffordable for more Americans, policymakers should be strengthening these programs, not cutting them.

In Case You Missed It…

June 27, 2014 at 1:05 pm

This week on Off the Charts, we focused on food assistance, the federal budget and taxes, unemployment insurance, state budgets and taxes, and health reform.

  • On food assistance¸ Dottie Rosenbaum previewed the upcoming figures on how accurately states delivered SNAP (food stamp) benefits last year.  Zoë Neuberger explained that schools adopting “community eligibility” to deliver meals to all students at no charge can still receive other assistance.  Becca Segal pointed out that alternative sources of poverty data are available for schools that eliminate meal applications as part of community eligibility.
  • On the federal budget and taxes, Chuck Marr explained that cuts to the Internal Revenue Service (IRS) budget have weakened enforcement and compromised taxpayer service.  He also showed that a Child Tax Credit expansion passed by the House Ways and Means Committee this week prioritizes affluent families over the working poor.  And he rebutted the claim that indexing the maximum credit to inflation would help all families, including those with low incomes.
  • On unemployment insurance, Chad Stone highlighted the nearly 300,000 veterans who have lost access to federal jobless benefits so far due to Congress’ failure to restart Emergency Unemployment Compensation.
  • On state budgets and taxes, Erica Williams listed some “do’s and don’ts” for states seeking stronger economies.
  • On health reform, Judy Solomon explained that states can reduce recidivism by expanding Medicaid.

We also issued papers on the implications of community eligibility for the education of disadvantaged students under Title I, the truth about health reform’s Medicaid expansion and people leaving jail, and the impact of cuts in the IRS budget.  In addition, we updated our guide to state fiscal policies for a stronger economy, our report on how community eligibility can help schools become hunger-free, our backgrounder on how many weeks of unemployment benefits are available in each state, and our chart book on the legacy of the Great Recession.

CBPP’s Chart of the Week:

A variety of news outlets featured CBPP’s work and experts recently. Here are some highlights:

In Punishing IRS, GOP Is Harming Honest Taxpayers
Fiscal Times
June 26, 2014

Shenandoah Valley students to get free breakfasts and lunches
Republican Herald

June 26, 2014

Nearly 300,000 veterans have lost out on jobless compensation because of the disdainful House GOP
Daily Kos
June 25, 2014

Congress Is Weighing Some Bafflingly Bad Ideas for Fixing Our Crumbling Bridges and Roads
New Republic
June 24, 2014

The Reality of Student Debt Is Different From the Clichés
New York Times
June 24, 2014

Thousands more students to get free lunch next fall
USA Today
June 23, 2014

School Districts Can Adopt Community Eligibility and Still Obtain Other Assistance

June 27, 2014 at 11:53 am

Thousands of high-poverty schools across the country have already adopted “community eligibility” to offer nutritious meals to all students at no charge.  Officials in some school districts considering the option have voiced concerns that it would cost them federal or state aid that normally is allocated on the basis of family income information from school meal applications, which community eligibility schools don’t collect.  However, as we’ve previously explained (here and here), alternative data sources are readily available to ensure that no school misses out on aid for which it qualifies.

The Agriculture and Education Departments have adopted policies so that school districts with community eligibility schools no longer need to collect individual income data to participate in federal programs.  An important example is Title I of the Elementary and Secondary Education Act, which provides federal funds to help the most educationally disadvantaged students.

Each school district’s Title I funding is based on census data, so community eligibility doesn’t affect it.  School districts generally allocate Title I funds among schools based on their percentage of students from low-income families, as determined by school meal application data.  But comprehensive policy guidance from the Education Department offers several other data sources that states and districts adopting community eligibility may use in selecting Title I schools and allocating funds among them — including school meals program data that’s readily available for all schools, whether they offer community eligibility or not.  We explain those options in this brief report and this more detailed version.

Some states require individual income data to determine state education funding allocations, and some districts choose to collect this data for other purposes, including monitoring student achievement or determining who receives waivers from school district fees.

However, alternative data sources are available to meet these needs for community eligibility schools, as this report explains.  Moreover, when districts do have to collect individual income data, they have found ways to do so effectively without connecting the forms to school meals.

The positive experience of states and school districts that have already implemented community eligibility shows that the loss of school meal application data should not dissuade schools from adopting community eligibility.  Kentucky and Michigan have both offered community eligibility since the 2011-2012 school year, for example, and both had to require school districts with community eligibility schools to collect individual income data due to the way state education funding is allocated.  Both states collected new income information forms from families without a negative impact on school funding.

Finally, the popularity of community eligibility in these states has continued to grow.  Over the past three years, the number of participating schools has risen in both states, with three times as many Kentucky schools participating now as in community eligibility’s first year.