What is the Patient Freedom Act and Will it Replace Obamacare?
The Patient Freedom Act of 2017 (PFA) was introduced by Senators Bill Cassidy (R-LA) and Susan Collins (R-ME) as a replacement plan for the Affordable Care Act (ACA or Obamacare).
eHealth has reviewed this plan and provided answers to the questions we would expect to hear from customers on Obamacare plan. The answers below seek to clarify the potential impact this Republican proposal could have on individually purchased health insurance plans. Answers are based on our review of information about the proposed PFA published by Senators Cassidy and Collins on their websites.
The PFA is currently just a proposed bill that may or may not eventually be enacted as law. As with all proposed legislation, the details of the proposal are likely to change over time, so the answers below may change and not be updated by us after the initial publication of this FAQ.
What should you know about the Patient Freedom Act (PFA) if you buy your own health insurance?
Q: Does the PFA completely eliminate the Affordable Care Act (Obamacare) right away?
A: No. Although the PFA initially repeals part of the Affordable Care Act right away (particularly unpopular parts like the individual mandate to buy qualifying health insurance), it provides an option for states to choose to continue operating under the Affordable Care Act, including the parts that were initially repealed by the PFA.
Even for states that choose to switch away from the Affordable Care Act, the switch would not happen for at least a year after the PFA is enacted.
Q: Does the PFA eventually eliminate Obamacare?
A: The PFA gives states the option to keep Obamacare. But, if enacted, the PFA seems designed to push states to eventually adopt the PFA alternative to Obamacare.
If a state does not actively choose whether or not to keep Obamacare, then the state will be switched to the PFA’s default alternative to Obamacare.
Q: Why would states adopt the PFA alternative instead of the Affordable Care Act (Obamacare)?
A: The main PFA alternative offers a mechanism for states to automatically enroll eligible people in a basic type of insurance coverage without a need for individuals to apply.
By only excluding eligible people who actively choose to opt out, this mechanism is designed to provide coverage for more people.
The PFA also keeps open a third option that a state can design an alternative health insurance system that does not rely on federal assistance.
Q: How does the PFA try to insure everyone in a state?
A: The PFA can aid states in creating a state-run catastrophic health insurance plan – sort of a de facto public option that provides basic coverage for catastrophic health conditions to every eligible person who does not opt out of this plan.
The PFA has a number of incentives that would motivate people to opt out of the state’s catastrophic plan and enroll in a more comprehensive health plan offered by private insurance companies.
Q: What may motivate a person to enroll in a more expensive health plan when there is a low-cost catastrophic public option available?
A: The PFA has at least three mechanisms that may make private insurance more attractive than the low-cost government-run health plan:
- Limited Coverage – The state-run catastrophic health plan has a high deductible and minimum essential benefits defined by the state. The PFA also has prescription drug coverage limited to generic drugs for a limited number of chronic conditions (commonly referred to as a tier I pharmacy benefit).
- Limited Access – Anyone enrolled in a state-run catastrophic health plan may need to go through medical underwriting if they eventually tried to apply for a more comprehensive private health insurance plan. As a result of that medical underwriting, the person could be required to pay more for coverage, face a waiting period for coverage, or in certain cases even be denied access to the private insurance plan of their choice.
- Late-Enrollment Penalties – Anyone who enrolls in the state-run catastrophic health plan and then tries to move to a more comprehensive private plan after a certain time period will pay a late enrollment penalty that is either 1 percent of the monthly premium for each month the person was in the state plan, or 10 percent of the cost of the monthly premium, whichever is less, for up to 18 months. The fees generated from that penalty would go back to the Federal Treasury.
Q: Will the tax penalty for going uninsured go away permanently?
A: If your state adopts the PFA, the Obamacare tax penalty for not having qualifying coverage would go away. If you state sticks with Obamacare, mandates for individuals and small employers would likely remain in place.
Q: Will there be a specific open enrollment period?
A: Yes, if a state sticks with Obamacare or adopts the PFA, there will be specified open enrollment periods, likely with similar dates as the currently scheduled Obamacare open enrollment periods, when people can review and change their coverage more freely than they can the rest of the year.
Q: If I lose my job, move, or get married or divorced can I get coverage?
A: Yes, if a state sticks with Obamacare or adopts the PFA, life events like a job loss, move to a new coverage area, or getting married or divorced would generally count as a qualifying life event that would allow you to apply for new coverage.
Q: Will I have to pay more for health insurance if I have a pre-existing condition?
A: Generally not, if you follow the requirements under the main PFA alternative to Obamacare. For example, as long as you maintain creditable coverage and do not have a gap in coverage of more than 63 days, then you generally would not have to pay more.
If you do have a gap in coverage, you may be medically underwritten before you can qualify for coverage, which could result in higher monthly costs or denial of coverage under some circumstances.
If coverage is denied, you may need to apply for a different plan available in the market or stay on a state-run catastrophic health plan.
If your state elects to stay with Obamacare, then the rules would generally remain the same, so you would not pay higher premiums solely because of a pre-existing condition.
Q: Would health insurance benefits be the same as those under Obamacare-compliant plans?
A: Not necessarily. The PFA would allow states to develop their own minimum benefit standards, subject to minimal federal requirements for major medical health insurance.
Proponents of the PFA claim this will give insurance companies flexibility to lower premium costs by offering fewer benefits.
Q: Will tax credits or subsidies still be available?
A: Yes, but they will be different. Under the PFA, states could establish health savings accounts (HSA) and the Federal government would fund them up to a limit, but the funding would not be distributed in the same way as income-based Obamacare subsidies.
Federal funding under the PFA for subsidies is generally designed to give each state the same amount of funding that the state would have received for Obamacare subsidies if 95% of eligible state residents had signed up, but states will typically have greater flexibility on how to spend this funding than under Obamacare.
Q: What is a Health Savings Account (HSA) and how would I use it to pay for heath insurance?
A: Think of a health savings account as a checking account that allows you to save and spend money tax-free when you use it on eligible healthcare.
With an HSA, you would essentially get a debit card attached to a pre-funded account and you can use the money in the account to pay healthcare expenses such as your insurance premiums, deductibles and co-pays.
The PFA modifies the existing rules for HSAs, which under current law cannot be used to pay insurance premiums.
You would get to save any money left over in the account at the end of each year for use in following years.
Q: Will government subsidies still be based primarily on income under the PFA?
A: No, under the PFA alternative, the government would make deposits into your HSA, and the amount of the deposits would vary by factors in addition to income. They’ll be modified to reflect state-level costs and age-based costs (more money for older people and people in higher cost states) and other factors, such as whether an employer already helps pay for your health insurance coverage.
States also have some control over some of the details – for example, a state may choose to make sure anyone currently receiving an Obamacare subsidy does not get a lower subsidy amount under the PFA alternative.
In general, the PFA subsidies would be reduced by 1% for every $1,000 an individual earns over $90,000 or a couple filing joint tax returns earns over $150,000.
Married couples would not qualify for the PFA subsidies if they file separate tax returns. States choosing to keep Obamacare would continue to offer Obamacare subsidies.
.Q: eHealth just published a report showing that individual health insurance premiums have doubled in four years under Obamacare. How could the PFA succeed in lowering insurance costs where Obamacare failed?
A: The PFA does a number of things that could lower health insurance costs.
- Flexible Benefits – States would have the option to make plan benefits more flexible. For instance, a couple in their 50s that does not plan on having more children could choose to enroll in a health plan that did not cover maternity care.
- Universal Coverage – The PFA’s state-run catastrophic health plan provides all eligible residents a basic form of health insurance coverage to help eliminate uncompensated emergency care.
- Health Savings Accounts (HSAs) – People don’t often say no to free money. To access the free money in an HSA, people generally need to sign up for a health plan.
- Strict Enforcement of Enrollment Periods – The PFA would not allow people to wait until they get sick to buy health insurance. Insurance companies can charge people more for their plan, or deny their application, if they’ve been uninsured or on the state’s catastrophic plan for too long. The PFA also charges late-enrollment penalties for up to 18 months for people who wait to buy private coverage.
- Healthier Risk Pools – Items one through four above may encourage more young healthy people sign up for a health plan, which would lower overall costs in the system.
- Mandatory Price Transparency – The PFA requires doctors and hospitals to publish their prices for different services so patients know what a service will cost before they undergo a procedure. Theoretically, this would allow people to seek low cost care and force health care providers to compete on costs.
- Emergency Room Reform – The PFA puts new requirements on emergency medical care. Under the PFA, a person could generally not be charged more than 95% of the state’s approved cost for most medical services and 110% of the state’s approved cost of most hospital services. And, for medication received in the E.R., a person will either pay twice the cost that the provider paid for the drug, or the provider’s costs plus $250 – whichever is less (no more paying $10 for an Advil).
Q: What if my PFA subsidy is bigger than my insurance premium? Does that money go back to the government?
A: Under the PFA, you can keep any subsidies deposited in your HSA for later use on qualified medical expenses if you do not have use for the funds right away. The HSA funds carry over from year to year.
As a final note, because the political situation is constantly changing and difficult to predict, it is still uncertain when or if any of the proposals for healthcare reform described in this FAQ may actually be enacted, either in part or in whole, and we are not making any such prediction. Even if there is any healthcare reform, it is likely the final reforms could differ significantly from any proposal described in this FAQ.
In addition, we may not update the information in the above FAQ to reflect any changes. In general, consumers should not cancel or change insurance coverage or take other drastic actions in anticipation of any proposal being enacted.