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History Shows Gutting Essential Health Benefits Would Likely Promote Fraud, Abuse

Permitting states to waive the Affordable Care Act’s (ACA) minimum benefit standards (“Essential Health Benefits,” or EHB) for individual and small-group market plans, as the MacArthur-Meadows amendment to the House ACA repeal bill would do, would likely leave many people with pre-existing conditions unable to find coverage at any price, cause women to be charged more than men, and expose many insured people to unaffordable out-of-pocket costs. But that’s not all. When paired with the House bill’s highly inadequate tax credits, eliminating the ACA’s EHB requirement also would likely lead to rampant fraud and insurer abuses — just like in the 1990s, with a similar credit that policymakers eventually killed.

In 1990, policymakers created a modest tax credit, tied to the Earned Income Tax Credit, to help low- and moderate-income families buy health insurance for their children. People could use it to buy children’s coverage in the individual market, without meaningful government benefit standards or safeguards.

Once the credit was created, a number of individual-market insurers began offering extremely scaled-back plans for children, with premiums set exactly equal to the credit’s value, and used high-pressure sales tactics to market them. Many lower- and moderate-income families enrolled their children, only to find that the plans often provided flimsy coverage and little protection against major health care costs.

Complaints of abuse mounted, prompting both a House subcommittee and the IRS to investigate. They found that insurers were selling many low-income working families nearly worthless policies. Some policies, for example, didn’t provide any coverage related to certain pre-existing conditions or had limits such as one outpatient visit per year. The investigations also found that many insurance agents were using misleading sales tactics.

The problems grew so serious that in 1993, Lloyd Bentsen, who had sponsored the credit in 1990 as Senate Finance Committee Chair and who was then serving as President Clinton’s Treasury Secretary, led the effort to eliminate it. President Clinton and Congress repealed it in 1993, and it’s widely considered a failure.

The House bill’s provision to create tax credits to buy individual-market plans could lead to similar abuses in states that waive the EHB requirements. In fact, some conservative health policy analysts strongly support the offering of such “no-premium” plans (so called because their premiums would match the value of the tax credit), including auto-enrolling uninsured people into them.

Notably, the House bill’s $2,000 credit for those under age 30 isn’t much bigger than the maximum value of the 1990s-era child tax credit, after adjusting for increases in private health care costs since then. So health plans designed to have their premiums match that credit would likely prove similarly inadequate as those designed to match the earlier child credit.