Ben Carson’s Health Plan: Close but No Cigar!

Presidential candidate Ben Carson unveiled his health care plan. Although the details are still somewhat sketchy, his proposal would rely heavily on health empower accounts (HSAs by another name) that begin at birth. These accounts — as is typical of actual HSAs — would be coupled with high-deductible plans.  Medicaid would be turned into a block grant, from which states would be expected to set up private accounts (HRAs, HSAs or FSAs) and couple with private health plans for low-income beneficiaries. Medicare would be converted into a tax credit allowing seniors to buy private health plans. Presumably seniors would continue to benefit from the use of their health empower accounts throughout their Medicare eligibility. The age of Medicare eligibility would be gradually raised to 70.

Carson plans to fill in the details of his plan on the campaign trail. Maybe that’s better, since I can now make up my own details and decide how he should shape his plan. The idea that everyone should open an HSA at birth is a good one. Medical expenses start out pretty low and rise with age. Medical costs don’t typically rise much until people are in their mid-50s. That allows plenty of time to accumulate a health care nest egg. A tax credit of $2,000 per year would amount to $100,000 plus compounded interest by age 50.

I don’t yet know how Carson would structure this, but there should probably be some requirement that parents buy some type of health plan to qualify for the tax credit.  I’m fine with either a high-deductible plan or a limited benefit plan. One question is whether or not parents would be allowed to use the credit to purchase health coverage? I tend to support making parents contribute something to get the tax credit. It should not be entirely up to the government to care for parents’ children.

Carson would do away with Obamacare. In that regard he has my support. As the lesser half of a couple who have maintained healthy lifestyles into middle-age, neither my wife nor I like the idea of spending $6,000 apiece on health coverage for plans with deductibles over $6,000. Think about this: the oddly-named “Affordable Care Act” expects us to spend $12,000 on coverage that does not pay benefits until we have spent an additional $12,750 in out-of-pocket medical spending. Our estimated medical bills next year will only be around $1,000 to $2,000. By about any measure, that’s the definition of unaffordable.

Medicaid block grants are something most conservative policy analysts and Republican politicians support. But presidential candidates (and free market analysts) should refrain from telling states how to use the funds. Some states may decide not to create personal accounts and divvy up funds for private coverage. A few states may prefer to fund public health clinics and chronic disease management programs, where the chronically-ill poor receive care. That too should be states’ prerogative under a block grant.

Medicare is a touchy subject. Raising the age of eligibility to 70 is bound to raise the hackles of many early retirees and those nearing Medicare eligibility. Exchange plans for people in their 60 are expensive and the coverage is virtually worthless unless enrollees have high medical bills. Plus, there really is little money to be saved by raising the eligibility age from 65 to 70. Americans in their late 60s require little medical care compared to seniors in their 80s. Currently an American turning 65 can expect to live another 17 to 20 years, on average. That means about half of women will still be alive 20 years after they reach Medicare eligibility. If Ben Carson really wanted to reduce Medicare expenditures, rather than have coverage start five years later, he’d have coverage terminate sooner. If Medicare was limited to, say, 20 years ending at age 85, Medicare would save much more than delaying eligibility until age 70. (Note: This is not a proposal; it’s an anecdote)

Nonetheless, Carson’s suggestion that Medicare should be converted into private accounts with private plans is a good one. The NCPA recently published an actuarial analysis of a plan to move that direction. Workers (and their employers) would each contribute two percent of payroll into an account for each workers future Medicare needs. Upon reaching Medicare eligibility, the account would be converted into an annuity that pays an annual deposit to each senior’s HSA. Medicare benefits would be a 5,000 deductible plan, presumably a type of Medicare Advantage. More details would need to be worked out — including how the plans would be risk rated.

One final problem: transitioning to a system of personal accounts, where people have set aside funds over years requires — well, years! In the meantime, as deductibles reach the Stratosphere, more people will become accustomed to asking their providers about costs. Once patients begin to realize comparison shopping actually works, then maybe a consumer society will begin to take hold in health care.

An earlier version of this Health Alert appeared in Town Hall.

Comments (13)

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  1. Ron Greiner says:

    This is too bizarre. Children don’t have a tax load so tax-free HSAs at birth is crazy. Medicaid given to the State will make sure that Blue Cross will get all of the money because Blue Cross always gets the government contracts. California has over 33% of their people on Medicaid.

    Ben Carson may be a brain surgeon but he is no rocket scientist.

    How about letting Americans choose which insurance company they would prefer instead of the State making those decisions? If they State decided which autos we drove maybe Ford would get the contract. Maybe the autos would all be the same color too.

    I agree with Rand Paul that tax-free HSAs should be de-linked from health insurance so everybody could have a tax free HSA. Devon you don’t have to worry about zero deductibles anymore because those days are gone and will never return. But, somebody with a $10,000 deductible should be able to have a tax-free HSA too and then they are giving less money to those bloodsucking Blue Cross CEOs.

    Children can get insurance for less than $1,000 a year unless the State is involved and then the cost in Florida is $3,600 a year. Get the State out of health insurance along with the Federal Government and let FREEDOM happen in the land of the free.

    • Devon Herrick says:

      Interesting points. I don’t think Carson advocates for lifetime HSAs (what I choose to call them) because of the tax advantage. He presumably believes declining health status that usually begins 50 years after birth is something that all Americans should save for throughout their lives. That’s why I am not particularly fond of allowing people to use their tax credit on coverage.

      • Ron Greiner says:

        Devon, I can tell you what Ben Carson is thinking. Carson thinks that doctors would not be dealing with insurance companies if patients had tax-free HSAs. That is not true. My clients don’t tell the doctor’s office they have an HSA, why would they?

        Ben Carson is just lost and he thinks that the insurance companies are dictating medical care and cost. Every single person with an HSA has insurance because that is the current law. The insurance companies will not let more than the negotiated price be applied to the deductible. In reality, Ben Carson wouldn’t have the time to bargain with his patients and they certainly don’t have the time or experience to bargain either. It is scary that a guy as uninformed as Ben Carson would have any say in how medical treatment is delivered in America.

        • Devon Herrick says:

          My clients don’t tell the doctor’s office they have an HSA, why would they?

          I tell my doctor I have a $6,000 deductible. I don’t see any benefit to revealing I have funds in an HSA. Likewise, I would probably advise against telling a car dealer you just won the lottery and your wife absolutely has to have that specific car in that specific color.

  2. Ron Greiner says:

    Devon you say that you and your wife have $6,000 deductibles and then you insist that both deductibles must be satisfied if one of you gets sick and you will owe $12,000 in deductibles and that is not true. Who do you think you are talking to here? I’m sure many would agree with you but they would be wrong too.

    • Devon Herrick says:

      Ron, I was using an anecdote to explain how Obamacare is a bad value for most people. I was not suggesting we have a $12,750 family deductible. Assuming we both had some health complaints, (in Obama-speak, we got runover by the same bus), our affordable Obamacare policies would require nearly $25,000 in combined premiums and deductibles. That’s only affordable if you’re quite well off and only a good value if you’re very sick!

  3. Devon Herrick says:

    then they are giving less money to those bloodsucking Blue Cross CEOs…

    You raise an important point that is lost on Obamacare supporters and left-leaning policy wonks. Dumping more money into our health care system (whether it’s on tax credits, tax exclusions, sick people’s premium subsidies, insurers, doctors or hospitals) does not benefit our health system.

    The strategy of forcing millions of healthy people to overpay for premiums so insurers can offset loses on uninsurable sick people makes health care more expensive — not cheaper.

    On the other hand, mandating all people buy limited benefit plans (with a $10,000 deductible, a $100,000 maximum annual benefit and 40% cost sharing) would benefit the health care system. How you may ask?

    Under that scenario people would be extremely cost sensitive. Providers would have no choice but to cut costs, compete for business or go out of business. Competition would drive transparency and control costs.

    The Administration’s current strategy of making health care “affordable” by increasing cross-subsidies is akin to using gasoline to smother a fire.

  4. The big ham says:

    Humana is following in UHC footsteps and has just anounced after 3/15/16 commissions on individual policies will go to 0% . Unfortunately Obamacare has done its job and complely destroyed the individual insurance market. Bernie Sanders was on a morning news show today explaing how to fix the healthcare system. He says we need to be like Canada when he was took people across the boarder to buy RX’s for 10% of the cost in the U.S. He then stated the problem is, insurance companies make profits and there should not be any profits in healthcare. These politicians apperantly do not understand the difference between health care and health insurance. The U.S. Health care and insurance system can not be compared to any other country because the U.S. Is the only country with a tax advantaged employer based system. He then said minimum wage had to be raised to $15 an hour and collage should be free. He would pay for this buy taxing upper income individuals and corporations. You can’t make this stuff up!

    Now we have republicans sending a bill to repeal Obamacare to the president that will get vetoed. What the president should do is sign the bill. Just think of the problems the republicans would have. No tax credits and no individual market or agents to help consumers. It would take longer than a year to fix the mess and the democrats could lay all the blame on the republicans.

  5. Jimbino says:

    Carson should propose that foreign companies have the right to compete in selling health insurance and that all health insurance benefits be payable to providers overseas, including Mexico and Cuba. That would open competition for the first time.

  6. Don Levit says:

    I like your limited benefit plan idea
    Could this be custom designed using a MEC as the base plan?

  7. Don Levit says:

    That $25,000 in out of pocket costs is similar to $25,000 less risk for the insurer other than preventive care or any co pays or co insurance
    Their risk is reduced 55 percent
    Where is the corresponding reduction in premium?

  8. Bob Hertz says:

    Devon, I appreciate the post and the vigorous thoughts, but let me lodge a minor complaint about your complaint against Obamacare.

    Well, two complaints.

    a) your phrase about ‘maintaining healthy lifestyles’ has a kind of false ring to it. The hospitals and nursing homes of this country have many patients who also maintained healthy lifestyles until they had a car accident, an inherited disease, etc. Maybe a majority of patients have overeated and not exercised, but not all of them by any means.

    b) I too dislike the prospect of paying $6,000 a year for a $6,000 deductible. But I used to sell Blue Cross of MN policies in the individual market. Their premiums were headed that way in 2008-2009 before the ACA was ever enforced. The individual market has been rough on older insureds for many years.

  9. The big ham says:

    Let’s think outside the box if we want real solutions.

    The bottom line of all of this is how much do we have to pay for Doctors, Hospitals and RX’s in any one individuals lifetime. Or another way of looking at it how much are they allowed to make?


    When you are born the federal government establishes a lifetime health coverage plan for you in a guaranteed interest baring account of Some amount. (THAT THE GOV CAN NOT TOUCH!!!) For arguments sake let’s say $100,000. This account is established the day you are born and is your lifetime healthcare account. Let’s assume a modest 3% guarantee rate of return. This account can only be used for major medical and maintenance medication. Not physicals or preventative stuff just normal health care and RX’s if you get sick..when you are young and still feel immortal your account will grow. Let’s say the average person will take out $1,000 a year worth of healthcare. At the end of year 1 you would then have $102,000. Buy the time your are 30 you will have approximately $350,000 and at age 60 you would have approximately $900,000. Obviously some will have more some will have less depending on health care used in the 60 years.

    This pool of money is all the healthcare industry is Intitled to. If you have someone young and sick and uses up the $100,000 then the healthcare industry picks up the tab. ( just like Medicaid today) once a persons accent goes to 0 then they are on the healthcare industries dime.

    Any money left in an account upon death can be left as an asset To your estate at normal tax rates.

    If a plan like this was implemented after WW2 instead of tax payer funded employer based benifits how much would the tax payer have saved? Better yet how much would we save over,the next 60 years?
    Obviously there are problems like what todo with the old as we wait 60 years for the young ones. To catch up.

    But yep it’s out of the box 😄