Healthcare Contract with America
Opponents of the Affordable Care Act (ObamaCare) have a nifty catch phrase: repeal and replace. Unfortunately, they are much clearer on “repealing” than they are on “replacing.”
Until now. The Congressional Health Care Caucus has posted on their website a Healthcare Contract with America, fashioned by yours truly. I conducted a Capitol Hill briefing on the subject and you can find more details at the National Center for Policy Analysis (NCPA) website. Let’s hope every candidate for office this fall endorses the Contract. Here are the main ideas:
No excuses
No lies
No broken promises
Tax Fairness. The federal government should give everyone the same tax relief for the purchase of private health insurance, regardless of where it is obtained — through an employer, in a health insurance exchange or in the marketplace.
As I explained last week, we could replace the current system of tax and spending subsidies with a lump sum, refundable tax credit of $2,500 for every adult and $8,000 for a family of four. These credits would fund the core insurance that we want everyone to have. Additional coverage could be purchased by individuals and their employers with (unsubsidized) after-tax dollars.
The current system of granting tax relief for the purchase of health insurance is arbitrary, regressive and unfair. In general, only employer purchased health insurance receives favorable tax treatment. People who must purchase their own insurance get little if any help from the IRS. In addition, the amount of subsidy depends on your tax bracket. That’s why people who earn $100,000 a year get a tax subsidy that is six times the subsidy available to someone earning $25,000. Some may argue that government shouldn’t be involved at all. Fair enough. But there is no rational argument for giving the most encouragement to those who need it least.
Under ObamaCare, things will get even more arbitrary and unfair. Families will be required to have health insurance — either through an employer, the government or in a newly created health insurance exchange. Take a family earning, say, $30,000. If the family qualifies for Medicaid, the government will pay 100% of the cost. If the family qualifies for insurance in the exchange, the government will pay about 95% of the cost. But if the family is eligible for insurance at work, the government subsidy will equal only 15% of the cost. Families at the same income level can receive subsidies that differ by $10,000 or even $20,000.
Tax fairness means we are all treated the same.
Portability. Remarkable as it may seem, almost every state in the union prevents employers from helping their employees obtain the type of insurance they most want and need: portable insurance that travels with the individual from job to job and in and out of the labor market. The reason the states are doing this: misguided federal laws. ObamaCare will continue this strange and indefensible policy.
We should reverse course and encourage personal and portable insurance instead.
Patient Control. Roughly 24 million families are currently managing some of their own health care dollars in special savings accounts and a RAND study shows that employer plans cut costs by as much as 30% as a result. The rules governing these accounts are too restrictive, however. What is needed is a very flexible Health Savings Account (HSA) that can wrap around any health plan. In this way, individual choice and the marketplace would determine which expenses individuals will self-insure for in an HSA and which expenses will be paid by a third-party insurer.
Real Insurance. If health insurance were portable, the problem of pre-existing conditions would rarely arise. And the remaining problems would go away if health insurance worked like life insurance or casualty insurance. Specifically, people should be able to buy change of health status insurance. If you acquire a pre-existing condition and if you are forced to switch health plans, the current plan would pay the new plan any additional premium that is needed to reflect your higher health care cost. See additional explanation here.
Universality. In any system in which individuals are offered tax relief for the purchase of health insurance, some people will inevitably turn the offer down. What happens to the unclaimed tax credits? They should be made available to safety net institutions in the area where the uninsured live, so that money is available if the uninsured cannot pay their medical bills.
As I explained last week, this is a system under which money follows people. If everyone in Dallas County accepts the government tax credit offer and obtains private insurance, we do not need safety net institutions. The $8,000 family tax credits all go to pay premiums and deposits to HSAs. On the other hand, if everyone in Dallas County decides to become uninsured, the unclaimed credits all go to the safety net institutions.
This is a practical, realistic and workable form of universal coverage.
This makes too much sense to be a public policy idea with legs. Public policy initiatives that gain traction are always ideas that redistribute resources to favored groups. Otherwise, how are politicians going to claim they are helping their helpless constituents? For Heaven’s sake… unless politicians are giving voters something for nothing they are not doing their job!
For instance, Tax Fairness takes away tax breaks from higher-income individuals and redistributes funds to lower-income families. Real Insurance takes subsidies from older (less-healthy) individuals and restores them to the younger, healthier individuals. Patient Control means doctors and hospitals have to negotiate with patients who ask pesky questions like “how much does this cost?” and “do I really need this?”
Nice job JCG. Keep up the good work!
John:
Sounds workable, but we are dealing with politicians!! They don’t give away their power and control easily.
How much would a system like this cost the govt in tax credits versus how much would be saved?
How doe s a system like this deal with Medicare and Medicaid which are the two areas crushing state and federal budgets?
What about free market pricing outside of the insurance system? Transparency in pricing, ending the insurers monopoly in certain geographic areas?
How bout tort reform? would go along way towards reducing costs…
Good ideas.
I would add a federal high risk pool for covering those with current pre-existing conditions. That seems to be the biggest issue the media and public frequently show concern for. State high risk pools do not have enough subsidies or HSA plan designs to make them attractive. High risk pools should encourage personal responsibility to be compliant with treatment plans.
John – (1) – the tax credit shows no reflection of the actuarial cost difference of catastrophic health insurance based on demographics (area, age, sex, etc.). At least some of those are legitimate differentials that should be reflected in the tax credit. I am not arguing against the credit and I have been in favor of tax fairness in this arena for many years. But reality and equity need to be reflected in areas other than just “tax” fairness. (2) The Rand study you refer to is as questionable as all the other studies put forward to demonstrate that HDHP/CDHP concepts will save gobs of money. They might, but these studies have potentially serious analytic flaws in their design and in the conclusions drawn. (3) The pre-existing problem is already with us – as discussed previously, what transitional road path do you propose to take care of all those pre-ex and chronic medical condition disabled persons we already have, which generate the bulk of medical expenses already?(4) Have you found any actual insurance companies who have the foggiest notion of whether they would be interested in writing your proposed “status” insurance? “Status” insurance is already a component in guaranteed renewable individual insurance. I do think that splitting it out and tying it to case capitation of identified conditions is a useful concept, but getting there will be difficult. However, perhaps it is the next great financial/insurance idea that requires an entity from outside the “usual” suspects to implement.
There are an infinite set of solutions to the health care “equation,” choosing the optimal one and then providing the practical road map for attainment are the rub.
Excellent ideas. Thanks John
A federal risk pool is an easy fix and it apparently doesn’t cost all that much. Only 62,000 are enrolled right now.
@Tom H. – actually, there are millions upon millions of people who would not be insurable if they were suddenly thrown out of their current group health plans (i.e., all those sick early retirees from Stockton, CA). You are only talking about a very few, very wealthy (because the premiums are so high) very sick people taking advantage of state risk pools, and my guess is that number is greater than 62,000, but it might be a good number. The point is it is not relevant to what would happen if we were to transform the current system into John’s proposal.
Obamacare will be extraordinarily unfair for many families and young people – many of whom will not be able to afford the “tax”
A true American hero.
I am intrigued and interested in your ideas. I believe these basic concepts are the most fair and sound of any I’ve heard of, except for the “safety net institutions” part which I don’t believe is practically workable for a number of reasons.
As an insurance agent with 20 years experience in designing good employee benefit plans, primarily HSAs, I can say that individually-owned policies are absolutely the best path we could take.
There are still pragmatic issues which have to be addressed. Once someone HAS a policy, the whole of your proposal makes more sense. But we have to get there in the first place. That transition could be difficult or impossible for many people.
I have thought of these scenarios for years, and it keeps coming back to the “fairness” (or unfairness) of rating, pricing and accessiblity of policies. Without guaranteed-issue, community-rated policies, I don’t see how we reach the goal. With those factors built in, I don’t see how younger people will sign on (absent a mandate) and there is no purpose for medical underwriting. A significant catch-22 in the thought process.
The tax credits you suggest are arbitrary numbers that would have to change with inflation over time, but they are ultimately “fair”. The “affordability” of a particular policy for a particular individual still remains elusive however if we cannot adequately address the variations of age and medical histories. (Location may also need consideration). Cost and insurability go hand in hand in this issue.
How do you propose we answer that part of the question?
A federal/state subsidized hogh risk pool as a part of repeal and preplace would be a whole lot cheaper than ObamaCare!
Our best real world example is our current real world example in ObamaCare. 62k when the CBO projected 3-400k. Most pre-ex are already covered under ERISA plans where the otherwise uninsurables are covered.
John and Friends:
I’m interested in why no commentators consider the possibility that multiple good results could come from health plans that are liked to a provider system, where their contracts would involve negotiation on service and price. Right now, this doesn’t happen…just price. Yet if people want portable plans as well as a real effort to modulate costs, they can best achieve that by having their providers and health plans duke it out. Longer term contracts would help, as well.
In addition, all parties should begin to wean themselves from the habits of a lifetime –accepting and asking for treatments or tests that have no real value. Look up a new book by David H. Newman, M.D., called, Hippocrates’ Shadow, a powerful treatise on how much we have carried along from the Twentieth century that is unexamined, and essentially useless.
The other route to a better health system is to pull in new science as fast as we can to replace old science that is not curative. If we have portable insurance, it can be used for a curative treatment wherever it is to be found. This would spark an adoption race that would benefit everyone. Look up nanotechnology for treatment of selected cancers along with MD Anderson in Houston.
John–you are right to propose these things. And they do give the Republicans ammo. But I have to agree with the people who say the politicians are not up to doing something simple unless it is to bomb the d….thing in budget reconciliation. Starve it for money.
Let’s keep urging repeal and make it easy to do by electing Republicans.
Cheers…
Wanda J. Jones
President
New Century Healthcare Institute
San Francisco
You could definitely see your enthusiasm within the paintings you write. The world hopes for even more passionate writers like you who are not afraid to say how they believe. All the time go after your heart.
Hi John,
Being a medical insurance guy I would like to understand this statement:
“Insurance should not just pay for the cost of becoming ill, it should also pay the higher premium required if patients switch health plans.”
Are you saying – If a person has a 10k deductible and then changes to a $20 co-pay plan their premium will remain the same but the new insurance company will pay the additional premium for the richer benefit?
John C Parker, RHU, LTCP
Niantic CT
Absolutely not.
http://healthaffairs.org/blog/2012/06/19/why-prices-matter-part-ii/
Hi John,
Thanks for the note.
In the health affairs post it states:
“I will argue that the second biggest mistake is the belief that the best way to help people with chronic illness is to prohibit health insurance premiums from reflecting expected health care costs.”
IMHO – the words in bold are a much better way to describe what you propose vs. ins co should pay the higher premium.
John C Parker, RHU, LTCP
Niantic CT
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