The AEI Health Plan
It’s impractical and politically impossible, but it endorses six principles that are practical and politically possible and all of which are a major improvements over ObamaCare:
- Tax fairness: People at the same income level and with the same health status should get the same help from government when they purchase private health insurance.
- Universality: There should be some help for everyone, even people who fail to enroll in a health plan.
- Labor market neutrality: Health reform should not encourage employers to avoid hiring workers, to hire contract or temporary labor rather than regular employees, to hire part-time rather than full-time employees, or to break their commitments to provide post-retirement health care benefits.
- Portability: Employers should be encouraged, rather than discouraged, from offering portable insurance to their employees.
- Self-insurance: The tax law should treat saving for future medical expenses just as generously as premiums paid to third-party insurance and medical savings accounts should be allowed to be completely flexible ― wrapping around any third-party health insurance plan.
- Real insurance: When people switch health plans, insurers should be allowed to charge premiums that reflect real risks, but people should be able to buy the kind of insurance that protects them from premium hikes after their health condition deteriorates.
The plan. Henry Aaron’s criticism is brutal. Harold Pollack is kinder and gentler. Austin Frakt is actually somewhat supportive. BTW, the AEI plan is more progressive than the John McCain plan which in turn is more progressive than ObamaCare.
This is similar in many ways to NCPA’s Principles of Ideal Health Insurance. All definitely good ideas.
All six principals look great on paper. Its the implementation that is hard right?
“It’s impractical and politically impossible”
Too bad.
Nothing is impossible.
Human Flight.
Real insurance seems a lot like what you propose in Priceless
“Portability: Employers should be encouraged, rather than discouraged, from offering portable insurance to their employees.”
More flexibility and choice creates better outcomes.
Portable insurance is a good concept, but choice is key because I don’t think it can be a universal concept.
“Universality: There should be some help for everyone, even people who fail to enroll in a health plan”
Why should there be help for people who fail to have health insurance. It is their responsibility, why should we have to coddle them?
“Real insurance: When people switch health plans, insurers should be allowed to charge premiums that reflect real risks, but people should be able to buy the kind of insurance that protects them from premium hikes after their health condition deteriorates.”
Some people have more health risks than others they should be charged more for that liability.
My issue with the paper is that it tries to achieve the impossible. The title is, “Best of Both Worlds: Uniting Universal Coverage and Personal Choice in Health Care.”
But those two goals are contradictory.
On the one hand, the AEI paper creates a system by which, if Joe can’t pay for his health care, it’s Sandra’s responsibility to foot the bill.
On the other hand, the authors want a system which “allow[s] people to spend as much of their own money on health care and health insurance—to buy access to better technologies and better doctors—as they want.”
But if Sandra is required to pay for Joe’s health care, her choices when it comes to her own medical care are inevitably limited—-a portion of the income she’s earned and needs to pursue the best care for herself is being funneled into Joe’s pockets.
Either Sandra has a moral right to pursue the best health care for herself, a principle which is incompatible with the system of redistribution the AEI paper idealizes—-or her responsibility is to sacrifice for others, in which case we shouldn’t pretend that Sandra is free to make the choices that most benefit her.
Only a free market is truly compatible with personal choice. I wish that’s what the AEI paper came out for.
The authors at the AEI symposium did not describe their method of indemnifying against re-classification risk as straightforwardly as Mark Pauly or John Cochrane have.
I was at the event and asked what they would do about someone who did not have insurance, contracted HIV/AIDS and then shopped for insurance in the proposed national exchange. I asked:
” Would I go to the exchange, tell them I have HIV/AIDS, be quoted an annual premium of $150,000, and then be directed to the IRS to apply for a tax credit of $135,000, for example?”
The answer was that my income would be immediately adjudicated by the national exchange crunching data with the IRS. But that does not do the trick because it confuses income-based subsidy with risk adjustment.
In Medicare Advantage or the forthcoming Obamacare exchanges, there is re-insurance, but this is invisible to the beneficiaries. Income-based premium differences (in Medicare Advantage) or tax credits (in exchanges) are visible to the beneficiaries.
Leaving aside the question of prospective versus retrospective risk adjustment, I struggle to see the economic difference between executing the reinsurance at the “retail” level (as proposed by the AEI symposium) and executing it “wholesale”, as in Medicare Advantage and Obamacare exchanges.
Politically, I cannot imagine that “retail” re-insurance would be preferable to “wholesale” re-insurance.
Great post. But I am also agree with other commenter s.