By John C. Goodman
Originally posted at Forbes, October 2016
Donald Trump has said three things about health care. He wants to: (1) replace Obamacare with a much better reform; (2) cover everyone, leaving no one without access to care; and (3) do all this with money already in the system – using resources more efficiently, rather than relying on new taxes and more spending.
Unfortunately, the health reform described at the Trump campaign web site falls far short of achieving these goals. It basically repeals Obamacare and allows individuals to deduct health insurance premiums from their taxable income. But since roughly half the country doesn’t pay income taxes, a tax deduction is little help for most of those who are currently uninsured.
For that reason, analysts on both the right and the left have concluded that Trump’s web site plan would increase the number of uninsured by as many as 25 million people. That would fall on top of the 33 million who are currently uninsured under Obamacare.
Where could Trump turn for a better approach? A plan recently proposed by Paul Ryan and key House Republicans would repeal Obamacare’s numerous regulations, including the individual and employer mandate, and replace Obamacare’s Rube Goldberg system of subsidies with a uniform tax credit in the individual market.
This would certainly be an improvement on Obamacare, but it would still leave about 33 million people without health insurance. The same would be true of most other Republican plans. Moreover, since all of these plans begin by completely repealing Obamacare, including its revenue sources, the only way they fund tax credits for the uninsured is with a Republican version of the Cadillac plan tax on especially generous employer plans. Yet that is probably the single most hated feature of Obamacare in Congress.
Fortunately, all is not lost.
There is a plan that accomplishes everything Donald Trump says he wants. It has been introduced in the House by Rules Committee Chairman Pete Sessions (R-TX) and in the Senate by Bill Cassidy (R-LA). This legislation would not only meet Trump’s objectives for health reform, it would make good on Obamacare’s three broken promises: universal coverage, cost control and real protection for people with pre-existing conditions.
Unlike other Republican proposals, the Sessions/Cassidy plan does not repeal all of Obamacare’s revenues. Instead, it uses them, along with all other health care tax and spending subsidies, to offer the everyone not on Medicare a uniform health insurance tax credit. The credit varies by age and geography, but not by income. For the first time since World War II, everyone would get identical tax relief for health insurance, regardless of where they obtain it – at work, in the marketplace or in an exchange.
The tax credit is set at a level roughly equal to the federal government’s contribution to efficient Medicaid. Hence, almost everyone will have access to basic health insurance. For example, if people living below the poverty level claimed the credit and were given the state’s share of Medicaid spending, they should be able to buy insurance that looks like a well-managed, privately administered Medicaid plan for a few dollars a month, at most. Higher income individuals would be able to buy such a plan for a premium of about $100 a month.
For anyone who chooses to voluntarily remain uninsured, there would be a contribution to a local safety net in case they could not pay their own medical bills. This is probably as close to universal coverage as we will ever get.
As for cost control, the proposal allows employers to replace the current, very complicated tax treatment of health insurance with the tax credit approach. Instead of subsidizing every dollar of health care spending, the legislation pushes the tax relief up front — subsidizing the first dollars of spending, but not the last.
Employees will get a dollar-for-dollar tax credit on the core insurance we want everyone to have. But benefits of marginal value will be purchased on a level playing field with take-home pay. Every dollar of waste that people can eliminate from their health plan is potentially one more dollar employees get to keep.
In the individual market, the proposal promises to “denationalize and deregulate” the health insurance exchanges and institute a new system of “free market risk adjustment,” under which health plans must reimburse each other for the expenses of high cost patients who switch plans.
What we have under ObamaCare is bait and switch for the chronically ill. Insurers can’t discriminate by charging higher premiums to those with higher expected costs. But they can select narrow networks that leave out the best doctors and the best facilities, in what has become a shameful race to the bottom. Under Sessions/Cassidy, no health plan will be able to dump its sickest patients on other plans without paying the full cost of the transfer.
Under this approach, health plans will be encouraged to specialize in the treatment of chronic conditions and actively try to recruit patients who could benefit from their services. Instead of running away from the sick, insurers will compete to attract them.
Finally, this proposal is administratively simple. Since the credit is the same regardless of income, no one will have to guess what next year’s income will be and pay a fine if they guess wrong. A firm such as EHealth could easily enroll people using off-the-shelf technology that has been available for years.