By John C. Goodman
Originally posted at Forbes, September 2017
Three states – California, New York and Massachusetts — are receiving 37 percent of all Obamacare funds, according to a group of Republican senators. As an example of this inequity, Pennsylvania has nearly twice the population of Massachusetts, but it receives less than half as much Obamacare money.
The senators propose to radically change that distribution by giving each state Obamacare funds in the form of a block grant. Eventually, each state’s share of the total would equal its share of the country’s poor and near-poor population. That means the people who are the principal target of Obamacare funding will have access to the same federal resources – regardless of where they live.
Senators Lindsey Graham (R-SC), Bill Cassidy (R-LA), Dean Heller (R-N) and Ron Johnson (R-WI) unveiled the proposal last week, and I’ll write more about the benefits of block grant in the future. Of more immediate interest is the opportunity the legislation would create in 50 different jurisdictions.
Many of the ideas in the proposal were previously part of a more comprehensive reform, sponsored by Cassidy and House Rules Committee Chairman, Pete Sessions. (See the 12 bold ideas.) The difference is that the new legislation makes these ideas optional at the state level.
Roughly speaking, if a state is satisfied with Obamacare, it can keep Obamacare. But here are ten ways a state can improve on the current system if its citizens desire to do so. With the state’s approval, insurers will be able to offer coverage that is:
Affordable. Currently there are close to 30 million people who are uninsured and that number isn’t expected to change much under Obamacare. The reason: millions of people have decided that the products being offered are not worth the premiums being charged. This reform allows insurers to offer a more attractive package of benefits for a lower premium. Judicious use of risk pools and reinsurance will also help – especially with high-cost enrollees migrating from group to individual insurance. If a state establishes a dedicated source of funding (outside of its block grant) for this purpose, it should be able to reduce premiums in the non-group market by as much as 50%.
Universal. At least one plan could be offered with a premium that is no more than the subsidy the state provides. Since these plans would require no out-of-pocket payment by the enrollee, people could be automatically enrolled through the Food Stamp program, by H & R Block, at the DMV and in other ways. Universal coverage could be a reality rather than an empty slogan.
Tailored. Currently, low- and moderate-income families are being forced to buy coverage that is completely inappropriate for their financial circumstances and health status. Instead of insurance that has unlimited annual and lifetime limits and a $13,000 deductible, would they rather have less upper bound coverage along with a low deductible and a Health Savings Account? The latter option would give the family easy entry into the system, but would leave some very expensive cases for a safety net (which is a more appropriate way of funding them).
Equitable. One of the worse features of Obamacare is the extremely inequitable treatment of people who are offered insurance at work versus people who purchase their own coverage. Employers of low-wage workers are offering Bronze plans with very high deductibles in return for a premium that is 9.5% of their wage. If employees turn down this offer (which almost all do), neither the employees nor their dependents are eligible for highly-subsidized insurance in the exchanges. Under this reform, the employer and individual mandates go away and states can equalize the subsidy offered in the group and individual markets. This will be especially important in states where the non-group market has become completely dysfunctional and group insurance is cheaper and better.
Portable. Because states will have the power to equalize the government subsidy available at work and in the marketplace for low- and moderate-income families, they will also be able to allow portable insurance for these same families. For example, a company might buy Blue Cross individual insurance for its employees, instead of Blue Cross group insurance, and the employees could take their insurance with them to the next job.
Private. Virtually every study of the matter has found that private insurance results in better health outcomes than Medicaid. Going forward, states will be able to subsidize private insurance instead of Medicaid enrollment for the poor and the near poor.
Fair. Currently, a large number of people are gaming the system by remaining uninsured while they are healthy and insuring only after they get sick. Because of a 90-day grace period, people are also dropping coverage to avoid paying premiums at year end. Of those who are enrolled in January, roughly 25% have dropped out by September and roughly half of those re-enroll for the following year. Additionally, some people buy Bronze plans while they are healthy and then upgrade to Gold or Platinum after they get sick. This type of behavior unfairly shift costs onto other people. Under this reform, states will be able to require individuals to pay the full actuarial cost of any unfair gaming activity.
States will also be able to give their citizens access to:
Personalized care. At $50 per month for an adult and $10 for a child, the cost of direct pay (concierge) medicine has come down to a level that should make it accessible to almost everyone. This reform allows these fees to be paid from a Health Savings Account or by a third-party insurer.
Specialized care. Centers of excellence will be able to specialize in specific diseases – such as cancer care, heart disease and diabetes. They will be able to ask health questions and screen applicants to help get the right patient to the right plan.
A real health insurance marketplace. Obamacare’s risk adjustment is focused on plans, not patients, and there is no realistic way for a plan to know what compensation it will receive for enrolling a patient with a costly medical condition. This is one reason for the race to the bottom – as plans try to attract the healthy and avoid the sick. As an alternative, states will be able to set up a risk-adjustment mechanism along the lines suggested by Cochrane, Goodman and Pauly. Risk adjustment will protect patients, not health plans, and centers of excellence will be rewarded for providing efficient, high-quality care to patients with the most serious medical problems.