By Dr. John C. Goodman
Originally posted at Forbes, April 2017.
Why can’t Republicans be more like Democrats?
When the Democrats passed Obamacare, they never even once argued about how it would work. They only talked about who was going to benefit and how – at least in public.
Republicans, by contrast, are bogged down in a hopelessly complicated debate over what to do about pre-existing conditions. And their focus is on something that is very uncharacteristic: regulation. Why aren’t they instead focused on markets?
Right now, health plans are running away from the sick – with high deductibles and narrow networks — in a horrific race to the bottom in the Obamacare exchanges. With free market risk adjustment (described below) health plans would aggressively compete to solve the very same problems they now seek to avoid.
This is one of ten major changes that need to be made in the American Health Care Act (Ryan plan). In my discussions with members of Congress, I believe these changes could bring together all factions :
- Give tax cuts to people, not special interests.The last people in the country who deserve to get a tax cut are the special interests who gave us Obamacare, who agreed to be taxed and who are not even asking for their money back. Instead, give a tax cut to people who need help purchasing health insurance.
- Offer the tax credit to employees. The tax credit in the individual market should also be offered in the group market, where premiums are now lower and coverage is better. With this change, a 5 to 6 million increase in employer-sponsored insurance is very possible, allowing Republicans to enter the next election with positive insurance results.
- Make the invisible risk pool workable.In theory, risk pools are a very good thing, but they cannot lower the average premium unless there is a new source of money. Right now, the group plans are dumping high-cost enrollees into the individual market, where they pay the same premiums as younger, healthier enrollees. As long as they can do that, the individual market will be potentially unstable and premiums for the healthy will be way too high. A possible solution is to give state governments the ability to impose a small premium tax on all group insurance and use the funds to reinsure high-cost patients who migrate from employer plans to the individual market. This is traditionally how risk pools have been funded. [If Republicans can’t live with the idea of a new tax – even if left to the discretion of state governments — it could be made voluntary. Employers who pay it could guarantee their workers no discrimination based on health status once they leave the company; employers who don’t pay it, could not offer that guarantee.]
- Do not allow individual buyers to game the system.The Congressional Budget Office is finding huge numbers of uninsured under the AHCA, in part because being uninsured while healthy is made too attractive. At a minimum, Medicare rules should apply: Allow insurers to charge significantly higher premiums to people who do not enroll when first eligible. The ideal solution is to allow full underwriting for people whose behavior is flagrant – which is what we do under Medigap insurance.
- Allow individuals to buy insurance that matches their tax credit. The Democratic approach to health reform has always been defined benefit. They tell you what you have to buy and then you scramble to pay for it. The Republican approach (John McCainin 2008, the Ryan/Coburn bill, etc.) has always been defined contribution. They tell people how much money they have to spend and let competition determine what the market can offer for that amount. In every individual market, there should be at least one plan that can be purchased for the amount of the tax credit with no additional spending. This also makes auto enrollment easier, if that is what a state wants to do.
- Allow limited benefit insurance.People should be allowed to buy insurance that is appropriate for their income and health status, rather than insurance that covers every expense hospitals might incur. For example, young, healthy families should be allowed to purchase a plan that covers, say, the first $100,000 of medical expenses – covering 95% or more of all expected expenses. The family’s income and assets would be fully protected against claims up to this amount – giving them the same protection higher income families have. In the rare case of a $1 million expense, the hospital would have to find some other way of covering the additional cost – just as they have done in the past. Don’t make families buy inappropriate insurance in order to solve the financial problems of hospitals.
- Allow employers to buy portable insurance. Obamacare imposes a fine of up to $36,500 per employee per year on employers who buy individually owned insurance with pre-tax dollars. In the 21st Century Cures Act, Congress waived this penalty for small business. It should now do the same for all businesses. Employers should have the freedom to choose between the individual and group markets and to choose the type of tax relief – a tax exclusion or a tax credit.
- Allow free market risk adjustment. To stop the race to the bottomin the individual market, health plans must not be allowed to dump their most expensive enrollees on each other. Instead, when a high-cost enrollee moves from plan A to plan B, Plan A should be required to top up the premium for B to cover all expected extra costs. Under such a system, health plans would compete to enroll the sick – just as they do in the Medicare Advantage program. Providers would specialize in such services as cancer care, heart care, diabetes, etc., and they would compete to solve problems rather than running away from them. See this description of what free market health care would look like under these better incentives.
- Choose the right HSA for the right tax subsidy and the right patient.People who get a deduction or an exclusion, should have access to a very flexible Health Savings Account. But if they claim a tax credit, the savings account should be a Roth account – to satisfy the economist’s desire to make the choice between third-party insurance and individual self-insurance independent of the tax code. Although there should be reasonable limits on the amount healthy people can deposit, these limits should be waived in the case of chronic patients who agree to manage their own care.
- Fund an adequate safety net for people who choose to be uninsured.No matter how generous the tax relief or how low the premium, there will always be some who elect to be uninsured. Some portion of the unclaimed tax credit for these people should be sent to local safety net institutions in case the uninsured cannot pay their own medical bills. Let money follow people. The amount of federal help each community gets should be determined by the number of uninsured in that community – and by that alone.
This isn’t every change that needs to be made. But it’s a good start toward a health reform that should command support from everyone in Congress – left, right and center.
This article was originally published at Forbes on April 21, 2017. http://bit.ly/2pxqwF4