By John C. Goodman
Originally posted at Forbes, June 2017
From the earliest days of Obamacare, a great many Democrats and others on the left have wanted a “public option.” At least one plan offered in the Obamacare exchanges should be a government plan, they proclaimed. The state of Nevada may make that wish a reality, if the governor signs a bill just passed by the legislature – allowing everyone who resides there to buy into the state’s Medicaid program.
Why does the left like this idea? Because they are ideologically committed to the propositions that when it comes to health care (1) non-profit is always better than for-profit and (2) public is always better than private.
Both beliefs fly in the face of reality. Left-wingers got part of what they wanted when Obamacare allowed 24 non-profit coops to compete in the Obamacare exchanges – with federal subsidies! Yet as of today, 21 of those have gone under and only four are left standing. That leaves Democrats now pining for a government run health plan – which means either Medicaid or Medicare. But once again, facts belie the belief.
More than one-third of seniors on Medicare are already in private insurance plans – voluntarily chosen and in competition with traditional Medicare. As more baby boomers retire, enrollment in private Medicare Advantage plans will almost surely grow – since it is now clear that MA plans are more efficient (less costly) than traditional Medicare and they offer more benefits.
[Incidentally, even traditional Medicare isn’t run by the government. It’s contracted out to Blue Cross and other private entities.]
As for Medicaid, about two-thirds of enrollees nationwide are in privately managed plans and the states have turned to private contracting for the same reasons we did that in Medicare: the private plans are cheaper and better.
So on the evidence, it would appear that conservative Republicans don’t have much to lose by allowing a public option and they may have something to gain – allowing those currently enrolled in public programs to leave and enroll in better private sector alternatives.
Here’s the catch. The competition must be on a level playing field. That means we can’t have private plans exposed to the risk of bankruptcy while the public plans have an unlimited access to taxpayer bank accounts. Also, neither type of plan can be allowed to dump its sickest, most costly enrollees on the other – without financial compensation.
So here is a proposal. Let Medicaid (excluding the blind, disabled and elderly) be a public option in the individual market. This means that private Medicaid plans (which already enroll about two-thirds of Medicaid patients) would become competing plans. Anyone could enroll – even Bill Gates (something Democrats should like) and anyone could leave them and join some other private plan (something Republicans should like).
Here are six parameters that must apply to ensure the competition is fair:
Federal support for pubic and private plans must grow at the same rate. The federal government’s contribution to every state Medicaid program must be capped — by means of a block grant, a per capita block grant or some other cap. Then, Medicaid grants to the states should grow at the same rate as the tax credits that subsidize private insurance. This insures that the federal contribution to Medicaid and the federal contribution to private insurance grows at the same rate.
The private sector cannot dump costs on Medicaid. States cannot subsidize the insurance of non-poor with Medicaid dollars. This means anyone who is not poor (or near poor) must pay an actuarially fair premium to join Medicaid. If the individual is above average cost, Medicaid must be compensated as follows: (1) If the enrollee comes from some other individual plan, that plan must top up the enrollee’s premium to Medicaid to make it actuarially fair. (2) If the enrollee comes from a group plan, risk pool insurance or “invisible” risk pool insurance or reinsurance is used to top up the premium, and the source of funding is the state government – preferably by way of a small premium tax on all group insurance. (3) If a non-poor enrollee has been uninsured for an unreasonable length of time, they may be medically underwritten and be required to pay full price out of their own pocket.
Medicaid cannot dump costs on the private sector. Just as private plans cannot dump costly patients on Medicaid without compensation, Medicaid cannot dump costly enrollees on the private market. So, if an above-average-cost enrollee leaves Medicaid and enrolls in a private plan, Medicaid must make a risk-adjusted payment to top up the premium to the private plan. Also, if the state sets up risk pool insurance to remove some of the burden of the costliest patients, that insurance must be available to Medicaid contractors on an equal basis with other private plans.
Enrollees cannot game the system. Individuals must pay the full actuarial cost of any upgrades and they may receive the full actuarial benefits of any downgrades. If someone with a silver plan gets cancer and upgrades to a gold plan, they must pay the full actuarial cost of the additional coverage. In addition to changes in metallic levels, states may recognize that broader networks and easier access to care is more valuable than narrow networks and restricted access and require individuals to pay the full cost of plan changes that expand networks and access.
Enrollees may stay in their plans as their income charges. As incomes rise above the Medicaid eligibility level, enrollees do not have to leave the Medicaid contractor. They can remain in their current plan even though the premium payments to the contractor change – as tax credit funding replaces Medicaid funding. Similarly, as incomes fall below the Medicaid eligibility level, people do not have to leave their private plan. The plan can instead request Medicaid funding from the state in lieu of a tax credit from the federal government.
States may encourage private enrollment. As an alternative to participating in Medicaid, people at any income level should be able to claim a tax credit and buy into a private plan. Also, states may add their own dollars to the federal tax credits to enable people to enroll in private plans. (Note: people cannot claim both a federal tax credit and a federal Medicaid subsidy – it must be one or the other.)
Here is what Democrats should find appealing about this proposal: They have believed from day one that the solution to all the problems of the exchanges is a public option. They also believe that Medicaid is acceptable insurance. This proposal gives them what they are asking for.
Here is what Republicans should like: About the only plans that are surviving financially in the exchanges are Medicaid contractors. That is why the exchanges are slowly turning into Medicaid under a different name. This proposal gives people the opportunity to escape what most Republicans view as inferior coverage and join better private plans instead. It also rescues the individual market and ends the race to the bottom.
This proposal should be seen as an extension of complementary proposals I have made in a previous post.