By John C. Goodman
Originally posted at Forbes, April 2018
When Barack Obama was running for president in 2008 he had two important health care positions.
First, he said that the government was giving too much money to Medicare Advantage plans, which today provide about one-third of seniors with private health insurance very similar to the plans most non-seniors have. He even implied that without the unjustified subsidy, Medicare Advantage plans might wither on the vine so to speak, as seniors returned to traditional Medicare. Second, he promised to replace the individual market with what today most people think of as “Obamacare.”
Medicare Advantage was created by Republicans, and Obamacare was created by Democrats. Yet the two systems are remarkably similar. Both provide government subsidies for private insurance. Both require community rating (that is, charging the same premium regardless of health condition) and both are guaranteed issue (no one can be turned down). Both have penalties if eligible people choose to be uninsured and fail to enroll. Both have mandated benefits. Both have exchanges where insurers compete and in both insurers are free to have their own networks and pay doctors and hospitals whatever fees they negotiate. Both systems have an annual open enrollment period, allowing enrollees to switch plans.
There is, however, one big difference. Medicare Advantage works. Obamacare doesn’t.
In the Obamacare exchanges, we have skyrocketing premiums, a race to the bottom on access to doctors and hospitals and soaring deductibles that few families can afford. To top it off, almost 30 million people are still uninsured, and that number is unlikely to change. People who have group insurance through an employer today are justifiably worried that they may become too sick to work. In the individual market they will face premiums that have tripled in the last few years and if their income is as much as $50,000, there will be no government subsidy. The only insurers that seem to be surviving in the exchanges are Medicaid contractors, and their plans are worse than Medicaid – they exclude the best doctors and the best facilities.
By contrast, Medicare Advantage plans, with the extra subsidies long gone, are flourishing and they are immensely popular – especially with the newly retired population. Seniors who enroll pay affordable premiums, face reasonable out-of-pocket limits, have access to most doctors and facilities and buy insurance in a functional exchange. Plus, almost no senior is uninsured.
Medicare Advantage isn’t perfect. But a study by the left-leaning Brookings Institutionfinds that these plans are providing higher quality care for a lower cost than traditional Medicare. And within the Medicare Advantage program, plans run by independent doctors associationsare about the only place in the country where conventional notions about what health care should look like are actually working. These plans have medical homes, integrated care, coordinated care and electronic medical records. They also save the most money.
So why does one system work as well as it does, while the other appears to be a disaster?
First, Obamacare is allowing the group market to dump its sickest, most costly enrollees onto the tiny individual market – with no financial payment of any kind. An employee, for example, might pay premiums to a group insurer for 40 years before becoming ill and turning to the individual market. Obamacare lets the group insurer keep 40 years of premiums while requiring an insurer in the individual market to pay all the costs.
Second, Obamacare is allowing too many individuals to game the system by waiting until they get sick to buy insurance. This is occurring because (unlike Medicare) the penalties for being uninsured have been too low and the loopholes for avoiding them have been too broad. Together with the first problem, what we are getting is insurance pools that are too sick and too costly to survive. The result is a death spiral of rising premiums, which makes the problem worse – year by year.
Third, Medicare Advantage plans know what premium to expect when they enroll high-cost patients, because of a very sophisticated risk adjustment system. For that reason, some plans actually specialize in special needs patients (that cost, say, $60,000 a year) and actively try to recruit them. In the Obamacare exchange, by contrast, health plans can’t be sure what they will be paid for high-cost enrollees and that is the main reason they try to avoid them. Narrow networks and high deductibles are proven techniques for discouraging enrollment by people who expect to consume a lot of care.
So, what can be done?
We need to reform Obamacare, using principles that work and work well for seniors. As a practical matter, that can only be done at the state level. And since we are in uncharted waters, it makes sense to give the states lot of discretion in how they go about cleaning up a broken system. That means block-granting funds to the states and attaching very few restrictions on what the states can do with them.
This should be a no-brainer for both Democrats and Republicans. But last year the Republicans chose to fashion a reform without Democratic involvement and Democrats (and the left-wing media) claimed the Republican block grant was abandoning the sick.
Republicans can easily correct both mistakes. Democrats should be invited to the table. Even if they decline, Republicans should impose two parameters on any block-grant proposal:
- States can be given enormous freedom to deviate from Obamacare, so long as people who come to the individual market after paying premiums for group insurance for many years can buy insurance that is similar to what employers offer for a similar premium. (I have previously describedhow I think this could be done.)
- States can offer limited benefit insurance(buying whatever the tax credit will buy and allowing auto-enrollment and potentially insuring an additional 30 million people) provided that they set aside safety net money to take care of the really expensive cases ($1 million premature baby, for example.)
These two parameters will insure that people who have serious health problems will be able to get the care they need, while at the same time making health insurance affordable for everyone else. In an ideal market, health plans would advertise and solicit patients with cancer, diabetes and other health problems, instead of trying to avoid them as they do today.