Is there a health care deal that would meet the needs and solve the political problems of members of both parties in Congress?
It seems almost inconceivable. The only talk on the left at the moment is Medicare for all. On the right there is not much talk about any aspect of health care. But when pressed, Republicans would still like to abolish Obamacare. Neither party is going to get its wish any time soon.
Still, desperate times call for new thinking. As voters get tired of hearing promises that are never met and never will be met, politicians will feel increasing pressure to accomplish something.
To see how some innovative thinking might produce major reform, let’s stop to consider why both parties might feel pressure to act.
The Democrats’ Dilemma. Nancy Pelosi says the Democrats won the House of Representatives because of health care. She may be right. By one estimate, Democrats spent $90 million on health care ads in the last election. Almost all of that was focused on pre-existing conditions.
Here’s the problem. Although polls show that most people with Obamacare insurance are satisfied with their coverage, most of them are highly subsidized and paying only a fraction of their premium out of their own pockets. Also, most were previously uninsured. Why wouldn’t they be satisfied? Unfortunately for Democrats, this group generally doesn’t vote.
Among middle-income folks (a person doesn’t qualify for a subsidy if he or she earns $50,000 or more), things are different. These people are used to being insured and they tend to vote. Their premiums have doubled under Obamacare and their access to care has plummeted. Most plans in the individual market these days don’t include the best doctors or the best hospitals in their networks, unlike the insurance these people used to have.
The biggest problem for middle-income voters with health conditions is that the only insurance they can buy looks like Medicaid with a high deductible. And it’s over-priced at that.
Democrats have yet to say what they would do about this problem. In fact, they haven’t even addressed it.
The Republicans’ Dilemma. People who are dissatisfied with their Obamacare insurance are potential Republican voters. But for anyone with a health problem, the Republican message has been muddled – to say the least. Before there was Obamacare, most states had risk pools, which provided insurance for people who were denied coverage for a pre-existing condition. They are now gone. Their enrollees and other high-cost patients have entered the Obamacare exchanges instead. That’s one of the reasons premiums in the individual market have soared.
To make matters worse for the GOP, the individual market is the market of last resort for just about everyone – even those who have employer coverage today. Anyone who becomes too sick to work will eventually end up in the individual market and everyone knows that.
When Republicans voted to repeal Obamacare without proposing any alternative way for people with pre-existing conditions to get health insurance they created uncertainty and apprehension among millions of ordinary people. Recent moves by the Trump administration to lower the cost of health insurance for healthy people may have made these anxieties even worse.
In the last election, Republicans not only didn’t have an answer for this problem, they ran away from health care altogether.
A Bipartisan Solution. To solve the political problems of both parties, two major reforms are needed. As a practical matter, they can only be implemented properly by state governments, which will need the full freedom to innovate, experiment and find the best way to get the job done.
First, we must stop the group market (primarily employer plans) from dumping costs on the individual market. If people become too sick to work and need individual insurance – this is a social problem created by a health insurance system largely created by the federal tax law. The individual market is only about 5% of private health insurance. If we force this tiny market to bear the full cost of the social problems created in the other 95%, individual insurance will inevitably become prohibitively expensive.
The right solution is to spread the social cost of the “pre-existing conditions problem” over society as a whole. States should be free to decide how to do that. Traditionally, risk pools were funded by a premium tax on all insurance. That’s an option that makes a lot of sense.
Accordingly, states should be free to impose a small premium tax on all group insurance. (In order to collect from self-insured plans that cover more than half of all workers, this requires a change in federal law). The revenue should be used exclusively to pay the cost of above-average health care costs that migrate from the group to the individual market. This could be done through risk pools, risk reinsurance and other devices.
Economic theory teaches us that the cost of the premium tax will fall on workers, just like the cost of their health insurance. However, they get a benefit in return. The small increase in premium paid during their working years will insure that they will be able to buy insurance that is comparable in cost, quality and access to care should they cease working and turn to the individual market.
Also, group plans could be exempted from the tax if they solve the social problem on their own – say, by purchasing employee-owned, portable insurance or by funding post-employment health care benefits.
Second, we need radical reform of risk adjustment. It is clear from their behavior that health plans in the exchanges are trying to attract the healthy (with low premiums) and avoid the sick (with narrow networks). This happens because the plans are uncertain about whether they will be fully compensated when they enroll a high-cost patient.
This is in contrast to the Medicare Advantage program, where high-cost seniors are actually sought after by “special needs” plans because the plans know they will get a fair premium – reflecting the expected health care costs of each enrollee.
To achieve the best result, this reform will also require a change in federal law – allowing the exchanges to do things that are now prohibited. For example, states should have broad authority to:
- Allow health plans to specialize in the treatment of cancer, diabetes, heart disease, and other conditions and exclude people who do not have these conditions.
- Allow a market to develop in which plans can bid for the right to treat high-cost health conditions.
- Allow medical records to automatically travel with patients from plan to plan.
- Allow health plans to ask health questions and conduct medical exams at the time of enrollment.
- Allow a market for risk adjustment in which plans compensate other plans when high-cost patients transfer enrollment.
These are the two most important reforms. But if Congress really wants the market to work well, it should also free the states to:
- Allow people to have flexible Health Savings Accounts (HSAs) without regard to deductibles and out-of-pocket limits.
- Allow patients to use their HSAs to take advantage of phone and email consultations, contract with concierge doctors, pay for home visits, self-manage their chronic disease and take advantage of other market-based innovations in medical care.
- Remove some essential health benefits or make them optional, provided the state sets aside public money to cover those costs in some other way.
- Impose additional costs on people who try to game the system by waiting until they get sick to enroll or upgrading to more comprehensive coverage after they get sick (following the examples of Medicare and Medigap).
Conditions. Congress should give the states broad authority to make these changes, subject to three conditions.
First, the state must have a credible plan to make insurance better for people with chronic health conditions. Better means, lower premiums, lower deductibles and wider networks.
Second, the state must show progress toward the ultimate goal of a world in which people who leave the group market and buy their own coverage can find insurance that is comparable in price, quality and access to care.
Third, whatever the states do must be revenue neutral for the federal government. That means taxpayers in any one state should not be on the hook to pay for the health care experimentation in any other state.
Resolve. Solving the problems of Obamacare is really not that difficult. It requires congressional representatives who really want to solve problems instead of scoring political points with their base.
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