Most of the current health care debate in the Democratic party revolves around the adoption of a single-payer health care plan or the addition of a public option to the current system.
The Medicare for-all-option offered by Senator Sanders is on paper a comprehensive solution fixing all health insurance problems. While many countries have high-quality public health insurance, there has never been an example of a country with an advanced private system abruptly replacing it with a public system
The proposals to expand Medicaid or Medicare currently circulating in Congress could help certain communities or groups. The provision of Medicaid on state exchange market places would be useful in several rural counties where few private insurance companies choose to compete. A reduction in the Medicare age or a Medicare buy-in option would benefit older workers who do not have access to employer-based health insurance coverage.
The adoption of a public option, unlike single-payer proposals does not purport to be a comprehensive solution. The task of fixing health care system without simply blowing up the current system is difficult. President Trump, famously observed “Nobody knew that health care can be so complicated.” There are multiple inter-related health problems with our current health care system. A policy that fixes one problem (say high premiums) can worsen another (say high out-of-pocket costs).
A centrist health care plan must do more than shore up state exchange market places through new public options. The ACA expanded coverage to millions of people but even after the enactment of the ACA many Americans lacked health insurance and under the Trump Administration the number of Americans without health insurance has increased.
This article reports that the uninsured rate went from 10.9 percent in late 2016 to 13.7 percent in December 2018.
Moreover, even after the enactment of the ACA many Americans saw higher premiums, higher out-of-pocket expenses, and reduced access to specialists. Increasingly, many Americans covered by insurance choose to forego procedures rather or prescription drugs because of high out-of-pocket costs. Simply adding a public option does not fix these problems.
The remainder of this essay outlines health care problems and centrist solutions.
Health Care Problems and Solutions
Problem One The Erosion of the Individual Mandate: The ACA individual mandate was repealed in a recent tax law. As a result, some people with pre-existing conditions have an incentive to delay the purchase of health insurance until they become sick. The repeal of the individual mandate undermines state exchange market places and increases health insurance premiums.
Potential Solution: There are two potential solutions to this problem.
The first potential solution involves the reinstatement of the individual mandate. Politically, this is a difficult option because the individual mandate is unpopular and strongly opposed by libertarians and other conservatives who believe that government has no right demanding people spend money in a particular way.
The second approach involves creating new financial incentives in the form of tax credits and other subsidies contingent on people holding continuous health insurance coverage.
Subsidies that could be made available only to people with continuous health insurance coverage include: (1) a tax credit for contributions to health savings accounts, (2) a partial subsidy for high cost out-of-network treatments, and (3) subsidies for some prescription drugs. Note that a tax credit for health savings account contributions would not even require an additional explicit linkage between the tax credit and health coverage because under current law contributions to health savings accounts are only available to people who have health insurance coverage.
Problem Two: Distortions caused by growing use of health savings accounts and high deductible health plans: The growing use of health savings accounts coupled with high deductible plans has exacerbated three problems – (1) higher out-of-pocket health care costs, (2) increase in patients forgoing prescribed medicines and medical tests, and (3) reduced funds placed in 401(k) retirement plans.
Potential Solutions: The distortions caused by the increased use of health savings accounts and high deductible health plans can be mitigated by several policy changes.
First, lower income households would benefit from a refundable tax credit for contributions to a health savings account. (Current law only allows deductibility of contributions to health savings account, a feature that provides less benefit to low-income low marginal tax rate households.)
Second rules governing contributions to health savings account could be altered. Current rules only allow contributions by people with a high-deductible health plan. The revised rule would allow health savings account contributions by people who have a plan with a lower deductible but a high coinsurance rate. (People with high coinsurance rate plans can have substantial cost sharing obligations but may be less likely to forego needed treatments prior to the deductible being met.)
Third, many existing high deductible health plans now forego all payments on prescription drugs until health expenses exceed the deductible. By contrast, many traditional health plans with lower deductible pay some prescription drug costs prior to the patient paying the deductible. The combination of high deductible and absolutely no reimbursement for prescription drugs until the deductible is met results in many people with chronic health conditions like diabetes forgoing needed medicines. This worsens health conditions and increases costs.
A rule requiring partial reimbursement for prescription medicines needed to prevent expansion of certain diseases would reduce the incentive for people to forego prescribed medicines. It might be possible for HHS to adopt this rule change without input by Congress because the current ACA allows high-deductible health plans to reimburse patients for certain preventive health care measures prior to the deductible being met.
Problem Three: The limited role of state exchange market places. State exchange health care markets are much smaller and much less robust than the employer-based health insurance markets. Around 8 million people are covered by state exchange market places compared to around 155 million people covered by employer-based insurance.
Household receiving health coverage from state exchange markets tend to be less affluent than people obtaining health insurance from employer based market. Go to this post on my math blog for statistics on this point.
There are relatively few young adults under age 26 in state-exchange markets compared to employer-based markets. Go to this post in my finance blog for a discussion of this issue.
There is less choice and fewer high quality products in state exchange markets than in employer-based markets. In some counties few health insurance companies offer coverage and often there is concern that no health insurance companies will offer health insurance in a county. There is evidence that state exchange insurance policies are more likely to restrict access to certain hospitals and specialists.
Potential Solutions: It should not be a surprise a small health insurance market with relatively few young adults, and relatively few affluent households will provide less desirable outcomes than a larger health insurance markets with more younger adults and a lot of affluent people.
The characteristics and limitations of ACA state exchange market places are largely a result of the rules laid out in the ACA.
First, the ACA contains an employer mandate, which provides a financial penalty on employers with more the 50 full time equivalent employees who do not provide health insurance to their employees. The employer mandate could be modified to allow and encourage employers to pay for health insurance on state exchange market places rather than offer a company-specific plan.
Second, the ACA eliminates tax credits to people once they obtain a position offering employer-based insurance coverage. The rule eliminating tax credits for people with employer-based health plans would be eliminated.
Third, state exchange market places do not provide any preferential tax treatment for the 41 percent of American households with income greater than 400 percent of the federal poverty line. Households in this income group receive untaxed health insurance from their employer. This rule reduces political support for state exchange marketplaces. Support for state exchange marketplaces could be increased through an expanded tax credit.
A Political Note on the Role of State Exchange and Employer-Based Health insurance Marketplaces:
The introduction of state exchange market places to compete with employer-based health insurance is the central aspect of the ACA, a law that was strongly opposed by conservative economists and Republican politicians. However, the provision of health insurance through private markets separate from the employer was an idea originated by conservative economists and supported by Republican politicians. To be fair, there were major differences between Republican proposals, which allowed underwriting of premiums and denials of insurance for people with pre-existing conditions and the ACA.
Republicans are on record of supporting reductions in the use of employer-based health insurance. In fact, a health care plan offered by Senator McCain replaces the entire current employer based tax preference with a tax credit for the purchase of health insurance through state market places.
The protections for pre-existing conditions and the limitations on underwriting of premiums increase access to health insurance for many people who would otherwise be uninsured. (The election results of 2018 indicate the Democrats largely won this debate.) There is some Republican support for moving the purchase of health insurance from the employer to private markets. Could Republicans support proposals that move more people from employer-based insurance to current ACA state exchanges?
Problem Four The introduction of short-term bare-bones health plan has increased household financial risk and undermined state exchange market places. The Trump Administration has enacted rules that allow use of short term health plans. These health plans often do not cover many services that are considered essential health benefits in an ACA plan. The coverage gaps result in unanticipated bills and financial exposure. The short term option reduces demand for ACA policies.
Potential Solutions: There are two way to address problem caused by the introduction of ACA plan.
The first approach is to repeal the Trump era regulation and return to a system where short term health plans are prohibited. Repeal creates a situation where people who took out short term health plans will either lose coverage or purchase an ACA plan with a higher premium.
The second approach involves modifying short term plans to allow for an annual cap but to require coverage of all essential health benefits. People with expenditures over the annual cap would get automatic Medicaid coverage once the cap was reached.
This policy essentially converts Medicaid into a reinsurance program responsible for health care costs over the annual limit. I loosely describe this approach in a 2008 paper on SSRN. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1162887)
Problem Five: Lack of access to elite out-of-network hospitals and specialists. Typically, narrow network HMOs provide excellent health care and charge lower premiums. However, people who get extremely sick with certain illnesses require treatment by specialists that are only offered at certain hospitals. This is called the “breaking bad” problem as portrayed by the fictional high school chemistry teacher who chooses to make meth to pay for his cancer treatments.
Potential Solutions: The “breaking bad” problem can be solved by having the government share part of the costs of expensive specialized out-of-network care. Having the government pay for a portion of complex treatments that could only be handled in sophisticated out-of-network hospitals would reduce premiums for limited network HMO plans. This reduction in health care premiums would also reduce tax subsidies on health care purchases both on the ACA state exchange subsidies and the employer-based health insurance subsidies.
This proposal offers two benefits – lower premiums on basic narrow-network health care and access to more expensive out-of-network care should the narrow network be unable to treat certain health conditions.
Problem Five: A lack of affordable health coverage for people nearing the end of their careers who are not eligible for Medicare.
Potential Solution: One approach to this problem is to allow the purchase of Medicare by individuals 50 or over without an offer of employer-based health.
An expanded Medicare option for people over the age of 50 could be combined with a higher (old-young) age-rate premium ratio to lower costs for younger households.
Problem Six: Limited State Exchange Offerings and High Premiums for Certain Counties. Some counties have few health insurance companies offering ACA coverage. It has been reported that in 2018 around half of counties had only insurance company offering ACA coverage.
Heritage Foundation article on counties with limited health insurance coverage
Potential Solution: Senator Schatz’s health insurance bill allowing states to offer health insurance on state exchanges would create another option in many counties with only one or relatively few ACA providers
Go here for a description of the Schatz-Lujn legislation:
Summarizing the Centrist Health Care Plan
A comprehensive centrist health care plan might both expand and improve health insurance coverage. It would lower premiums and reduce out-of-pocket expenses. The simultaneous achievement of these two goals is often difficult because many policy changes that reduce premiums increase out-of-pocket costs while policies that reduce out-of-pocket costs often increase premiums.
Here are some aspects of the plan:
- Link all new tax subsidies and the standard deduction to a requirement that people maintain health care coverage.
- Change rules governing health savings accounts to allow for contributions by people who have high-cost sharing plans even if the plan has a low deductible.
- Create tax credits for contributions to health savings accounts
- Require partial insurance coverage for prescription drugs used to treat chronic health care conditions prior to health expenses exceeding plan deductible.
- Modify the employer mandate to encourage businesses to subsidize state exchange insurance rather than choose and administer an employer-based policy.
- Modify rules governing tax subsidies for insurance on state exchanges to allow people to keep their state exchange policy after obtaining offers of employer-based coverage.
- Repeal current short-term bare bones health plans.
- Create health plans with an annual cap while guaranteeing Medicaid coverage once health expenditures exceed the cap.
- Create a new subsidy for out-of-network costs for people with narrow-network plans who require procedures not covered in the narrow network.
- Allow people over 50 without access to employer-based health plan the right to buy into Medicare.
- Modify the age-rate premium formula to lower costs for younger households.
- Allow states to authorize the sale of Medicaid policies on state exchanges.
Authors Note: A lot of these ideas and proposals are discussed in greater detail in the second chapter of my policy primer “Defying Magnets: Centrist Policies in a Polarized World”
Defying Magnets: Centrist Policies in a Polarized World
The first chapter of the book examines student debt policies. The third chapter examines retirement income.
I believe you will find the analysis and proposals innovative, potentially useful, and drastically different than what is being offered in Washington.