OP-ED

Reforming Health Reform

It may say something about expectations for the Affordable Care Act that the simplistic “just repeal Obamacare” cries of Congressional Republicans are starting to be supplemented by proposals for its replacement.

The most detailed so far is from the conservative American Enterprise Institute, which has published an unexpectedly non-doctrinaire study authored by Harvard professor Michael Chernew and seven other respected academics.

It’s far from perfect, but it’s worth reading.

Structural details of the AEI proposal, modestly titled “Best of Both Worlds,” aren’t always clear (page 1 lists four “principles,” page 5 lists five “priorities”, and page 16 lists three “major planks”), but it does attempt a bipartisan approach, combining ideas from left and right.

Some of these ideas have been contained in other proposals, such as those of Wyden and Bennett and Fuchs and Emanuel (which may damn the AEI proposal in right-wing eyes), and most recently in a THCB piece by Martin Gaynor. They include the elimination of the employer coverage tax preference, the provision of “premium support” subsidies for most individuals, and the establishment of a national insurance exchange. Together, they are designed to encourage individual choice and responsibility and to maximize competition between insurers, while removing some of the inequities of the present system (and of the ACA).

The AEI proposal assumes that eliminating the employer coverage tax preference will result in most individuals obtaining coverage through a national exchange, with national regulation of insurance plans. Current Medicaid eligibles will be included, with the replacement of acute care Medicaid funding by subsidies for conventional coverage. All individuals will be able to choose between fully-subsidized “basic plans” and more generous partially-subsidized options, typically with substantial deductibles tied to income and health status. Insurers will be encouraged to offer multi-year coverage and, unlike in the ACA, medical underwriting will be allowed. The only government financing will be for premium subsidies, to be funded by the additional income and payroll tax revenues resulting from elimination of the employer tax preference and by redirecting federal and state Medicaid payments.

It’s a coherent and somewhat persuasive proposal (at least, on a first reading), and one which goes to some lengths to level the health insurance playing field. It removes the tax advantage that high-paid covered employees currently enjoy, and potentially eliminates “job lock” and the inequity between those with and without employer coverage. It gives individuals the opportunity (and responsibility) to choose the coverage that best meets their needs from the largest possible menu of plans, while eliminating the present “second class” Medicaid system. It allows medical and demographic underwriting in order to lower premiums for the young and healthy, but offsets this with lower deductibles and copays for the less well.

Compared with the ACA, it avoids the publicly unpopular and politically poisonous individual mandate, while offering a much less complicated structure, free of the ACA’s maze of penalties, incentives, and exceptions. According to the AEI, It would also require less government funding, by some $6 billion a year.

It’s too bad that so many of the AEI’s assumptions are overly optimistic.

Eliminating the tax preference doesn’t guarantee that the inequities of employer coverage will go away. Given the proposed high deductibles, especially for higher-paid workers, many employers will almost certainly be forced to offer supplemental coverage. A national exchange with national regulation has the potential of replacing state control by a huge federal bureaucracy. Replacing acute care Medicaid by subsidized conventional insurance would, even according to the AEI’s estimates, increase costs by one-third. Allowing almost unlimited risk underwriting has the potential of creating an actuarial nightmare while allowing insurers to structure rates so as to cream the market. Multi-year contracts are a nice idea for encouraging preventive care, but even the AEI proposal questions their feasibility.

Worse still, the proposed funding would result in “basic plan” coverage—which the AEI proposal fails to define—being extraordinarily limited. The only sources of financing for the basic plan subsidies are the additional taxes from elimination of the employer tax preference (estimated by the AEI authors as some $313 billion), and elimination of all but long term care services from Medicaid (estimated to save $332 billion). Unless the new conventional coverage for current Medicaid eligibles is to be substantially reduced from today’s levels, costs will increase by more than $100 billion a year, leaving barely $200 billion for basic plan subsidies for the rest of the non-Medicare population. Given that today’s non-government health insurance expenditures are some $900 billion, the implication is that for most of the population the basic plan coverage will be less than than a quarter of current levels, forcing individuals or their employers to purchase substantial supplemental coverage or accept such high deductibles that needed care becomes unaffordable.

So why is the AEI proposal worth looking at?

For all its considerable faults, it avoids the fundamental weakness of the ACA: perpetuating every complication of the existing system (and adding some more). Now, if the AEI could figure out a way of funding their proposal to provide an acceptable level of coverage, they might have something that could be taken seriously.

Roger Collier was formerly CEO of a national health care consulting firm. His experience includes the design and implementation of innovative health care programs for HMOs, health insurers, and state and federal agencies.  He is editor of Health Care REFORM UPDATE.

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レイバン rb2164A Eubanksalan t falkoff, md, faafpPeter1BudgetDoc Recent comment authors
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レイバン rb2164
Guest

彼は碁を打ちたいのに、碁を見せられるという感じがした。そうして同じ見せられるなら、もう少し面白い波瀾曲折のある碁が見たいと思った。すると直須永と後姿の女との関係が想像された。もともと頭の中でむやみに色沢を着けて奥行のある

A Eubanks
Guest

Not sure what the solution is for helping curb healthcare costs or getting the uninsured coverage, but I strongly believe a federally run universal healthcare system is not the answer. Here’s why: http://eubanksnewstank.com/1/post/2013/09/my-painful-experiences-with-universal-healthcare.html

alan t falkoff, md, faafp
Guest

How about requiring all those receiving state and federal aid through Medicaid and less than Medicare age, to volunteer in state and federal programs that supply work back to society in exchange for their health care and food stamps?
That will help reduce government expenditures on services, restore some sense of responsibility to those on state and federally funded programs.

Peter1
Guest
Peter1

alan, whose jobs did you want them to take to perform those duties?

Many of the people on Medicaid are children, disabled, elderly, as well as working poor. How would your “solution” help?

You might be interested that many eligible 65+ Medicare recipients quickly run through all their contributions in health care use. Do you want them to clean streets as well? How about the tax breaks that workers get for company provided health care, should they also step up?

There are a lot of “free loaders” on the system.

bob hertz
Guest

This may not be wholly fair, but in my experience most of those persons who advocate for individual insurance are themselves covered by secure group plans at their university or think tank.

You might call them limousine darwinists.

Peter1
Guest
Peter1

The AEI “plan” does not address how to lower health costs, only insurance costs.

It assumes insurance companies are acting in premium payers best interest in the rate system they use. It assumes that sick people should pay more for insurance just because of life circumstances. It assumes that reducing coverage to save costs is a laudable achievement. It assumes that healthcare delivery for profit is good.

All that would be wrong.

BudgetDoc
Guest

Good analysis of the proposal. Thanks, Roger, for breaking it down in layman’s terms.

Bob Hertz
Guest

Here are twot hurdles in moving from group insurance to individual coverage: in group insurance, about 15 per cent of employees receive complete coverage, i.e. no cost sharing with the employer. You find in this in some union plans and wealthier school districts and very prosperous small firms. I cannot imagine any method by which they will not come out worse in a shift to individual coverage. I do not stay up nights worrying about them, but this is a political fact. A much larger group pays something toward employer coverage. Here I think the big challenge is age rating… Read more »

Deborah Wolfe
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Deborah Wolfe

You are right Legacy Flyer. But without the protections of the ACA, morphing into an individual market system from our primarily employer-based, guaranteed issue system with its tax advantages, would never be accepted by the public. Mitt Romney pitched this very idea while on the 2012 campaign trail. No one asked him what this would mean for others who share the health challenges of his lovely wife Ann. What if he had been far less connected and wealthy and could not afford the premium costs of insuring someone he obviously loved very much through a high-risk, government insurance pool but… Read more »

Legacy Flyer
Guest
Legacy Flyer

It seems to me that, the tax deduction for health care should be given to the individual, not the employer. The employer would then (hopefully) pay what they had been paying for health insurance directly to the employee who could then make their own choice on what insurance they want. In this way, health insurance would be made more portable. I understand that this would throw a whole lot of people who are in group insurance into the individual market – which could have various associated problems. Nevertheless it seems to me to have at least two advantages; greater individual… Read more »

Matthew Holt
Guest

Politically this is ridiculous. Every wonk told the Dems to deal with the tax deductibilty but as soon as McCain mentioned it Obama was against it–and worse the Unions wouldn’t be moved. They even want subsidies for their members in employer paid union plans now (no other employee gets an ACA subsidy unless their employer cuts them adrift and puts them into the Exchange, in which case they’re paying with POST tax $$.) So the Cernew/AEI report tries to thread the needle and would never see the light of day for reasons Deborah articulates. Suck it up America–we’ve got what… Read more »

Andy
Guest

Reading from the other side of the world (Sydney), very interesting indeed and a great response Deborah.

Bob Hertz
Guest

Great post,Deborah.

You are correct that ‘phantom taxes’ will drive people crazy.

Also of interest is your suggestion that Medicare costs are highest among those who are uninsured ages 55-65.

The recent high risk pool was swamped by the cost of persons who had deferred treatment, so you are probably right.

Deborah Wolfe
Guest
Deborah Wolfe

Obviously, the AEI is failing to recognize the unmovable boulder that has already blocked this “conservative” plan from ever seeing the light of day: Grover Norquist and his minions who have taken “the oath” to never raise taxes. This is DOA because the AEI is proposing two tax increases. One is clearly defined; the other is coming. Thank goodness for the Grover Boulder. Because the last thing anyone who has lost employer-based insurance coverage — and everyone else who wonders if their job is really secure — needs to hear right now is that the insurance industry would be able… Read more »

Bob Hertz
Guest

I will study this in more detail, but let me voice one caution right away. Making employer health insurance payments into taxable income may not be such a panacea, for several reasons: a. Say that I as an employee now receive $12,000 a year in tax-free employer contributions toward my family health insurance. Suddenly the $12,000 is taxable to me. Say that I am 55 years old and smoke and make $70,000 a year with no kid at home. Employer group coverage is still a better deal for me even if it is taxable. My premium on the exchanges would… Read more »

Deron Schriver
Guest
Deron Schriver

The proposal certainly needs more work, but it seems to be grounded more in reality than ACA. Unfortunately, it is still health care financing reform when we need health care system reform.