Three Solutions to the Healthcare Crisis – Part II

 

Solving the ObamaCare healthcare system crisis will not be easy. The American Health Care Act (AHCA) proposed by Republicans failed to garner enough support even within the Republican Party for approval.

Chris Conover, Duke University professor, suggests there are three possible solutions to this dilemma:

  • Universal Catastrophic Coverage
  • Universal Safety Net
  • Responsible Federalism

In Part I of this series I discussed the first of these three possible solutions, Universal Catastrophic Coverage, and today we’ll discuss the last two.

Universal Safety Net

A Universal Safety Net offers the possibility of a bipartisan reform that is politically feasible at an affordable cost. Conover says there are two possible ways to achieve this: Individual Pay-Or-Play and CHC Expansion.

Individual Pay-Or-Play

Economist John Goodman proposed this approach and it would entail eliminating the tax exclusion in favor of universal tax credits. Currently there is a tax exclusion that affects those who receive their health insurance policies through their employer that does not apply for those who purchase theirs on their own.

Goodman’s idea is that whatever subsidy we are willing to provide to the uninsured to secure coverage ought to be channeled into funding the safety net in the case of individuals who opt to go without coverage. He would eliminate the Individual Mandate or even auto-enrollment of those without coverage but the safety net would automatically receive the resources needed to care for those without coverage.

CHC Expansion

Community Healthcare Co-ops (CHC) provide basic primary and preventive care for millions of Americans. Expansion of these CHCs is an idea originally proposed by President Bush. Just as the Emergency Medical Treatment and Active Labor Act (EMTALA) was passed over thirty years ago to ensure that the uninsured would not be turned away at emergency rooms, expansion of CHCs could provide a nationwide network to ensure the provision of primary and preventive care for the uninsured who are ineligible or fail to enroll in Medicaid.

A Universal Safety Net would ensure adequate healthcare for all Americans at an affordable cost. Those with greater resources could afford to purchase more comprehensive coverage. This may seem a modest achievement but it could form the foundation of healthcare reform until a more comprehensive approach is politically feasible.

Responsible Federalism

The third possible solution proposed by Conover is called Responsible Federalism. In simple language it means giving the states the freedom to devise their own healthcare system.

Medicaid is already a federalist system, combining federal government support with state support to meet the needs of state residents. With federal approval, states may devise their own unique ways to administer the system that better meets the needs of their people. Conover believes that “responsible federalism in health care would entail reforming the perverse fiscal incentives embedded in Medicaid while also offering states much greater flexibility to solve their health problems with the heavy hand of Uncle Sam.”

With the ObamaCare expansion of Medicaid, the cost of administering this program is steadily rising. In 2015 it rose 9.7% to $545 Billion. Part of the reason for this skyrocketing expense is the perverse incentives of the system. It encourages wasteful spending and discourages states from economizing. Under ObamaCare these incentives have been greatly exaggerated: states that save $1 of Medicaid funds get to pocket only 10 cents while states that waste $1 pay only 1 dime more.

The formula encourages states to expand their programs as much as possible, knowing that a majority of the cost will be exported to neighbors (federal taxpayers). A better system would cap federal Medicaid contributions using a per capita amount that varies by type of eligible (disabled people spend more than children).

Federalism has often referred to the states as “laboratories of democracy.” Responsible Federalism would allow states to come up with their own ideas for healthcare that fit the needs of their people. Blue states, like California or New York, might test-drive single-payer healthcare that liberals believe is the solution. More conservative states like Indiana or Kansas might well prefer the much less expensive approach of universal catastrophic coverage or universal safety net.

In a few years the data would be available to compare these different systems so we could all benefit from their experience. Conover sums up: “The federal role could be limited to providing a fixed amount of dollars per citizen (the amount varying depending on whether they were poor, elderly, a near-retiree or a child) and letting states tax their citizens as desired if the basic federal contribution is viewed as insufficient to provide the type of health care desired for that state’s citizens.”

There is an old saying in the political world that “all politics is local.” With this system it would be “all healthcare is local.” The type of healthcare system you live under would be determined by your state representatives, not which party occupies the White House.

Three Solutions to the Healthcare Crisis – Part I

 

ObamaCare is failing and Congress can’t agree on a solution. Conservative Republicans can’t seem to find agreement with moderates. Democrats agree – but they want socialized medicine.

ObamaCare increased the number of insured Americans by about 20 million – but still left 30 million uninsured and forced 15 million more onto the rolls of Medicaid. If nothing is done it will implode soon when insurers refuse to provide coverage options on the marketplace exchanges. Something must be done – and soon. What is the solution?

Three Solutions

Duke University professor Chris Conover has been studying healthcare economics for over forty years and he offers three possible solutions:

  • Universal Catastrophic Coverage
  • Universal Safety Net
  • Responsible Federalism

 

Today I will discuss the first of these solutions – Universal Catastrophic Coverage.

Universal Catastrophic Coverage

One of the reasons the American Health Care Act (AHCA) failed to garner enough votes to pass the House of Representatives was the report of the Congressional Budget Office (CBO), which estimated 24 million Americans would lose their insurance coverage in the next ten years. Although many of those would voluntarily give up their coverage with the elimination of the Individual Mandate, this reduction in the number of insured was considered unacceptable.

President Trump has argued repeatedly he wants “coverage for all.” Achieving that goal would certainly gain bipartisan support if it can be done in a fiscally responsible manner. Conover says this can be achieved in two ways: through a private sector approach or through a public sector approach.

Private Sector Approach

The American Enterprise Institute (AEI) has offered the Improving Health and Health Care Plan which they estimated would result in 16 million more Americans having coverage in 2025 compared to ObamaCare even while reducing the budget deficit by $1.9 Trillion over 10 years. Even if you eliminate the Medicare reforms in this plan, which account for $1.56 Trillion in savings, there is still $350 Billion in deficit reduction. (This plan was reviewed earlier in a post called Comparing the Republican ObamaCare Replacement Plans – Part III.)

This plan calls for modest age-related tax credits adequate to purchase catastrophic coverage for virtually everyone – but would not include the comprehensive coverage plan currently being offered to most workers or sold on the ObamaCare exchanges. Those who failed to purchase such plans would be automatically enrolled – thus achieving universal coverage.

Plans of this nature have been discussed and advocated by analysts on both sides of the political spectrum dating back over 40 years to 1971 when Harvard professor Martin Feldstein first proposed this. His idea was updated in 1994 in a joint paper with Harvard economist Jonathan Gruber, one of the architects of ObamaCare.\

Public Sector Approach

Singapore’s healthcare system has been studied and lauded by many healthcare experts. They offer a system of three parts that provides a combination of government support and private responsibility.

  • Medisave – Compulsory contributions from both employees and employers creates medical savings accounts. Contributions vary by age, as does the fraction of overall contributions that go into individual medical savings accounts. The Medisave share ends up ranging from 7 – 9.5% of wages. Those who fail to pay their premiums are subject to garnished wages and other legal actions that can force payment of back premiums, penalties, and interest.
  • Medishield – This program covers catastrophic expenses. It helps cover a portion of expenses for hospitalization and certain outpatient treatments, such as kidney dialysis and cancer treatments. Everyone is automatically enrolled unless they opt out. This is a single-payer health plan run by the government.
  • Medifund – This program is similar to our Medicaid. It subsidizes premiums for the purchase of private insurance for unemployed or low-income individuals. It is a system of last resort for those unable to pay for their subsidized healthcare bills even after using their Medisave money and Medishield

 

Singapore’s healthcare system ranks sixth in the world in healthcare outcomes and the country only spends 5% of GDP – less than one third of the United States (17.8%)

Conover summarizes the plan: “Most Singaporeans self-finance their own medical care through mandatory contributions to medical savings accounts used to directly purchase care and some private insurance. A publicly-run catastrophic health plan protects them from catastrophic expenses and a Medicaid-style plan provides subsidies for the poor and unemployed to purchase coverage.”

Will people with only catastrophic coverage suffer from poorer healthcare outcomes?

A RAND Health Insurance Experiment study conducted 40 years ago answers this question. It showed that people with high-deductible plans (and no health savings accounts) had not better or worse physical or mental health compared to those whose care was entirely free. The only exception was low-income people who had some adverse outcomes with higher blood pressure and poorer eyesight. However, both the AEI and Singapore plans maintain a system that provides subsidized coverage for low-income people, which should eliminate this problem.

The take-home message is this: A system that provides less coverage to more people is preferable to one that allocates the same amount of dollars to cover fewer people with more comprehensive plans (ObamaCare).

Is a Universal Catastrophic Coverage plan politically feasible?

This is certainly a plan that both Democrats and Republicans can find things to like. It offers more coverage of more Americans at a much lower price. That should go a long way toward garnering enough support to become law.

 

(In Part II I will review other solutions offered by Chris Conover.)

 

Medicaid Innovations to Improve Care Lower Costs

 

America spends a lot on healthcare. According to the Centers for Medicare and Medicaid Services (CMS), in 2015 National Health Expenditures (NHE) rose 5.8% to $3.2 Trillion, or $9,990 per person and accounted for 17.8% of the Gross Domestic Product (GDP). (2016 data is still unavailable)

The breakdown of the 2015 NHE is as follows:

  • Medicare spending grew 4.5% to $646.2 Billion – 20% of NHE
  • Medicaid spending grew 9.7% to $545.1 Billion – 17% of NHE
  • Private health insurance spending grew 7.2% to $1.072 Trillion – 33% of NHE

 

What has been the impact of ObamaCare on National Health Expenditures?

The Affordable Care Act (ObamaCare) was passed in 2010 with the promise that it would “lower the cost curve” of NHE. In fact, the cost curve has accelerated.

The above graphic shows the annual growth of National Health Expenditures was declining in the years 2002 through 2009 (before passage of ObamaCare) and leveled off at about 3.8% from 2009 through 2013 (before implementation of ObamaCare). But since the implementation of ObamaCare, the rate of growth of NHE has escalated to 5.8% in 2015 and CMS now projects a growth rate of 5.6% for the rest of the next decade.

This graphic shows clearly that ObamaCare has failed to bend the cost curve down as President Obama promised. Just one of many broken ObamaCare promises.

What can be done to get more value for the dollars spent on Medicaid?

The main reason that ObamaCare failed to bend the cost curve down is the growth of Medicaid spending. Roughly speaking, ObamaCare added about 20 million Americans to the rolls of the insured. Most of this growth came from Medicaid expansion (15 million). This is reflected in the growth of Medicaid spending (9.7%) which exceeds both Medicare and private insurance growth. The American taxpayers now pick up the tab for $545 Billion to pay for Medicaid.

Medicaid is a poor value providing poor access to healthcare and only between 20 and 40 cents on the dollar by some studies. It has the poorest healthcare outcomes of all, even poorer than those who are uninsured according to an ongoing study called the Oregon Healthcare Experiment. With such a large expense and such poor outcomes, something needs to be done about Medicaid.

Justin Haskins and Michael Hamilton of the Heartland Institute suggest the government should create Health Savings Accounts for every Medicaid patient and put $7,000 in them every year. With this money the poor would purchase private health insurance and pay for the cost of prescriptions, copays, deductibles and other related medical expenses. Enrollees could share that $7,000 with a sick spouse, sibling, parent or child. This would spend $511 Billion of the $545 Billion annual expense.

The average annual premium last year for an (overpriced) Bronze plan on the ObamaCare exchanges was about $3,100 for a 30 year-old, $3,500 for a 40 year-old, $4,900 for a 50 year-old, and $7,400 for a 60 year-old. Therefore, all but the oldest eligible for Medicaid could easily afford to purchase private health insurance with some left over for other medical expenses. This would improve their access to healthcare and undoubtedly their healthcare outcomes, too.

Once they reach 65 they will be eligible for Medicare. For those between 59 and 65 who need more help, the government could use the remaining $34 Billion to assist them as needed. Pre-existing conditions would be covered for a period of transition until a determined sunset date. That would assure continuous coverage without penalty unless people failed to purchase a private health insurance policy.

The beauty of this plan is that it puts the patient back in control of their healthcare expenses and gives them access to private physicians and hospitals. They can grow their HSA accounts by choosing wisely when and how to spend their healthcare dollars. This incentivizes patients to make good healthcare and lifestyle choices because the money saved is their own. Perhaps with these changes we can actually “bend the cost curve” down while improving the quality of healthcare for the poor.