Middle Class Fleeing ObamaCare

 

ObamaCare was supposed to help the middle class find affordable healthcare. After all, they called it the Affordable Care Act.

For the most part the poor already had government assistance to get healthcare through Medicaid and CHIP plans for children. To be sure, ObamaCare expanded the eligibility for these programs and enrolled many just outside the poverty lines.

But it was the middle class that needed the most help with rising premiums and deductibles. Now that same middle class is heading for the exits as the cost of unsubsidized ObamaCare premiums has skyrocketed.

ObamaCare premiums are subsidized by the government for family incomes up to about $100,000 for a family of four. Those families making less than that receive generous subsidies that make the premiums easily affordable. Those families above that level of income must bear the full brunt of the rising premiums and deductibles.

The Centers for Medicare and Medicaid Services (CMS) recently released a report on trends in the individual health insurance market. The message is clear – those who must pay the full cost of ObamaCare premiums are having no part of it. According to the Wall Street Journal editorial board, from 2016 to 2018, enrollment among those who didn’t qualify for subsidies dropped by 2.5 million people – a 40% declinenationally.

Average monthly enrollment across the entire individual market fell 7% between 2017 and 2018. CMS says the decline occurred “entirely” among people who didn’t receive subsidies. For those who get taxpayer help, enrollment increased 4%.

It gets worse in some states. Over the same two-year period, unsubsidized enrollment dropped by an astounding 91% in Iowa, 79% in Arizona, 78% in Nebraska, 76% in Tennessee, and 71% in Georgia and Oklahoma. CMS says the subsidized portion of the market was 122% greater than the unsubsidized market in 2018, up from 61% in 2017. The WSJ editorial board summarizes, “In other words, ObamaCare plans are increasingly valuable only to those who receive cash transfers to buy it.”

Why do polls show a slim majority of Americans approve of ObamaCare?

Only 4% of Americans are directly enrolled in ObamaCare plans – and most of those are receiving government subsidies. About 180 million Americans still receive their healthcare insurance through their employers and therefore have not felt the direct impact of rising premiums. However, they have suffered from delayed wage increases they might have received if their employer didn’t have to pay the rising cost of their healthcare premiums.

Therefore, most Americans are satisfied with their employer-provided healthcare insurance or their government-provided ObamaCare. The unfortunate minority are those middle class families who don’t receive their healthcare insurance from their employer and don’t qualify for the government subsidies. Those are the ones caught in the middle and heading for the ObamaCare exits as fast as they can run.

 

Two Options to Improve the Cadillac Tax

 

Congress is eager to repeal the Cadillac Tax. The House just voted 419 to 6 in favor of the idea. The bill now moves to the Senate.

What is the Cadillac Tax?

ObamaCare created the so-called “Cadillac Tax” to reduce the incentive to purchase luxury health insurance policies as a means to avoid paying income and payroll taxes. Since healthcare insurance provided by employers is not taxed, this incentivizes employers to provide more expensive health insurance policies rather than higher wages. This not only reduces government tax revenues, it encourages lavish spending on healthcare.

To curb this incentive, ObamaCare placed a 40% tax on any insurance policy for an individual that exceeds $11,200 per year or $30,100 per year for families. The tax is paid by the employer, but the impact on the employee is the same.

Of course this is unpopular with workers and unions and has been from the beginning. The date for implementation of the tax has been delayed twice already, now to take effect January 1, 2022.

Why not repeal the tax?

The repeal of this tax will cost the government about $200 Billion over the next ten years. That’s a lot of tax revenue. But keeping the tax is unpopular with workers, employers, and politicians. The only real advocates for the tax are healthcare economists and those concerned about the mounting federal deficit. Those people don’t cast many votes.

Two Other Options

But there are other options. The first of these is advocated by Brian Blase, writing in The Wall Street Journal. His option is intended to incentivize workers to open Health Savings Accounts (HSAs) with money that doesn’t count toward the Cadillac Tax limit. HSAs have been shown to reduce healthcare spending by encouraging consumers to shop for better deals. Since they control the spending of their healthcare dollars, they benefit by finding better value for their healthcare dollar.

Blase would exempt both employer and employee HSA contributions from the calculation of the value of the plan for purposing of enforcing the Cadillac Tax. Fewer employees would face the tax ceiling, fewer dollars would be spent on healthcare, and more transparency in healthcare spending would result in lower costs and higher quality.

John C. Goodman, healthcare economist writing in Forbes, advocates another option. Goodman favors a dollar-for-dollar tax credit up to the amount of the tax subsidy employees have been getting for the tax exclusion. For example, if you’re in a 30% tax bracket and you get a $20,000 healthcare family policy from your employer, you’re getting a $6000 subsidy from the federal government. Goodman would give you a $6000 tax credit to purchase your healthcare policy. The remainder of any insurance premium would have to be paid with after-tax dollars.

When faced with this choice, employees would probably prefer more take-home pay. They would rather compromise on the luxuries of their healthcare policy and have more money in their pocket. This means more tax revenue for the government and less wasteful spending on healthcare by the employees.

Actually, Goodman favors a fixed tax credit for all Americans, regardless of income. He estimates a tax credit of $2,500 for individuals and $8,000 for a family of four would allow almost everyone to obtain insurance equivalent to a well-managed Medicaid plan. Additional funds could be spent to obtain insurance that gives more options.

He also advocates that states should have the freedom to give everyone the opportunity to use their credit to buy into Medicaid (similar to the Public Option progressives favor) but should also be able to give everyone in Medicaid the opportunity to obtain private insurance instead (which is favored by conservatives.)These changes would:

  • Eliminate all perverse incentives to over-insure
  • Eliminate the perverse incentives not to hire and not to work
  • Approach the goal of universal coverage

 

Repealing the Cadillac Tax is not a good idea. Let’s replace it with a better option.

Trump is Improving Medicare – Part IV

 

This is Part IV in a series of posts concerning improvements in Medicare being made by the Trump administration.

This new Trump policy is based on the idea of promoting choice, competition, and market prices.It seeks to do that in Medicare by:

  • Liberating telemedicine
  • Liberating Accountable Care Organizations (ACOs)
  • Ending payment incentives to hospital-based physicians
  • Promoting hospital price transparency
  • Deregulating paperwork
  • Increasing transparency in the market for prescription drugs

In Part I we discussed Liberating telemedicine. In Part II we discussed Liberating ACOs andEqualizing Physician Fees. In Part III we discussed Promoting Hospital Price Transparency and Price Transparency in the Drug Market.

Deregulating Paperwork

As a physician, I can testify to the increasing amounts of paperwork required of the American physician. It has reduced the amount of time physicians spend with their patients, increased the cost of doing business, and generally reduced the quality of care. Relief is certainly needed.

The Trump administration, through the Centers for Medicare and Medicaid (CMS) has launched a major initiative to do what most doctors believe is long overdue. Based on input from thousands of practitioners, the agency has made changes it estimates will eliminate 53 million hours of burden!

Reducing this burden will reduce costs by an estimated $5.2 billion over the first five years. This means more time for doctors to spend with their patients and lower costs of providing healthcare.

Concierge Doctors

You’ve probably heard of a new phenomenon in healthcare called concierge medicine. Some doctors now limit their practice to those who pre-pay for healthcare by an annual fee in order to guarantee less time waiting for appointments and easier access to healthcare. This form of practice has gained in popularity in recent years.

A similar type of medicine called Direct Primary Care is coming soon to Medicare.  Under this arrangement, Medicare would pay a fixed monthly fee to a physician or group instead of the traditional fee-for-service. In return, the physicians would provide virtually all primary care. Fees will be from $90 to $120 per month, depending on patient age and medical history.

As of March 2018, there were 790 direct primary care practices in the U.S. They generally provide 24/7 access to a physician and communicate by phone, email and Skype. Their benefits include:

  • Improved access to care
  • Improved quality of care
  • Reduced overall healthcare spending
  • High levels of patient satisfaction

 

Currently these practices generally do not accept Medicare. They are not allowed to contract with a Medicare patient unless they are in Medicare – and most are not. This requires a change by Congress to eliminate this Catch 22. Such a change would allow the elderly and the disabled to get the same tax break others receive when they buy healthcare from providers who aren’t governed by Medicare rules.

John C. Goodman, the author quoted throughout this series, says, “The Trump administration is clearly pushing the envelope – in many cases acting to fill a void left by Congress. These changes will result in a very different healthcare system. It will be one that is shaped more by individual choice and market forces than by rules and regulations.”

Republicans have been repeatedly accused by Democrats of having “no healthcare solutions.” Clearly, this is not true of the Trump administration.