States Can Reform Healthcare

In my last post, we discussed Republican ideas for transforming healthcare. Former Louisiana Governor Booby Jindal gave us several ideas to consider as an alternative to the Democratic push for socialized medicine.

Today, healthcare economist John C. Goodman gives us several ways that states can improve your healthcare without federal changes. While this is unlikely in Democratic-controlled legislatures, Republicans can certainly make changes where they are in charge. Goodman says we tend to think we have one healthcare system in all 50 states, but the reality is we have 50 different healthcare systems.

In a new report called “Don’t Wait for Washington”, Paragon Health Institute has revealed some startling differences in healthcare according to which state you live in. In Montana, for example, the state payment for inpatient procedures at some hospitals was more than three times the Medicare rate. For outpatient procedures, that state was paying more than six times the Medicare rate in some instances. To solve this problem, Montana negotiated with all the hospitals and got a better deal. It now pays a little more than two times the Medicare rate for all procedures – regardless of where the patient gets treated.

To avoid the time-consuming problem of negotiating with hospitals, California began an approach called “reference pricing.” California state employees, retirees and their families are enrolled in CalPERS – one of the largest employee benefits plans in the country. With the help of the health insurer Anthem, CalPERS discovered that its charges for hip and knee replacements varied from about $15,000 to $110,000 at various hospitals across the state. CalPERS agreed to pay the full cost for beneficiaries who got a joint replacement at any of about 40 hospitals that routinely charged $30,000 or less. If employees went elsewhere, they had to pay the difference. No hospital negotiations were needed.

Within two years, the average cost of hip and knee replacements across the whole state of California fell below $30,000!

In our last post, we discussed the importance of eliminating Certificate of Need (CON) laws, which create huge regulatory obstacles to newcomers who want to open a hospital or nursing home. Studies show that CON laws raise costs and lower quality (the opposite of competition!) As a result ,15 states have repealed them. In contrast, Hawaii has CON barriers to entry for 28 different services, North Carolina for 27 services, and the District of Columbia for 25 services. You can be sure that healthcare is more expensive in all of these states.

States can also create alternatives to ObamaCare. The average premium for an individual last year was $7,100 and the average deductible was $4,364. That means if you’re not getting a subsidy from the government, you will have to pay more than $11,000 before you will get any benefits whatsoever from your health plan!

But there are alternatives. Some states exempt plans sold through the Farm Bureau from state insurance regulation. Since federal regulation, like ObamaCare, only applies to plans regulated by states as insurance, Farm Bureau plans are not subject to ObamaCare regulations. It is true that these plans can exclude applicants because of health conditions, but once enrolled, membership is guaranteed to be renewable even with a change in health status. Premiums and deductibles are far more affordable than under ObamaCare and satisfaction is very high.

There are also so-called “short-term insurance” plans. These plans have been available for years to serve as gap insurance for people moving between jobs, from home to school or from school to a job. Traditionally, these plans last for about 12 months and ObamaCare mandated benefits don’t apply. As a result they are cheaper, more affordable and good for meeting limited needs.

The Obama administration tried to limit the use of these plans to three months with no renewals. The Trump administration reversed these policies, extending them again to 12 months and allowing renewals up to three years. Furthermore, people are allowed to buy a second type of insurance to bridge the gaps between three-year periods, allowing the use of these plans indefinitely. Critics have claimed that these plans destabilize the Obamacare individual market, but studies by Paragon CEO Brian Blasé found that in half the states that are allowing short-term plans to take full advantage of the Trump reforms, the overall market is actually working better.

For more information on reforms, read the full Paragon Institute report.

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