Repeal or Replace? How About New Ideas?

Health care needs reform and the American people have now clearly indicated what passed Congress last year is not what they want. Rather than gridlock, let's try to find better answers. Our Senior Fellow John Goodman is full of them in his blog post today:

As I explained at Kaiser Health News the other day, in thinking about what can be done, it’s helpful to review who won and lost under the Affordable Care Act (ACA). The big winners under the bill passed last spring are most (but certainly not all) of the 32 million newly insured plus some people with high health care costs. Let’s generously peg that at 50 million. The other 250 million are going to lose more than they gain. That’s right. For every winner, there are five losers.

If Republicans and moderate Democrats assert their will, the former group will almost certainly get less and the latter will get more. A numbers game will not be enough, however. To be successful, the second round of reform will have to solve some of the most important problems of ordinary citizens. Problems that ObamaCare does not solve. I believe that means making health insurance portable, affordable and fair.

Portable Insurance. If you took a poll, I believe you would find that the single biggest problem most nonelderly Americans have is lack of portability. If they get laid off, if they quit their job or just retire, they lose their health insurance. If you believe that problem is solved with a health insurance exchange coupled with government subsidies and community-rated premiums, take a look at Massachusetts. If you lose your BlueCross group plan and buy subsidized insurance in the Massachusetts health insurance exchange, you will get insurance that pays doctors little better than Medicaid rates. You’ll move from the head of the waiting lines to the rear. And in the not-too-distant future, you will probably be forced into a very restrictive HMO (called an Accountable Care Organization).

Not what you had in mind? Here’s a better solution.

In most states it is currently illegal for employers to buy individually-owned insurance for their employees with untaxed dollars. They can buy BlueCross group insurance, but not BlueCross individual insurance — even though the insurance may be just as good and has the added advantage of being portable.

To solve this problem, we need to amend the federal law (ERISA/HIPAA) to allow portability nationwide. (See my own suggestion for four steps to portability at the state level.) Note: This proposal would not require employers to buy portable insurance for their employees; it would only allow them to do so.

Affordable Health Insurance. Did you notice the other day that McDonald’s is thinking about ending its insurance for about 30,000 low-wage employees? I suspect Burger King, KFC, Wendy’s and every other fast food restaurant chain will quickly follow suit.

The problem here is best summarized in Barack Obama’s own words. During the Democratic presidential primary, he said to Hillary Clinton, “You want to force people to buy something they cannot afford and then fine them when they don’t buy it.” Ten-dollar-an-hour employees and their employers cannot afford insurance that costs more than $5,000 for individuals and more than $12,000 for families. ObamaCare really is an eat-your-spinach reform for these employees and their families. It offers only mandates and fines. There are no new subsidies!

A similar observation applies to the millions of baby boomers who will retire before they become eligible for Medicare. ObamaCare’s minimum-benefit mandates will make their insurance more expensive than it would have been. Further, above-average-income retirees will get very little help from government if they buy the required insurance in a health insurance exchange and they will face a hefty fine if they don’t buy it.

Even employees who think they have postretirement benefits from an employer may face an unpleasant surprise. The 3M corporation just announced it will be ending its coverage for its retirees and sending them instead to the health insurance exchange.

The answer to these problems is to completely drop the idea of individual and employer mandates and offer reasonable tax relief to people to buy reasonable coverage. But for this approach to work, we must (a) live within our means and (b) deal with everyone fairly.

Fair Health Insurance. We will never get sensible health reform without a leader who levels with the public about the economics of health care. For starters, the public needs to be told that the federal government cannot afford to buy every family (not on Medicare or Medicaid) an insurance plan whose annual premium is $12,000 or more.

What we have to do is take the tax subsidies already in the system and add to them whatever taxpayers are willing to pay and call it a day. Let’s put that number at $3,000 for an adult and $7,500 for a family. Conceivably, one could give more to lower-income families and less to higher-income ones. But in health care, legislators are so quick to abandon any defensible allocation principle, I think the best policy is to provide the same subsidy for everyone.

Instead of the arbitrary, unfair and regressive tax subsidies that pervade the current system as well as ObamaCare, every single adult should get a refundable health insurance tax credit of $3,000. Every family should get $7,500. And that’s that. (On how to do this, see my original Health Affairs article with Mark Pauly and my summary of the Coburn/McCain approach.) Individual choice and market competition are going to have to find ways to make do with those limited subsidies.

What about pre-existing conditions? President Obama and the Democratic leadership in Congress have blurred the distinction between people who are uninsured through no fault of their own and people who are willfully uninsured. We can have a workable system in which people who are continuously insured do not lose access to the system merely because they retire or lose their jobs. (I have previously summarized one approach to workable insurance reform.) However, we cannot allow people to game the system by opting not to be insured while healthy (and thus consuming all their income) and then insuring at the rates everyone else pays after they get sick. Such gaming is already threatening the Massachusetts health plan.

Here is what is most interesting about all of this. In solving the problems of ordinary Americans we can go a long way toward cleaning up and fixing the Rube Goldberg contraption commonly called ObamaCare. In helping middle-class voters we can, at the same time, also help everybody else.

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