Summary
We support: 1) converting Medicare, Medicaid, and ObamaCare into fixed, real, average per-capita subsidies; 2) enforcing a universal mandate for insurance coverage paired with significant penalties for failing to be insured; 3) using significant co-pays and deductibles within Medicare and ObamaCare to provide incentives for cost control; 4) adjusting the premiums for Medicare and ObamaCare over time to fix the real, average per-capita cost of these programs; and 5) adjusting the physician’s compensation and/or the care covered within Medicaid to fix the real per-capita cost of that program.
If you have already made up your mind, then scroll to the bottom of the page and take the poll to let us know how you feel. If you need to hear more, please read the background section below.
Background
What is Wrong with the Current Health Care System?
There are a number of interrelated factors behind the interest in health care as a public policy issue. To some, the principle problem is that a significant number of people remain uninsured. To others, the problem is that the costs of Medicare and Medicaid, and health care in general, are rising far more rapidly than inflation in general.
Health Care Costs and Insurance
Medical care expenses can be very large in the face of a serious accident or illness. As medical science continues to make progress, the expense of treating patients rises because there is more that can be done. However, the cost of medical care also rises, in part, because society subsidizes medical care expenditures, causing the demand for them to be very unresponsive to price. As with other potentially catastrophic events, a system of insurance has grown up to handle medical care expenditures. This system includes employer-provided policies, private individual policies, Medicare, Medicaid, and the Affordable Care Act (ObamaCare).
Most of these forms of health care insurance have relatively low deductibles and co-pays. Low deductibles and co-pays shield patients from the true costs of their care and make them indifferent to its cost. The co-pays and deductibles built into Medicare are largely undone by Medicare Supplement and Medicare Advantage Plans, which convert Medicare into a low co-pay, low deductible system.
The prevalence of health care insurance through employers is, partly, due to the fact that, unlike other employee benefits, health care benefits are not a taxable benefit for the employee. This encourages employers to compensate employees, as much as possible, through generous health care benefits, with low co-pays and deductibles, in lieu of higher, taxable, wages. Because most insured individuals receive their health insurance through their employers, there is, also, a concern about the lack of portability of health insurance. Those with employer provided coverage fear losing their coverage, when changing jobs, and fear being unable to re-establish it because of pre-existing conditions.
Health Care and the Uninsured
Eleven percent of non-elderly Americans aren’t covered by any kind of health care insurance. (This number was over 18% prior to ObamaCare. Much, if not most, of the reduction in the uninsured was due to the expansion of Medicaid.) As a society we are unwilling to let people go without urgently needed medical care, so we provide emergency room care to all who come and, if the patient cannot pay, the costs of that care are absorbed by the hospital and passed on to other patients and their insurers. This turns out to be an expensive and inefficient way to provide medical care to the uninsured. It also encourages the uninsured to ignore medical problems until they reach crisis levels and are more expensive to treat. In a kind of vicious cycle, the high cost of insurance provides an incentive for individuals to accept the risk of going without insurance, thereby shifting additional costs for catastrophic care, for these individuals, back onto the insured, further driving up the cost of insurance.
A key concept of the ACA, as originally conceived, was an individual mandate to maintain health insurance backed by a tax penalty for those who did not comply. As enacted, the penalty was far too low and even that penalty was eliminated in 2018. This, largely, explains why the principle impact of the ACA, on increasing the percentage insured, was through the expansion of Medicaid.
Summary of the Efficiency Problems and the Issue of Equity
Because of all of these factors, the cost of health care is rising so fast that it threatens the ability of government to provide benefits, like Medicare and Medicaid, at anything like current levels. The rapid rate of increase in medical care costs also raises concerns among individuals and employers who provide health care coverage about their ability to pay for medical care insurance in the long run. Some of this increase in cost is the consequence of better care being technologically possible. Were it not for the fact that we are subsidizing health care, these increases in cost due to technological change would not be a public policy issue. But some of this increase in cost is due to inefficiencies in the way we have decided to pay for medical care. Much of this inefficiency is driven by earlier, well intended, public policy decisions and we can change public policy to reduce or eliminate these inefficiencies.
These inefficiencies, while they are serious, do not constitute the whole of the motivation behind those who want to change how health care is provided in the U.S. For many people, they are not even the major concern.
Is Health Care a Right?
Some people believe that health care is a right and ought not to be allocated or rationed through any kind of market system. For a variety of reasons, we feel that it is unhelpful to characterize any good or service as a “right,” even if it makes good public policy sense to subsidize or provide that service publicly. Doing so only inflames the anger of those who are expected to pay for the “right” and creates expectations, among those who feel entitled to it, that may be economically impossible to fulfill.
Labeling health care as a right is also problematic because “health care” is not a well defined thing. Do those who support “free health care for all’ mean all forms of health care including dental, vision, podiatry, psychiatric care, massage therapy, acupuncture, etc.? The slope here is very slippery and exceedingly costly. That being said, we feel that there are valid public policy reasons to subsidize some level of health care for all U.S. citizens and legal residents, not just the elderly, the indigent, and the disabled. Among these reasons are: public health concerns about communicable diseases like tuberculosis and the current Covid-19 pandemic; the relationship between health, learning, productivity, and employability; and the fact that we will provide health care to desperately ill individuals anyway (and it is better to provide this care when it is less expensive and more effective). In addition, providing a base level of health care insurance for everyone strikes us as a better way to promote long-term social mobility and income equality than outright transfer payments.
What is Wrong with the Affordable Health Care Act, “ObamaCare”?
There is very little in the Act that attempts to make health care more affordable, except for those who are subsidized. Expanding employer provided health care only exacerbates the problems associated with providing health care through employment. In addition, because the Act provided very low penalties (now zero) for failure to get insurance and requires insurers to accept all applicants regardless of pre-existing conditions, it creates perverse incentives for individuals to game the system. This was supposed to be the point of the individual mandate. However, in order to make the mandate politically palatable, Congress stripped the mandate of its teeth, with a very low penalty for non-compliance, and set the system up for failure. The decision, on the part of Congress in 2017, to strip the act of any penalty for violating the individual mandate only makes this problem worse. It is likely, in our view, that the reason behind eliminating the penalty for violating the individual mandate was to force the eventual collapse of the ACA.
Why not just hand the Health Care issue back to the states to deal with?
With a number of issues, we propose letting the states take action first rather than jumping in with a federal solution. Generally, this is a good approach. It is in harmony with the Constitutional principle of delegating powers to the states. In addition, it has the advantage of allowing state level experiments to determine which public policy prescription works best, without committing the whole nation to one direction. Unfortunately, in this case, federal tax and entitlement policies are at the root of the problems with the current health care system. In addition, separate regulatory structures on this issue will mean a fragmented, less efficient, and less competitive health insurance industry.
Why not Universal Health Care?
Many developed countries provide universal health care to all legal residents. Opponents derisively refer to this as “socialized medicine.” Proponents confusingly refer to it as the “single payer option.” The analogy to Medicare is misplaced because Medicare only works, in so far as it does, because it exists in the context of a private health care market. If Medicare sets the fee for service too low, it does not cause a problem unless it sets it so low that it does not cover the marginal cost for the service. In the current mixed system, private insurers cover the fixed and variable costs for services so that Medicare can piggy-back and cover the marginal costs only, without creating shortages. If Medicare were to apply the same pricing to all medical care, it would inevitably result in some shortages and governmental rationing of care through lines, waiting periods, or bureaucratic screening.
Some people believe that Medicare already sets the price for all medical services because private insurers piggy-back on Medicare and set their reimbursement schedules as a multiple of Medicare’s. However, private insurers use various reimbursement schedules. A private insurer, paying outside the Medicare system, might set the surgeon’s compensation for an appendectomy at 1.4 times the compensation set by Medicare. The same private insurer might set the surgeon’s compensation for cataract removal at 1.7 times the compensation set by Medicare, or a different private insurer might set the compensation at 1.9 times Medicare for the cataract removal. It would certainly be the case that Medicare was setting prices in the private market if the multiple were one. If the multiple were a number greater than one but constant, there might still be some legitimacy to this argument. In fact, the multiple ranges from around 1.4 to 2.6. As a consequence, it cannot be said that Medicare sets prices in the private market, despite appearances.
Universal health care deals with the over-expenditures on end-of-life care by limiting the care provided under the system. Concerns about this issue led to exaggerated claims of “death panels” during the debate over ObamaCare. However distasteful this may seem, limiting end-of-life care is one of the principle reasons universal health care systems in other countries are able to produce comparable health care outcomes, at lower cost per patient, than the U.S. system.
Opponents of universal health care also point out that it would replace a system with inadequate price signals with a system with none. As a consequence, one would expect that the medical care provided under these systems would be provided less efficiently than in one with some degree of price rationing.
In general, those with serious medical conditions and unlimited funds tend to prefer the care offered in U.S. medical care facilities to that offered at facilities under universal health care. In addition, people in the U.S. tend to prefer the freedom to select their own care providers offered by the U.S. system.
One thing that it is important to remember in considering the universal care option is that, without some kind of rationing, this method of providing care would be extremely expensive. Unfortunately, that is the direction that Medicare has evolved, which is why its costs have been rising so dramatically.
The Proposal
Amend the ACA in the following ways:
1. Set a limit on the annual per capita average cost of the ACA indexed to inflation, e.g. the Consumer Price Index.
2. Annually reset the co-pays, deductibles, premiums and subsidies in the system so that the per capita average expense of the system does not exceed the above limit.
3. Reinstate the tax penalty for not having insurance to a level which pushes compliance to at least 98% of the non-elderly. The tax penalty could easily accomplish this if it was set at or above the cost of the least expensive ACA plan.
4. Make the extension of Medicaid, provided under the ACA, universal. This may require that the federal government bear the expense of the expansion in all states.
5. Make the value of employer provided health care benefits taxable income to the employee, just like most other employer provided benefits.
6. Conforming insurance plans would be required to have substantial deductibles and co-pays.
Medicare
1. Set a limit on the annual per capita cost of Medicare indexed to inflation, e.g. the Consumer Price Index.
2. Annually reset the co-pays, deductibles, premiums and subsidies in the system so that the per capita expense of the system does not exceed the above limit.
3. Medicare Supplement and Medicare Advantage plans would be required to maintain substantial deductibles and co-pays.
Medicaid
1. Set a limit on the annual per capita cost of Medicaid indexed to inflation, e.g. the Consumer Price Index.
2. Annually reset the compensation to providers and/or the kinds of care covered so that the per capita expense of the system does not exceed the above limit.
3. Because this portion of the plan does not provide price-based incentives to consumers, care must be rationed bureaucratically.
Controlling Health Care Costs
Because the plans outlined above would put consumers more directly in touch with their medical care expenses through higher deductibles and co-pays, they would begin to exert downward pressure on medical care costs.
How would this Plan be Paid For?
Part of the costs of this plan would be met from the increased revenues from making employer-provided plans taxable. We would expect such plans would eventually disappear. We would also expect that market forces would result in their being replaced with higher direct, taxable, compensation to employees.
How expensive the plan is depends completely on where the various caps are placed and what measure of inflation is used to reset them. At one extreme, if the limits are set very high and the inflation metric is tied to the overall increase in the cost of healthcare, the system would resemble “free” universal health care because the premiums, co-pays and deductible could be quite low. At the other extreme, if the caps are set very low and indexed to a conservative estimate of inflation, like the chain index of consumer prices, the system might have very little cost to the taxpayer, with most of the cost being born by consumers through high premiums, deductibles, and co-pays.
As long as the cap is set to be constraining to some degree, it would end the open-ended entitlement aspect of the current approach. This Plan would require that insurers provide coverage without regard to pre-existing conditions. It would also provide market-based incentives for controlling costs.
Conclusion
We believe that this plan would capture the efficiency benefits of a market-based approach and provide a minimum level of care to all Americans without saddling the economy with an unsustainable, open-ended entitlement program.
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