Presidential candidate, Dr. Ben Carson, has provided a few more details about his health policy proposal. He backed away from calling for an end the Medicare and Medicaid programs. (Many Republicans fear talks about ending Medicare is a political non-starter among seniors.) Carson would apparently swap the open-ended tax exclusion Americans get from employer-sponsored health coverage for some type of tax credit. Although not specified, the tax credit would likely come in the form of a deposit to a Health Savings Account (HSA). There would presumably also be an element of personal responsibility where Americans set aside more for their health care needs. Putting workers themselves in control of these funds would cause them to conserve the funds more prudently than they do when employers pretend employee benefits are a free gift.
The few details we already know about Ben Carson’s health proposal are consistent with a recent NCPA report, Reforming Medicare with Personal Accounts, Incentives and Better Plan Design. Carson has said that, although he wouldn’t end the 1960s era social program for the poor and elderly, when people saw how well HSAs worked Americans would voluntarily give up Medicare and Medicaid – an explanation that undoubtedly suffers from poor translation because reporters often don’t understand the details of conservative health policy.
With appropriate reform, a slight increase in payroll taxes could fund a Medicare health spending account seniors themselves control — an idea known as prefunding. Putting seniors in charge of the funds in their account would make them more prudent consumers of health care because any unused funds would roll-over and accumulate for future health care expenses.
One way to prefund a portion of Medicare expenditures is to set up a Medicare Health Savings Account for each worker. Working-age adults — and their employers — could jointly contribute four percent of payroll into an account that accumulates and grows at market rates. Upon reaching Medicare eligibility at age 65, the accumulated funds would be converted into an annuity that provides an annual payment into each senior’s Medicare HSA. Upon reaching Medicare eligibility, seniors would also be covered by a high-deductible plan with potentially little-to-no cost sharing above a $5,000 annual deductible. Wasteful programs like Medigap – which even President Obama has admitted boost spending unnecessarily – would be history. Seniors could pick among private plans, but all plans would have a $5,000 deductible and would encourage the use of consumer tools to control spending.
(More information is available at: Reforming Medicare to Better Manage Seniors’ Health Care.)
The beauty of putting patients in charge of handling more of their health care dollars is how it stimulates market-friendly behavior on the part of providers. The reason providers don’t provide prices or compete on price is because so few of their customers have an incentive to ask about price. That is the essential problem in health care today.
There are numerous examples of how consumers control spending when provided with choices based on cost. The Rand Health Insurance Experiment found patients can reduce spending about 30 percent when they face significant cost-sharing. Experiments with HSAs and health reimbursement arrangements (HRAs) illustrate cost savings when workers have appropriate incentives. The California Public Employees’ Retirement System (CalPERS) experimented with ways to make enrollees price sensitive on the cost of expensive procedures, like joint replacement and cataract removal. These experiments were highly successful. Members not only checked the prices of the facilities they used; providers lowered their prices to retain business.
These are just a few examples of what would occur when patients exercise more control over their health care dollars and the options for designing a plan to get us there. As demonstrated time and time again (also here) by NCPA research, Carson’s plan would get Americans used to asking about prices long before they reach Medicare eligibility, making it even easier once they reach Medicare age.