Can ObamaCare Be Fixed?

It’s a 2,700 page bill. There are 20,000 pages of regulations. Major provisions seem to change every other week. And despite Nancy Pelosi’s promise, four years after it passed most of us still aren’t sure about everything that’s in it.

How can something like that possibly be fixed?

It’s easier than you might suppose. Previously, I recommended four simple ideas:

  1. Replace all the ObamaCare mandates and subsidies with a universal tax credit that is the same for everyone.
  2. Replace all the medical savings accounts with a Roth Health Savings Account (after-tax deposits and tax free withdrawals).
  3. Allow Medicaid to compete with private insurance, with everyone having the right to buy in or get out.
  4. Denationalize and deregulate the exchanges and require them to institute change of health status insurance.

Clearly much more needs to be changed. But you could keep an awful lot of ObamaCare and still have a workable health care system by making these changes and these changes alone.

In this post, I will describe all of the mechanical problems that would be solved with these four changes. In a subsequent post I will show that these changes would also get all the important economic incentives right.

 

Technical problems with the online exchanges would be gone.

Virtually every problem with the online exchanges has one and only one cause: People at different income levels and in different insurance pools get different subsidies from the federal government.

Consider that when you apply for insurance on an exchange, the exchange has to check with the IRS to verify your income; it needs to check with Social Security to see how many different employers you work for; it needs to check with the Department of Labor to see if those employers are offering affordable, qualified insurance; and it has to check with your state Medicaid program to see if you are eligible for that.

To make matters worse, the subsidy you get this year is almost certain to be the wrong amount. Whether people use last year’s income or guess what this year’s will be, they are almost certain to err. If they underestimate what they will earn, their subsidy will be too high and they will have to give money back to the IRS next Aril 15th. If they overestimate, their subsidy will be too low and they will be entitled to a refund. All this will be annoying. It may also cause financial hardship.

With a universal tax credit, it doesn’t matter where you work or what your employer offers you. It doesn’t matter what your income is. It doesn’t matter if you qualify for Medicaid. You get the same subsidy regardless of all of the above.

That means that we could turn all of the exchanges over to EHealth, which has been operating an online private exchange for a decade and has insured more than 4 million people.

All the perverse outcomes in the labor market would be gone.

No need to explain them here. They are becoming quite well known. Employers have perverse incentives to keep the number of employees small, to reduce their hours of work, to use independent contractors and temp labor instead of full time employees, to end insurance for below average wage employees, to self-insure while the workforce is healthy and pay fines instead of providing the full insurance the ACA is designed to encourage.

With a universal tax credit and no mandate, all of these perversions would be gone. The subsidy for private health insurance would be the same for all: whether they work on the assembly line or whether they are a CEO; whether they work less than 30 hours a week or more; whether their workplace has fewer than 50 employees or more; whether they are in a union or not; and whether their employer provides the insurance or whether they obtain it on their own.

The “race to the bottom” in the health insurance exchanges would end.

As previously noted, there are three main features of insurance: a benefit package, a network of providers and a premium. ObamaCare regulations fix the benefit package and leave insurers free to compete on networks and premiums. They are responding by choosing narrow networks in order to keep costs down and premiums low. They are doing that on the theory that only sick people pay attention to networks and the healthy buy on price; and they are clearly trying to attract the healthy and avoid the sick.

The perverse incentives that are causing these perverse results have one and only one cause: when individuals enter a health plan, the premium the insurer receives is different from the enrollee’s expected medical costs.

Precisely the opposite happens in the Medicare Advantage program, where Medicare makes a significant effort to pay insurers an actuarially fair premium. The enrollees themselves all pay the same premium, but Medicare adds an additional sum, depending on the enrollee’s expected costs. For example, some special needs plans are paid as much as $60,000 per enrollee. Under this system, all enrollees are financially attractive to insurers, regardless of health status.

What we are calling “change of health status insurance” would accomplish the same result. The only difference is that the extra premium adjustments would be paid by one insurer to another and the amount paid would be determined in the marketplace — not by Medicare.

People would no longer be trapped in one insurance system rather than another.

If you are offered affordable coverage by an employer you are not allowed into the exchange. If you are a dependent of an employee who is offered affordable individual coverage, you are not allowed into the exchange even if the coverage offered to you is not affordable. If you are eligible for Medicaid you are not allowed into the exchange. If your income is 100% below poverty, you are not allowed into the exchange even if you aren’t eligible for Medicaid.

To make matters worse, eligibility for one system versus another will change frequently for millions of people because of fluctuations in their incomes. According to one study:

Nearly 40 percent of adults experienced a disruption in Medicaid eligibility within the first six months. After a year, 38 percent were no longer eligible, and an additional 16 percent had lost eligibility but then regained it (churning). By three years, 47 percent of adults had incomes above the 133 percent cutoff, and an additional 30 percent of adults were below the cutoff but had experienced at least one episode of churning. By the end of the study period at four years, only 19 percent of adults would have been continuously eligible for Medicaid.

All of these problems have one and only one source: the federal government is giving markedly different subsidies to people at the same income level, depending on where they get their insurance. With a universal tax credit that is independent of income, it would not matter where people get their insurance. If everyone could be in Medicaid, regardless of income, people on Medicaid could stay there if they like. If everyone in Medicaid could claim the tax credit and buy private insurance, they could keep their insurance regardless of fluxuations in income.

Note: This change would work best if the universal tax credit is set at the level the CBO estimates a new enrollee in Medicaid will cost. Currently, that’s about $2,500 for an adult and $8,000 for a family of four.

The financial burden of high deductibles would be reduced.

The out-of-pocket exposure under many plans in the health insurance exchanges is apparently quite high — more than $6,000 per person in some cases. And this is only for in-network expenses. If a patient has to go out of network to get needed care or to get a lifesaving drug, the insurer may pay nothing.

To reduce this burden and the horror stories it is likely to produce, we should spend fewer taxpayer dollars subsidizing benefits people may not want or need and use the savings to match contributions to Roth Health Saving Accounts. For example, we might match the first $1,000 contributed for an adult and the first $500 for a child. The deposit could be made by the enrollee, the insurer or by an employer.

With this opportunity in place, insurers would almost certainly offer plans with $1,000 HSA deposits because they could use the government’s $1,000 match to make their total package more attractive.

There you have it: Four easy to understand, not very difficult changes and millions of problems vanish in a heartbeat.

Comments (27)

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  1. David R. Henderson says:

    John, You didn’t say what the amount of the universal tax credit is. What do you have in mind? Also, how would the government finance it?
    Also, what is the tax credit for? That is, what do you need to do to get the tax credit? I assume that you get it for buying health insurance, right? If so, notice that the tax credit, if it’s dollar for dollar, will cause anyone with otherwise unused credit to buy an extra dollar of health insurance coverage as long as he/she values that extra dollar of coverage at even a penny. That’s inefficient.

    • Walter Q. says:

      “Note: This change would work best if the universal tax credit is set at the level the CBO estimates a new enrollee in Medicaid will cost. Currently, that’s about $2,500 for an adult and $8,000 for a family of four.”

    • John Goodman says:

      The credit would be about $2,500 per adult and $8,000 for a family of four. These are what the CBO estimates new enrollees in Medicaid will cost. So the average person paying a fair price could use his credit to buy into Medicaid.

      The credit is funded by taking all of the tax subsides currently available for employer sponsored coverage and a good bit of the ObamaCare revenues.

      To get the credit people must pay health insurance premiums and make deposits to HSAs. The credit is a dollar for dollar match.

      • David R. Henderson says:

        Thanks, John and Walter. I missed that.

      • Rick says:

        The simpler solution would be to expand and improve Medicare to cover everyone and get rid of the for profit insurance companies who are the real cancer on our health system.

        • Joe says:

          Are not-for-profit insurers that much different than the for-profits? Also, what about the for-profit physicians, which I think includes all physicians, except perhaps Patch Adams.

        • Wanda J. Jones says:

          Sorry–Don’t you know that Medicare payments are made through private insurance companies, known as “fiscal intermediaries”?? ASs we have seen with Obsamacare, the Federal government lacks the capacity to manage “Medicare for All.” It sounds simple, but it isn’t.
          Moreover, do you really want to put more power into the hands of the people who made such a hash out of Obamacare? And who cannot follow their own law? And who are creating more uninsured people than existed before this law?

          In any scheme, we have to look out for the “rock soup effect” The soup does not have any recipe, so people just add rocks until it comes up to the top of the pot. In this case, the policy-makers do not perceive that the rock soup is not nutritious–it will still leave the health system in difficulty, requiring even more central interventions.

          Wanda Jones
          San Francisco

  2. Matthew says:

    “Replace all the medical savings accounts with a Roth Health Savings Account (after-tax deposits and tax free withdrawals).”

    The implementation of this policy would greatly reduce the financial burden on people with high deductibles. Why this wouldn’t be a major part of helping people pay for ObamaCare is ludicrous.

    • Andrew says:

      This policies being implemented into Obamacare would increase its functionality. Which is really all we need at this point. A workable health care system that provides the benefit it was created to provide. And remaining affordable. I Certainly hope Capital Hill is listening.

  3. Thomas says:

    “Allow Medicaid to compete with private insurance, with everyone having the right to buy in or get out.”

    Increase in competition helps everyone out. Efficiency in the insurance market, lower costs for people in the market for insurance. There are too many people that are excluded from insurance systems.

    • Buddy says:

      People want a choice. And if they are excluded from Medicaid, the exchanges, or insurance through their employer, where do they go. They should have free reign to choice whichever they want. They are paying for it.

      • Rick says:

        The real choice people want is to freely choose which doctor or hospital to treat them, not which entity or insurance company pays for it. Your doctor doesn’t care who writes the check to pay for your bill, just that it clears the bank. The real solution to our current fractured system is to simply expand Medicare to cover everyone and improve its coverage to include 100% of all medically necessary treatment and get rid of the for profit insurance companies who are out to make money by denying or limiting coverage! not provide a service to people.

        • Wanda J. Jones says:

          Rick–See above response. What do you do if the solution you advocate does not work, either? If all the private insurance companies are forced out of business, what options will citizens have to change the national plan? That’s the same question I was asking above about government competency. The second dquestion is whether the high costs that so concern many people, including me, would go up or down. Think about it.

          Wanda Jones
          Preident
          New Century Healthcare Institute

    • Erik says:

      Thomas and John – this is a great point. Competition within the Medicaid market would drive down, or at a minimum, stabilize costs especially at the state level. In 2006, Florida did a pilot project that has now gone state-wide. Other states are now following that lead. People are able to feel as though they are part of the decisions about their healthcare and we are seeing better health outcomes in all segments of the Medicaid population. The Foundation for Government Accountability is working with several other states on similar reform efforts. Keep up the great work John!

  4. Kenneth A. Fisher says:

    Somewhat similar to our plan, we eliminate Medicaid, a failed program, make HSAs pre-tax, eliminate “not-for-profit” status for hospitals by ensuring all Americans. Plan is available at http://bit.ly/KyRqOc

  5. Peter A says:

    It is surprising that healthcare.gov even works considering all the government agencies it involves. If you were to try to do the same procedure, going to the offices of the Department of Labor, the Social Security Administration, and the IRS in person it will take few months, and that is just to check for which subsidy you will qualify. Only those without any other options would go through that maze. Government agencies are not efficient, thus it was a mistake to have a webpage that summed up all of the department’s inefficiencies. Because it is almost impossible to fix these inefficiencies in the near future, it is better to get rid of the webpage. I agree with a universal tax credit, because not only will it make things lot simpler, but it will reduce the operating costs of the government agencies that are involved in this tedious process.

  6. Wesley S says:

    We used to have a good system, now is gone. I am not going to say that it was perfect, that there were no problems, because there were some serious issues. Yet, by trying to fix those issues, we ended up destroying the system. Now we don’t have some issues, we have a lot of them. I don’t expect perfection from a government program, but I expect it to deliver and Obamacare is not delivering. I don’t know if Obamacare is fixable, but it has left the American health system in the IC, and its chances of survival are dramatically dropping.

  7. Andrea P says:

    Dr. Goodman’s suggestions are convincing. They seem viable and an alternative that will provide actual solutions. Let’s hope that a party adopts his suggestions and give the serious debate that the healthcare deserves. Obamacare wasn’t fully discussed or planned, thus we are living the consequences of Congress’ unwillingness to compromise. Every side must be consider in order to have a system that actually works, the debate is open (somewhat late) but there is still time before the whole system collapse.

  8. Steve Bassett says:

    Perhaps some of these ideas will have a chance soon depending on the court decision on premium assitance in federally run exchanges.

  9. Floccina says:

    Get rid of employer mandates
    Raise max deductible
    Get rid of first dollar mandates (like mandate to cover birth control).
    Replace subsidies with a universal tax credit that is the same for everyone.

    Done

  10. steve says:

    I have only been reading you for 5 or 6 years, but I thought you had always been an advocate of high deductible plans. What has changed your mind?

    Steve

    • John Goodman says:

      High deductibles often make sense. But because people are not very good at saving for medical contingencies, I also have always advocated health savings accounts.

  11. Wanda J. Jones says:

    John and Friends:

    If you could get these through this Congress, or the one we will have after this election and the one in 2016, it will be a miracle and you will go down in health policy history as a true Spartacus.

    In addition to changes in health insurance, I’d like to see the delivery system itself addressed. What is being bought? Should people in rural areas be covered when they cannot get all the benefits on the list? Should they have a discount?

    Then, for areas covered by large healthcare systems, cannot those systems, which have been organized around the needs of the region, be given block grants to allocate according to the evolving needs of the population? The general public interest would be served via a state “Charter” that both spelled out the duties of the system, and agrees with the system’s need to be relieved of obsolete regulations. A paper is available.

    John–Keep this up. How can those of us reading you enhance the probabilities of this happening?

    With great respect…

    Wanda J. Jones, MPH
    President
    New Century Healthcare Institute
    San Francisco

  12. Jimbino says:

    How about adding to your program:

    1. Force all healthcare providers to publish prices for all procedures by ICD-10 code.

    2. Grant tax deductions for direct medical expenditures by folks who do not use insurance. [Alternative: abolish tax-favored treatment of employer-provided health insurance.]

    3. Allow Medicare, Medicaid and Obamacare insurance dollars to be spent on treatment in Mexico, Costa Rica, etc, where prices range from 1/3 to 1/2 those charged in the USSA.

    4. Deregulate health care, as Milton Friedman recommended, eliminating all licensing of medical providers, hospitals, medical devices and drugs.

  13. Parallel says:

    It may be that I have arrived on the short bus to remedial economics school, but I’m not sure I understand the mechanics of a tax credit.

    How would people who have no tax liability (no or very low income such that they pay no federal income tax – which at this point is about 47% of the population!)be able to receive a credit for something they never owed?

  14. John Goodman says:

    The tax credit is refundable, which means that you get it even if you don’t’ owe any income taxes. That’s also the way the ObamaCare tax credits work.

  15. Bob Geist says:

    John, you and many readers have gone off the track–it all sounds like something out a big government central planning bureau.

    #1 Replace all the ObamaCare mandates and subsidies with a universal tax credit is probably not financially sustainable (and amount open to the whims of politicians), but worse, credits buy insurance–not services. This helps the corporations but not the folks.
    #2 Replace all the medical savings accounts with a Roth Health Savings Account (after-tax deposits and tax free withdrawals). If you can do away with qualified money politically, more power to you.
    #3 Allow Medicaid to compete with private insurance is program. Wild! This sounds like science fiction–buying into more managed care (predominantly) is ObamaCare.
    #4 Denationalize and deregulate the exchanges and require them to institute change of health status insurance. Exchanges “mandated” to do anything are ObamaCare lite–No thanks; we simply don’t need them.

    Thanks, Bob

    http://healthblog.ncpa.org/can-obamacare-be-fixed/?utm_source=newsletter&utm_medium=email&utm_campaign=HA#more-36839