The Morning After

Wow — what an election! What does it mean for health care? Almost every Republican and quite a few Democrats ran against ObamaCare in yesterday’s elections. Can it be repealed?

Outright repeal and nothing else will probably be stopped in the Senate; and, barring that, will undoubtedly face President Obama’s veto pen. But that’s not what the public is ultimately asking for anyway. Polls show that voters want health reform. They just don’t like the reform they got last spring.                                                                                                                                                                             

httpv://www.youtube.com/watch?v=_KClpLzFftU

The Morning After

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.

Comments (16)

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  1. Nancy says:

    Thanks for this post. This is the sort of road map we need going forward.

  2. Ken says:

    Great ideas. How do you get the Republicans to buy into them.

  3. Vicki says:

    This makes a lot of sense. Even Democrats should sign on to this approach. It accomplishes everything they say they are for in a simple and straightforward way. So when the Ds had the cahnce to enact the reforms you are suggesting, why didn’t they?

  4. Joe S. says:

    At least we now have a Speaker of the House who is not an out and out socialist. That should be an enormous change for the better.

  5. Greg Scandlen says:

    I wouldn’t stipulate that 32 million people will be getting coverage, John. In fact, given the numbers who are eligible for, but not enrolled in Medicaid and SCHIP, I would be surprised if even 10 million actually enrolled. Why should they? Even if they sign up they will soon discover (and word gets around fast) that they can’t find a doctor. And these people are immune from penalty since they don’t pay taxes.

  6. Andrew Swan says:

    The best public policies are those that are technologically sounds and democratically favorable. If analysts properly navigated though the social choice theories and democratic elections (which they have), and can still conclude that yesterday’s election was in fact a rebut of the administration’s policies (which it was), then the “technical solutions” of the ACA for Pareto efficiency in health care was not democratically favorable, and in reality not a technical solution to the problem. Professor of Economics Charles Lindblom was known for his theories of Incrementalism, which would suggest that sweeping overhaul is a bad idea, regardless of intent. “According to his view, no single, monolithic elite controls government and society, but rather a series of specialized elites compete and bargain with one another for control. It is this peaceful competition and compromise between elites in politics and the marketplace that drives free-market democracy and allows it to thrive”. Taking into consideration these points in context, Dr. Goodman’s proposed solutions are not only technically sound, but relatively more democratically favorable than the ACA, and could be the “best” course when Pareto efficiency fails.

  7. Devon Herrick says:

    I hope the message from the tidal wave defeat in the House and near loss of the Senate is not lost on both the GOP and Democrats. I hope both parties will work together to reform health care. However my fear is that the Democrats in safe districts and Blue States will dig in their heels.

  8. Bart I says:

    “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.”

    Most states? I wasn’t aware that there were exceptions.

    As I’ve argued before, the existing tax subsidy is as much a compensation for following ERISA/HIPAA requirements (most notably community rating) as it is a gift to employers. For the 25% or so (my guess) of employees who would have difficulty finding coverage, this is effectively an entitlement which is not likely to go away. You might as well talk about disbanding Medicare.

    Extending preferential tax treatment to individually underwritten policies would effectively disband the above entitlement. Which means that your idea of portability is rather far-fetched.

    The employer tax exclusion does two things:
    a) It ties insurance to an employer (non-portability).
    b) It subsidizes a limited form of guaranteed issue and community rating, one which doesn’t require an individual mandate to function.

    You appear to be using (a) as an argument to overturn (b). In fact, portability does not require extending a tax subsidy to underwritten coverage. The most direct way to portability is to end the employer connection without undercutting ERISA/HIPAA.

    You describe the current tax subsidy as “arbitrary, unfair and regressive”, which it certainly is, but what is the $3000/$7500 figure if not arbitrary? Your proposal is far from the most direct way to correct unfairness and regressivity.

    If your real priority is to strip HIPAA regulations, then why not do so directly? Those of us who are more interested in portability and non-regressivity don’t need the additional millstone around our necks.

  9. Rich G. Kelso, WA says:

    Why do you not also advocate in the above piece for Congressional leadership to press for a real attempt at implementing tort-reform and for allowing insurance to be sold across state lines to improve/increase competition?

  10. John Goodman says:

    Bart I: NCPA health care reforms are almost always designed to eliminate distortions and leave markets free to solve problems. The wider approach is spelled out here:
    http://www.ncpa.org/pdfs/Applying-the-Do-No-Harm-Principle-to-Health-Policy.pdf

  11. John Goodman says:

    Greg: I don’t disagree with your observation. I believe Marty Feldstein was the first to point out that the number of uninsured under Obama Care may not go down at all.

  12. Bart I says:

    John: I understand that you are in favor of eliminating market distortions. I am certainly in favor of reducing them, but doubt that total elimination is possible.

    But this is distinct from allowing portability and eliminating regressivity. I see no good reason to bind all of these goals together, unless one intends to use the more politically possible as a vehicle for sneaking in the less popular.

    Personally, I’m not willing to hold portability and non-regressivity hostage in order to sneak in something that would more properly be considered a long-term continuing effort.

  13. Virginia says:

    Although I’m thrilled that the republicans won back a lot of control, I’m a little worried that the solution might just make things 1000 times more complicated. Let’s hope they bring a little bit more fiscal conservatism to office than Bush did.

  14. Joe S. says:

    Virginia, how about a WHOLE LOT MORE.

  15. Kartik says:

    I wonder where Brian is?

    Anyway, health care is a complex issue – Insurers should ONLY cover catastrophic illnesses. And looking at ehealthinsurance.com, some states have more choice than others and the best way to solve the problems facing America is to allow entrepreneurs from finding ways to fix issues (obviously motivated by profit but so what, we all gain profit).

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