U.S. healthcare policy is now in limbo. The Affordable Care Act has withstood Congressional attempts to repeal it, but it has many flaws which need to be repaired. Primarily, the ACA expands access to healthcare in the U.S. (good) but does nothing to control burgeoning costs for both individuals and the federal budget (bad).
One option for both further expansion of access as well as cost control is Bernie Sanders’ single-payer “Medicare for All” plan. A different option is universal catastrophic care for all Americans not already covered by Medicare or Medicaid (including those receiving employer provided health insurance).
A different perspective is provided by an editorial in the New England Journal of Medicine. According to the authors, Eric Schneider and David Squires, the U.S. also faces (in addition to the challenge of much better cost control) several performance challenges such as:
Lack of access to affordable and comprehensive insurance coverage for too many people.
Relative underinvestment in primary care. Other developed countries have a higher percentage of their professional workforces dedicated to primary rather than specialty care and deliver a wider range of services at first contact.
Administrative inefficiency of the U.S. healthcare system. The solution here is to change our reimbursement systems to use global payments, fee schedules, formularies and defined benefits.
Disparities in the delivery of care. People with low incomes, low educational attainment, and other social and economic challenges face greater health risks and thus need even greater access to primary healthcare.
Conclusion. The U.S. compares poorly with other advanced countries in both the quality and cost efficiency of its healthcare system. Healthcare costs in the U.S, are a huge drain on the economy and will ultimately cause huge fiscal problems if not brought under much greater control.
It is frequently stated that the current Republican Congress is ineffective in getting anything done. That is not entirely true. A big issue was decided this past summer. The failure of Congress to repeal and/or replace the Affordable Care Act means that the goal of universal healthcare for all Americans is here to stay.
The question now is the best way to implement universal healthcare. Senator Bernie Sanders (D, VT) has just introduced a single payer universal plan, “Medicare for All.” Here are some of the problems associated with such a plan:
At least three states, Vermont, Colorado and California have recently rejected state-wide single-payer plans because of the huge costs involved.
The Urban Institute estimates that Medicare for All would increase federal spending by $32 trillion for the first ten years (compared to a very high current total national debt of $20 trillion).
Medicare is an inefficient hidebound system with over 140,000 procedure codes where private sector cost-saving measures, like competitive bidding for routine services, are rarely used.
There are now 155 million Americans who receive and like their employer provided health insurance and who will resist moving to a Medicare for All plan especially at the cost of a huge tax increase.
On the other hand the cost of healthcare in the U.S., public and private, now eats up 18% of GDP, almost twice as much as for any other developed country, and major changes need to be made to give individuals more direct responsibility for the cost of their own healthcare.
One attractive alternative is to limit the tax deduction for employer provided care to the cost of catastrophic coverage, at a cost of about $3000 per person per year. It could be made progressive by tying deductibles to income.
Conclusion. Healthcare spending in the U.S. is way too high and something major needs to be done. Universal catastrophic care for all Americans not already covered by Medicare and Medicaid is an attractive alternative to single-payer Medicare for All.
Now that the Republicans have failed to replace the Affordable Care Act with a poor substitute, it is likely that a bipartisan plan will emerge. Both sides want changes in the existing structure of the ACA. The Democrats want to hold down the rapidly growing costs for individuals who purchase insurance through the exchanges. The Republicans want to hold down the overall cost of American healthcare which now exceeds 18% of GDP.
There should be plenty of room for compromise:
Medicaid. The Centers for Medicare and Medicaid Services project that under the House bill, which caps federal spending growth for Medicaid and saves hundreds of billions of dollars, total Medicaid enrollment will stay roughly constant above 70 million for the next decade, compared to 55 million before the ACA was enacted.
A Bipartisan Problem Solvers Caucus would fund cost-sharing payments to insurers, proposes curtailing the mandate on employers to provide health insurance to their workers, advances states’ ability to band together into regional compacts for selling insurance across state lines, and expands the opportunity for states to experiment with different ways of providing coverage.
Medicare. Just letting Medicare negotiate for drug prices and reducing the variation in the costs for post-acute care would provide huge savings, without even addressing inefficiencies in Medicare’s basic design.
Conclusion. The above plan holds down the cost of insurance purchased by individuals on the exchanges as well as taking significant steps to control the costs of both Medicare and Medicaid. It doesn’t address the huge inefficiency of employer provided care but nevertheless represents a big step forward towards implementing cost control in healthcare.
The Affordable Care Act was passed by a Democratic Congress in 2010 with no Republican support. It expands access to healthcare but does nothing to control costs which have now reached 18% of GDP and climbing.
The current Republican Senate bill to replace the ACA does attempt to control costs but is unable to attract enough support to pass.
The problem is to achieve both broad access and much lower costs at the same time. In general, Democrats prefer a single payer system while Republicans want to retain a free market approach. So compromise will be required.
The tax exemption for employer provided health insurance should be replaced by a universal (and refundable) tax credit for all limited to the cost of catastrophic health insurance (with a high deductible). This will preserve expanded access as well as requiring everyone to pay attention to costs.
Tax preferred health savings accounts for routine healthcare expenses should be authorized and further subsidized for low-income families through the ACA exchanges.
Medicaid (for poverty-level families) should be put on a fixed federal budget to control runaway costs. States should be given much greater flexibility to direct resources to those with the greatest needs.
Redesign of Medicare. Medicare is currently being subsidized by the federal government (after FICA taxes and premiums paid) at over $400 billion per year. Introducing a defined contribution element into this single payer program will help to hold down costs.
Pre-existing Conditions can be covered with suitable enrollment windows and state-run high-risk pools.
Conclusion. The ACA has achieved nearly universal access to healthcare in the U.S. But costs continue to rise sharply. A universal tax credit combined with health savings accounts for the private market combined with a defined contribution single payer Medicare system has a good chance of getting overall healthcare costs under much better control.
The Affordable Care Act, established in 2010, greatly expanded access to healthcare in the U.S. However, in spite of its name, it has done nothing to control the rapidly increasing cost of healthcare which is the core of our debt problem.
The new Senate plan, struggling to gain enough support to pass, puts Medicaid on a budget but doesn’t even attempt to address wider aspects of the healthcare cost problem.
A wider approach is the best way to proceed and perhaps now it is the only way to succeed in getting something done. Mr. Peter Suderman, who writes for Reason magazine, proposes several principles for a new approach:
Work for broader coverage but not necessarily universal coverage. This allows focusing on other important features such as:
Unification, not fragmentation, is what should be emphasized. Medicare and Medicaid are paid for directly by the government. Employer provided coverage, subsidized through the tax code and costing $250 billion per year, is the biggest problem in the U.S. healthcare system. It incentivizes employers to provide ever more generous insurance while insulating individuals from the true cost of care. It discourages job switching and entrepreneurship. Medicare ends up paying out far more than individuals have paid in.
Health insurance coverage is not the same as healthcare. For non-catastrophic, non-emergency expenses, affordability should be emphasized, rather than subsidies. Health savings accounts are a good way to accomplish this.
Focus on government assistance for the poorest and sickest. This means upgrading Medicaid, and coverage for pre-existing conditions, at the same time as putting Medicaid, Medicare and employer provided care all on a fixed, but reasonable, budget.
Conclusion. The cost of American healthcare is a huge problem. Hopefully the Senate will begin to address this fundamental problem as it struggles to pass a healthcare reform bill.
I know that I repeat myself a lot. I am a fiscal conservative and social moderate. This puts me in the middle of the political spectrum from left to right. I support social welfare programs if they are legitimately helping the less fortunate among us. I am especially supportive of programs for African-Americans because of the racial bias they experience.
Unfortunately our national leaders have collectively lost a sense of fiscal responsibility in recent years. Looking at the standard debt chart (above) produced by the Congressional Budget Office, it is clear that indifference to debt commenced under President Reagan and has waxed and waned ever since. The debt has been growing especially fast ever since the Great Recession in 2008 and now stands at 77% of GDP, the highest since the end of WWII. Shrinking the debt (as a percentage of GDP) is now America’s most urgent problem.
As I have discussed before, it is the entitlement programs of Social Security, Medicare and Medicaid, as well as interest payments on our increasing debt which will continue to worsen the debt problem in the coming years without strong corrective action.
All entitlement programs need to be reformed to impose cost control. Right now the two healthcare bills in Congress propose that the funding mechanism for Medicaid be changed so that it will be on a fixed (federal) budget from now on, rather than be continued in its current open-ended form.
Medicare is an even more expensive program than Medicaid. It would be better to fix both of these programs at the same time, but it is better to fix Medicaid alone than to do nothing at all.
It would be even better to replace our employer provided healthcare system with a uniform, but limited, health insurance tax credit for all (including for the self-employed) and to make all of these major changes at the same time. This would be the fairest way to proceed.
Conclusion. The current GOP plan to curtail healthcare costs could be much improved. It is only a small step in the right direction.
The GOP healthcare plan, both the House version and the Senate version, are highly imperfect. Yet they each do one thing which is badly needed. They put Medicaid on a budget. The current open-ended Medicaid program, whereby each state is reimbursed by the federal government for a percentage of its costs (the average is 53%), would be replaced by an annual per-capita payment which would increase only at the rate of inflation. It is estimated that the new per-capita budget would reduce federal Medicaid payments by about 25% after 10 years.
In order to get the federal debt under control, all three major entitlement programs, Social Security, Medicare and Medicaid, must be reined in and the current GOP plan would start doing this for Medicaid.
Reining in spending like this will force states to alter the way they regulate and administer Medicaid and the New York Times columnist Ron Lieber points out some of the challenges which will arise if Medicaid has to operate more efficiently:
• Nursing homes. One third of people who turn 65 will eventually end up in a nursing home. Furthermore, 62% of nursing home residents cannot pay for nursing homes on their own. The average annual cost of a semi=private room is $82,000.
• Home and community-based care. Medicaid is required to pay for nursing homes and may also pay for home and community-based care which is much less expensive and lets seniors stay in their own homes.
• Optional services for low-income people and the disabled. Optional services besides long-term home care include dental care for adults, therapy for disabled children at school, prosthetic limbs and prescription drugs.
Conclusion. Changing Medicaid from open-ended funding to a strict federal budget which grows at the rate of inflation will put a large burden on state Medicaid administrators and require some difficult tradeoffs to control spending. But this is absolutely essential as a first step towards controlling the rapid increase of entitlement spending.