How to Improve the Affordable Care Act

 

The Affordable Care Act, aka Obamacare, has dramatically expanded access to healthcare in the United States. But it has done nothing to lower the cost of healthcare  which now exceeds 18% of GDP and is steadily increasing.


Warren Buffett, the Oracle of Omaha, refers to medical costs as “the tapeworm of American economic competiveness.”
An excellent plan for improving the ACA, “Transforming Obamacare” has been put forward by the medical economist, Avik Roy.  It has five main features:

  • Repeals the individual mandate and proposes universal tax credits for acquiring catastrophic insurance and setting up health savings accounts.
  • Repeals the employer mandate and sets up a capped standard deduction for employer sponsored coverage.
  • Reforms Medicaid by migrating the current system into the above universal (and refundable) tax credit plan
  • Reforms Medicare by migrating the current program into the same universal system.
  • Other reforms for veterans, medical innovation, hospital monopolies, drug pricing and malpractice litigation.

According to Mr. Roy, the American Health Care Act, recently passed by the House of Representatives, does a good job in relaxing many of the ACA’s onerous regulations.  However it falls down badly by including a flat tax credit rather than a means-tested credit based on income. Such an approach means that millions of low-income Americans, either near retirement or just above the Medicaid cutoff, will be priced out of the insurance market.  This is what the Senate bill needs to fix.

Conclusion. Mr. Roy’s plan will not only expand overall healthcare access beyond the level achieved by the ACA but will also dramatically cut the cost of healthcare in the U.S. and even goes a long way towards achieving a balanced budget. Let’s hope that the Senate gets the AHCA proposal back on track.

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Fixing Obamacare: Keep it Simple and Low Cost

 

Straightening out healthcare insurance is a high priority for the new Trump Administration and Congress as it should be. The U.S. spends 18% of GDP on healthcare, public and private, twice as much as any other developed country and this percentage is likely to keep on increasing without major changes.

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Republican thought is converging, see here and here, on a plan with these broad features:

  • Repeal of both the individual and employer mandates so that health insurance can be individually tailored and purchased at a much lower cost than under the ACA.
  • A Universal (and refundable) tax credit sufficient to pay for catastrophic insurance coverage.
  • Health Savings Accounts to pay for routine healthcare expenses up to the deductible for catastrophic insurance. Such HSAs could be funded, at least initially, with (refundable) tax credits.
  • High risk pools and coverage for pre-existing conditions. It is estimated that 500,000 people with pre-existing conditions would need protection if the ACA is repealed. This would cost about $16 billion annually, much less than the full cost of the ACA.

Conclusion. Such a plan will insure coverage for all Americans who want it. The high deductibility feature, coupled with HSAs, will strongly encourage healthcare consumers to shop around for the best price on routine care.  Such price consciousness by consumers is the only way (short of a single payer system with severe rationing) to get our national healthcare costs under control.
A modification of such a plan, proposed by Senator Bill Cassidy (R, LA) and Senator Susan Collins (R, ME) would give each state the choice of either keeping the ACA or replacing it with a version of the above plan.  This is a poor idea because the ACA has no cost control and this is what is sorely needed.  In other words, the above plan should be made universal, identical for all states.  Let the states provide and pay for supplemental coverage if they wish.

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A Major Difficulty of True Healthcare Reform

 

As my regular readers know I am focused primarily on two major national problems:

  • Speeding up economic growth to create more jobs and better paying jobs, and
  • Getting our national debt under control by reducing our annual budget deficits so that our debt will shrink over time as a percentage of GDP.

The evidence continues to persuade me that entitlement spending in general and the cost of healthcare in particular will play the biggest role in solving these two problems. My last post points out that healthcare, higher education and housing are all drags on family expenses but that the cost of healthcare has by far the largest negative effect on our economy.
The United States spends 18% of GDP (and climbing) on healthcare, both public and private, twice as much as any other developed country.  This enormous expense must be reduced but how will it happen?  The Affordable Care Act has increased access to healthcare but has not bent the cost curve.
Now the Republicans (President-elect Trump and Congress) want to repeal the ACA and replace it with something less restrictive and less expensive.   A popular alternative is health insurance which has:

  • High deductibles typical of catastrophic coverage in order to hold down the cost of insurance.
  • Tax credits to defray the cost of insurance.
  • Tax preferred health savings accounts to pay for routine expenses below the deductible.

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Unfortunately it’s not this simple. Today’s New York Times has a credible Op Ed by Drew Altman, CEO of the Henry Kaiser Family Foundation, “The Health Care Plan Trump Voters Really Want,” which reports on a series of focus groups set up by Kaiser after the election to quiz Trump voters about healthcare. What Kaiser learned about Trump voters is that:

  • In the pre-ACA market, they liked their ability to buy lower-cost plans which met their needs.
  • They want lower drug costs and improved access to cheaper drugs.
  • The very last thing they want in healthcare reform is higher out-of-pocket costs.

Conclusion. What Trump voters are looking for in healthcare reform is quality healthcare at a low cost. This is also the Republican ideal.  But the high deductible plus health savings account combination is going to be a hard sell to many Trump voters.

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Getting American Health Care Straightened Out II. Medicare

 

One of the major problems facing the United States today is the high cost of healthcare. We spend almost 18% of GDP on healthcare, both public and private, almost twice as much as any other developed country.  A big reason for the high cost is the low out-of-pocket consumer spending on health services in the U.S. 
My last post discusses a general plan, involving catastrophic health insurance and health savings accounts, for getting the overall cost of healthcare under control.

capture82Once we have a handle on the overall problem, we then need to focus on the cost of the Medicare entitlement program for retirees.  The problem here is easy to understand.  In just 15 years enrollment in Medicare will increase to over 80 million beneficiaries from 57 million today.  Likewise there are 3.1 workers per beneficiary today and there will be only 2.4 in 2030 (see above chart).

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The second chart demonstrates that Medicare will be the major component of increases in federal spending in the coming years (with the other entitlements of Social Security and Medicaid following right behind).
So the question is: how do we control Medicare spending within the context of overall health-care reform?  Here is a proposal from James Capretta of the American Enterprise Institute:

  • Medicare recipients would receive fixed payments toward the coverage option of their choice, based on their age, income and health status. The traditional Medicare program would be one of the choices. Enrollees choosing less costly coverage options would see a reduction in their premiums.
  • Premium payments would be comparable to subsidies and tax credits received from the reformed Affordable Care Act.
  • Privately run managed care plans provide benefits at far less cost than traditional Medicare. Beneficiaries would share in the savings.

Conclusion. It needs to be emphasized as strongly as possible that the point of Medicare reform is to lower costs to both individuals and the government, sa that Medicare can be preserved indefinitely into the future.

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Getting American Health Care Straightened Out

 

Donald Trump was elected to be our next president because of the huge desire for change amongst the American electorate. Many things need changing, but among the most important is our healthcare system.  The problem is that we are spending 18% of our GDP on healthcare, twice as much as any other developed country.  The Affordable Care Act has increased access to healthcare but does very little to hold down costs.  This is one reason why it is so unpopular and needs to be substantially modified.
capture10President-elect Trump has nominated Representative Tom Price (R, Ga) to head up Health and Human Services in his cabinet.  Rep. Price is an expert on healthcare and is a leading advocate for replacing the ACA with something more workable.  He will soon be in position to lead the charge for healthcare reform.
The two American Enterprise Institute scholars, James Capretta and Scott Gottlieb,  have some good ideas for what needs to be done.

  • Provide a path to catastrophic health insurance for all Americans. The idea is that all Americans who do not get health insurance through employers, or Medicare or Medicaid, should be eligible for a refundable tax credit sufficient to pay for a basic level of catastrophic (i.e. with a high deductible) insurance coverage.
  • Accommodating people with pre-existing health conditions. Everyone who maintains continuous (catastrophic, as above) coverage would be allowed to move from employer coverage to the individual market without facing exclusions or higher premiums based on health status.
  • Allow broad access to health-savings accounts. There would be a one-time federal tax credit to encourage all Americans to open an HSA to pay routine medical bills. Families typically spend up to 22% less on healthcare after switching to an HSA.
  • Deregulate the market for medical services. Providers need freedom from regulation to provide packages of services better tailored to people’s needs. Such provider flexibility will further reduce costs through additional marketplace competition.

Conclusion. The major reason why our healthcare is so expensive is because we, as individuals, don’t have enough “skin in the game,” in the sense of paying for routine medical expenses directly out of our own pockets. The reforms outlines above would correct this very problem.

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How to Improve Obamacare and Lower It’s Costs

 

I have been making the case for some time now that the rapidly increasing costs of U.S. health care, especially for the entitlement programs of Medicare and Medicaid, is the fundamental cause of our exploding national debt, and therefore these costs must be curtailed.  The only way to fix this problem is for Americans to have more “skin in the game” regarding these costs.
Capture10My last post, “The Inherent Instability of Obamacare,” discusses the separate but related problem that the Affordable Care Act is actuarially unsound because it misprices the basic risks involved in health insurance.  This is why costs on the exchanges are going up so fast which, in turn, leads to fewer enrollees.
A good way to address this double whammy of problems is to use a plan developed (mostly) by the American Enterprise Institute in December, 2015.  The main features are:

  • ACA Mandates, for both individuals and employers, would be abolished.
  • Retain tax preferences for employer-paid premiums, with an upper limit comparable to the cost of catastrophic health insurance.
  • Provide refundable tax credits to households without access to employer coverage, gradually replacing subsidies provided by ACA exchanges.
  • Persons with pre-existing conditions would have continuous coverage protection.
  • Medicare would migrate to a defined contribution, refundable tax credit model as above, with eligibility gradually rising to age 67.
  • Medicaid would be financed with block grants to the states and would supplement the refundable tax credit model.
  • Health Savings Accounts, to accompany high deductible plans, would be encouraged with a one-time federal tax credit matching enrollee contributions.
  • Health Care for Veterans would be integrated into mainstream care.

Summary. Abolishing the mandates means that coverage levels and price would be actuarially determined in the market place. Equal tax credits for insurance and help in setting up health savings accounts ensure fairness and widespread accessibility.  The overall free market model will guarantee both low cost and the greatest possible degree of flexibility, innovation and quality of care.

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Reforming U.S. Health Care to Control Costs

 

My last two posts, here and here, have made the case that:

  • Our national debt is now 74% of GDP (for the public part on which we pay interest), the highest since WWII, and steadily getting worse. This will create a huge problem in the not so distant future, as soon as interest rates return to normal (higher) levels.
  • Entitlement spending is the main driver of our increasing debt. The best way to control Medicare and Medicaid spending is to control the cost of health care spending in general.
  • The overall cost of health care, public and private, in the U.S. is now 17.4% of GDP, much higher than for any other developed country, and is steadily increasing.
  • The main reason our health care costs are rising so rapidly is that Americans do not have enough “skin in the game.” Health insurance pays for close to 90% of our health care costs so that we pay for very little directly out of our own pockets. This means we have little incentive to pay close attention to these costs.

Christus Health in Dallas and Privia Medical Group in Washington, DC  are causing disruption by shifting health care delivery from hospitals to outpatient settings.  They are putting in place a number of lower-cost and more consumer friendly options which reward collaboration, performance and a focus on cost and quality on the part of both management and front-line providers.
Capture18As I have pointed out in previous posts, here and here, several policy changes would help speed up this process of needed change:

  • The tax exemption for employer provided health insurance should be limited to the cost of high deductible catastrophic insurance with an equal (refundable) tax credit for those without employer coverage. Health Savings Accounts would be encouraged for routine health care expenses.
  • Affordable Care Act exchanges would continue to operate as at present but without any mandates.
  • Medicare would provide a fixed level of assistance with which seniors would purchase a private health plan of their own choosing, rather than being open ended as at present.
    Medicaid. The federal government would give states fixed, per-person payments. Low-income individuals could combine Medicaid and the (refundable) tax credit to enroll in private insurance.

Conclusion. The whole idea is to make everyone, rich and poor, young and old alike, responsible for their own health care expenses.  Only with such a consumer-oriented, free-market system will we be able to preserve the high quality of American health care and rein in excessive costs at the same time.

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