It’s Time for a Bipartisan Approach to Healthcare Reform

 

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.


For example:

  • 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.

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Time to Start Over on Healthcare Reform

 

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.

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America’s Most Serious Problem: Excessive and Growing Debt

 

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.

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The Need to Put Medicaid on a Budget II. Our Growing Debt

 

Most of the controversy generated by the healthcare bill passed by the House, and the one now being considered by the Senate, concerns the way Medicaid is funded. The current system whereby states are reimbursed by the federal government for a percentage (national average 53%) of their Medicaid expenses would be replaced by putting the federal contribution on a strict per-capita basis, indexed to the annual rate of inflation.
Medicaid is a vast program now serving 73 million low-income and disabled Americans and is doing a good job especially for the elderly and the disabled with special needs. But it costs the federal government nearly $400 billion per year and the cost is growing rapidly.  It is essential to get open-ended Medicaid spending under much better control and one good way to do this is to put the federal contribution on a fixed budget.


The Congressional Budget Office has just issued its latest Budget and Economic Outlook report.  It shows the ever-worsening fiscal condition for the U.S., unless current policy is changed.


For example:

  • The deficit for 2017 is predicted to be $693 billion or 3.6% of GDP.
  • Deficits will grow dramatically over the next decade with trillion dollar deficits returning by 2022.
  • Debt held by the public (on which interest is paid) will grow by $11.2 trillion between now and 2027, from $14.3 trillion today.
  • Spending will grow from 20.9 percent of GDP in 2016 to 23.6 percent in 2027, while revenues will rise from 17.8 percent in 2016 to 18.4 percent by 2027.
  • The vast majority of spending growth over the next decade (83%) is the result of rising costs for health care, Social Security, and interest on the debt.

    Conclusion.  
    The national debt is growing much too fast. The only way to turn this dangerous situation around is to reform all entitlement programs, including Medicaid, to get their costs under much better control.

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The Need to Put Medicaid on a Budget

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.

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Can the GOP Produce on Healthcare?

 

The House of Representatives, after much struggle, was finally able to pass a healthcare bill, The American Health Care Act.  Now it’s the Senate’s turn to pass its own version and it, too, is turning out to be a struggle.


The healthcare policy expert, Avik Roy, considers the Senate bill to be a huge step forward:

 

  • Medicaid is finally put on a budget with annual increases in spending, starting in 2025, tied to the overall rate of inflation. In return, states will gain substantial latitude to use funds more effectively and efficiently.
  • Tax Credits in the Senate bill are means adjusted and will also encourage younger people to enroll for coverage. This is an improvement over the AHCA.
  • Expanded coverage. Mr. Roy predicts that passage of the Senate bill would increase (not decrease as the CBO predicts) the number of Americans with health insurance five years from now. This will result because the near poor in states like Texas and Florida, which have not expanded Medicaid, will be eligible for the new means-tested tax credits.
  • The 10th Amendment is strengthened because so much more authority for regulating healthcare insurance is transferred to the states. This represents huge progress because states are so much more fiscally responsible than the federal government (they have to balance their budgets)!

 

Conclusion. There are certainly many imperfections in the Senate bill.  It does nothing to limit tax credits for employer-sponsored insurance.  This is sorely needed to put the overall cost of American healthcare on a sustainable course.  It does nothing to help low income people who struggle with high deductibles (for example, by helping to set up Health Savings Accounts). It also does nothing to rein in the cost of Medicare, such as by introducing means adjusted premiums and allowing Medicare to negotiate lower drug prices.
Nevertheless it is a huge step forward in controlling excessive healthcare costs as well as expanding health insurance coverage to more Americans in a fiscally responsible way.

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Redesigning the American Health Care System to Lower its Cost

 

Recently I have been discussing the high cost of American healthcare and the urgent need to lower this cost.  The current GOP plan, the American Health Care Act, partially addresses this problem by reforming the funding mechanism for Medicaid.
But much more needs to be done.  All Americans will have to be involved in the solution and not just the poor. There are two main facets to the problem, neither of which is addressed by the AHCA:

  • The tax exemption for employer provided health insurance should be replaced by a universal (and refundable) tax credit limited to the cost of catastrophic health insurance (with a high deductible).
  • Medicare needs to be redesigned so that well-off retirees pay for more of their health care. Details to follow soon.

The U.S. spends 18% of GDP on healthcare, public and private, about $3 trillion per year, and almost twice as much per capita as any other developed country. Furthermore this already enormous relative cost will continue to get worse without major changes in policy.
The main reason for the huge cost is that free market forces are not operating properly.  More specifically, it is because most of us, as individual healthcare consumers, do not have enough “skin in the game.”


This conundrum is caused by our third party health insurance system whereby most of us receive health insurance through our employers.  This gives us as individuals little incentive to pay attention to the cost of our own care and to try to keep these costs as low as possible.
A good way to fix this problem is to limit the exemption for employer provided insurance to the cost of catastrophic care with a high deductible.  Routine medical expenses would be handled through individual (tax preferred) health savings accounts. The self-employed can be included by granting them a (refundable) tax credit also equivalent to the cost of catastrophic care.

Conclusion. Americans are fortunate to have access to high quality health care. But we are paying unsustainably high prices for it.  If we cannot figure out a rational and sensible solution to this problem, our healthcare system will soon collapse from its own deadweight and we will end up with a tightly controlled, government run, single payer system.

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