The Key to Solving our Healthcare Cost Problem II. Make the Employer Mandate More Flexible

 

I am a candidate in the May 15 Nebraska Republican Primary for U.S. Senate.  I have entered this contest because the incumbent, Deb Fischer, has done nothing to reduce our enormous and out-of-control national debt and, in fact, voted recently (with the new tax law) to increase our debt by $1 trillion over the next decade.  And this is after new economic growth, stimulated by the tax changes, is taken into account.


One way to get the debt under control is with a more sensible budgeting process, but this is not enough by itself.


We also need a major effort to reduce the cost of healthcare.  One problem here is that employer provided health insurance is very inefficient, especially because it insulates employees from the full price of their healthcare. The way to fix this is to make the employer mandate in the Affordable Care Act more flexible in the following ways:

  • Replace income based tax credits in the ACA with aged-based tax credits (which then apply to everyone). See here for details.
  • Allow individual employees to migrate away from the employer plan to individually underwritten personal insurance. This will often save money for the individual employee (and family), the employer (who has fewer employees to cover) and the government (which has a smaller tax exemption). The employees also gain more flexibility for future employment.
  • Such a system, when fully implemented, will save $400 billion per year in government revenue, both state and federal.

Conclusion. I have outlined one way of moving from the defined benefit healthcare system we have now to a defined contribution system which will save hundreds of billions of taxpayer dollars every year by putting more responsibility on the individual health consumer.

Fixing Our Broken Healthcare System

 

As I get organized to enter the 2018 Nebraska Republican Primary for U.S. Senate, I want to make it clear why I would challenge the apparently popular incumbent Senator Deb Fischer who is running for reelection. The reason is very simple and clear cut.  The new tax law which she voted for will raise our national debt by $1 trillion over the next ten years and likely overheat our already vigorously growing economy in the process.  In other words:

  • Our national debt, already sitting at 77% of GDP (for the public part on which we pay interest), is the highest it has been since right after WWII and already slated to get worse, even before the new tax law supported by Senator Fischer. When interest rates inevitably rise in the near future, interest payments on the debt will become a huge burden on our economy.

  • Controlling the cost of healthcare, which already eats up 18% of our GDP (and is growing much faster than GDP), is the key to shrinking our annual deficits and therefore being able to shrink our debt as well.

But is it possible to control healthcare costs within the framework of a free market? I think it is and here is one way to do it:

  • For private healthcare, repeal the employer mandate and replace the ACA income based tax credits with age based tax credits (which then apply to everyone). This will allow healthy employees to migrate away from employer provided health insurance towards individually underwritten health insurance (including Health Savings Accounts) at much lower cost. This saves money for employers and rewards healthy life styles. High risk pools for unhealthy people would receive federal and state subsidies.
  • Medicaid recipients would also be able to migrate into this new private system.
  • Medicare Advantage (Medicare Part C) would be required to offer Medical Savings Accounts which were authorized in 1997 but have not been widely utilized. This will make Medicare Advantage highly attractive to healthy people and encourage migration from regular Medicare (Part B) to Medicare Advantage.

Conclusion. The point here is not to try to insist on one particular way of controlling the cost of healthcare but to demonstrate that it can be done within a relatively free market framework.

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Avoiding the Extremes on Either Side

 

Not only is Washington politics already hyper-partisan, but both parties are continuing to move to even greater extremes, see here and here.
Here are two examples of extreme positions now being espoused by major elements of one or the other of the two parties:

  • Single payer healthcare. The failure of the GOP effort to repeal the Affordable Care Act this past summer means that (the goal of) universal healthcare is here to stay. The ACA expands access to healthcare but does nothing to control costs. Single payer, Medicare for All, would control costs but then we end up with socialized medicine. The only way to establish a cost efficient free market healthcare system is to remove, or at least limit, the tax exemption for employer provided care and to set up high deductible catastrophic care supplemented by health savings accounts to pay for routine expenses. This would compel everyone to pay close attention to the cost of their own healthcare.
  • Tax cuts instead of tax reform. Tax reform, i.e. lowering both corporate and individual tax rates, paid for by closing loopholes and shrinking deductions, is an excellent way to speed up economic growth and thereby create more and better paying jobs. But it is imperative to do this in a revenue neutral manner, i.e. without increasing our annual deficits. Our debt (the public part on which we pay interest) now stands at 77% of GDP, the highest it has been since the end of WWII, and is predicted by the Congressional Budget Office to keep getting larger without major changes in public policy.

Conclusion. The U.S. badly needs a more cost efficient healthcare system and a simpler and more efficient tax system. But there are right ways and wrong ways to do both of these things.  Single payer healthcare and (unpaid for) tax rate cuts are the wrong way to proceed.  In each case, no action at all is much better than getting it wrong.

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The GOP Congress Needs to Get Back to Fundamentals

 

Granted that it is hard to implement good policy with a populist President like Donald Trump who is most interested in stirring up his base, nevertheless the Republican Congress is making some serious policy mistakes:

  • Healthcare. The GOP should accept the fact that universal healthcare is a desirable societal goal and is here to stay. The Graham-Cassidy bill is bad policy because some states, such as debt-ridden Illinois, can’t possibly handle healthcare on their own. The fact that the ACA needs operational fixes gives the Republicans leverage for insisting on cost lowering changes in a bipartisan bill.
  • Tax Reform. The GOP should focus on the most serious problems in our tax system. The complexity of the tax code is partly responsible for the fact that taxes paid lag true tax liabilities by an estimated 16% or $406 billion per year.  As an example of waste, the IRS has paid out $132 billion in EITC benefits over the last decade to people who were ineligible.
    Our uncompetitive corporate tax rate of 35% encourages multinational companies to leave their profits overseas rather than bringing them back home for reinvestment.  Even so, corporate tax revenue as a share of GDP is less than in most other developed countries.
    Republicans claim to be the party of fiscal responsibility and should therefore be highly uncomfortable with any tax plan which reduces federal revenue and increases our already very large annual deficits.  With a low unemployment rate of 4.4%, any additional artificial (deficit financed) fiscal stimulus is likely to kick off a new round of inflation.

Conclusion. Republicans have a relatively short window of opportunity to enact policy changes beneficial for the country. They need to get serious about what is really important before time runs out.

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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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The Strengths and Weaknesses of the GOP Healthcare Reform Bill

 

The American HealthCare Act, introduced in the House of Representatives on Monday, begins the process of looking for a replacement and improvement to the Affordable Care Act.  It moves in the right direction but also has some major shortcomings.


The Bill’s strengths are:

  • The Bill discards the ACAs web of mandates and regulations in favor of incentives to buy health insurance in a deregulated market.
  • The Bill replaces the ACA exchanges with refundable tax credits for individuals not covered by employer provided health insurance.
  • The Bill turns Medicaid into a block grant program for states with much flexibility for the individual states to run their own programs. This reverses the current system whereby the federal government matches each state’s spending on Medicaid and is thereby expensive for both state and federal government

The Bill also has major weaknesses:

  • There is no upper limit on the tax exemption for employer-paid premiums. This tax exemption amounts to a total drain of nearly $300 billion a year on U.S. tax revenues and is the biggest single reason why healthcare is so expensive in the U.S.
  • The inadequacy of financial support for the lowest income individuals and families. A $2000 annual tax credit for a minimum wage worker is simply not enough for her/him to be able to afford health insurance.
  • This huge discrepancy between the lavish tax treatment of employer-paid care and stingy tax credits for individuals is a matter of fundamental inequity as well as unsound tax policy. It would be much fairer to give all Americans the same equal tax credit roughly equivalent to the cost of catastrophic healthcare insurance.

Conclusion. The ACA increases access to healthcare insurance but does nothing to control costs. It is imperative for the Republican replacement plan to fix this glaring deficiency.

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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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