The U.S. spends 18% of GDP (and rising) on healthcare, public and private, almost twice as much as any other developed country. The Affordable Care Act, passed by Congress and signed by President Obama in 2010, increases access to healthcare in the U.S. but does nothing to control its cost.
President-elect Donald Trump and the Republican Congress want to repeal the ACA and replace it with a more effective and less expensive alternative. An excellent plan for doing this, “Transcending Obamacare” has been proposed by Avik Roy, the President of the Foundation for Research and Opportunity. Mr. Roy’s Universal (and refundable) Tax Credit Plan will:
expand health insurance coverage well beyond ACA levels without an individual mandate
improve the quality of coverage and care for low-income Americans
achieve permanent solvency of U.S. healthcare entitlements
reduce the federal deficit without raising taxes
reduce the cost of health insurance for individuals and businesses
Here are the main elements of the Universal Tax Credit Plan:
Premium assistance. The Plan repeals the ACA’s individual mandate and expands access to health savings accounts. By lowering the cost of insurance for younger and healthier individuals, the Plan would expand coverage beyond ACA levels.
Employer-sponsored insurance reform. The Plan repeals the ACA’s employer mandate, thereby offering employers a wider range of options for subsidizing workers’ coverage.
Medicaid reform. The Plan migrates the Medicaid acute-care population onto the reformed private individual insurance market, with 100% federal funding. The Plan returns to the states full financial responsibility for the Medicaid long-term care population.
Medicare reform. The Plan gradually raises the Medicare eligibility age by four months each year (forever), allowing younger retirees to remain on their existing plans.
Veterans’ health reform. The Plan gives veterans the option of private coverage via premium assistance.
Medical innovation is encouraged by the Plan.
Conclusion. The Universal Tax Credit Plan is a big improvement over the ACA because it expands access, improves quality and dramatically lowers costs for both individuals and the country as a whole. Check it out!
The Supreme Court will soon render an opinion in King v. Burwell, challenging the implementation of the Affordable Care Act which stipulates that subsidies can only be paid “through an Exchange established by the State.” If the plaintiffs are upheld, it will mean that anyone receiving health insurance through one of the federal exchanges operating in 33 states is not eligible to receive a subsidy. It will be necessary for Congress to intervene to fix a problem like this. Three committee chairs in the House of Representatives, John Kline, Paul Ryan and Fred Upton, are proposing to take such an opportunity to improve the Affordable Care Act along the following lines:
First of all, making health insurance more affordable by ending both the individual and employer mandates, and giving choices back to the states, individuals and families.
Secondly, supporting Americans in purchasing the coverage of their choosing. For example, people could save money by buying insurance across state lines.
Finally, many existing features of the ACA would be retained. Children could stay on their parents policies until age 26. Lifetime limits on benefits would be prohibited. People with existing conditions would be protected. Renewability would be guaranteed. Insurance would be decoupled from employment by offering equal (perhaps, age adjusted) tax credits for all.
There remains the practical problem of providing immediate assistance to the approximately 5 million people currently receiving subsidies through the federal exchanges, while larger scale changes are being worked out by Congress. The American Enterprise Institute has proposed a simple way for Congress to do this as follows:
Enact a short-term extension of subsidies for current enrollees.
States with federal exchanges could immediately set up a state exchange if they wished.
People with preexisting conditions and/or continuous coverage would be protected.
Both quality control and cost control are badly needed to make the ACA sustainable for the long run. Given the right decision in King v. Burwell, these two plans outline a possible way to accomplish this.
The U.S. spends almost 18% of GDP on healthcare costs, double what any other developed county spends. There are many reasons for our excessive healthcare spending. For example:
As illustrated in the above chart, many medical procedures are far more expensive here than in other countries.
Profit levels in the healthcare industry are often very high, for example: 16.4% for pharmaceuticals, health-care information 9.4%, home healthcare firms 8.5%, medical labs 8.2% and generic drug makers 6.5%.
Health insurers, on the contrary, have a very low profit margin, (2.2% in 2009), and so can hardly be blamed for the high cost of healthcare.
The Affordable Care Act greatly expands access to healthcare but does very little to control costs. The Manhattan Institute’s Avik Roy has outlined a plan, “Transcending Obamacare: A Patient Centered Plan for Near-Universal Coverage and Permanent Solvency” which would reform Obamacare by making it more like two very successful and low cost consumer-driven plans, those in Switzerland and Singapore.
These two countries feature government sponsored health savings accounts, backed up by insurance for catastrophic care. What happens is that out-of-pocket spending for healthcare per individual is higher in Switzerland and Singapore than it is in the U.S., as indicated in the chart below. In other words, the real reason for our high cost of healthcare is that Americans don’t have enough “skin in the game.” We have very little incentive to hold down the cost of our own care because it is mostly paid for by third party insurance companies.
As the cost of healthcare continues to climb, such changes are already beginning to creep into the health insurance market place. Private companies are raising the deductibles on the insurance plans which they subsidize. The bronze, silver, gold and platinum plans on the ACA exchanges differ largely by the level of the insurance deductible.
Avik Roy’s plan referred to above in essence speeds up the process of converting the ACA into an efficient, consumer-driven healthcare system by making it more flexible and therefore more adaptable to market forces.
My last post, “Progress on Medicaid Reform,” discusses innovations that several states have adopted to improve the delivery of Medicaid and to make it more cost efficient. But what we really need is a complete overhaul of American healthcare, including the Affordable Care Act, as I have also recently discussed, in order to eliminate perverse marketplace incentives as well as to achieve real cost control. An excellent discussion of what real healthcare reform would look like is given by John Goodman in, “Healthcare Solutions for Post-Obamacare America.” Mr. Goodman gives six principles for commonsense reform:
Choice. People should be free to choose a health plan that fits individual and family needs, rather than one designed by bureaucrats in Washington. This means no mandates, either for individuals or employers.
Fairness. Any subsidy should be in the form of a fixed sum tax deduction or credit and everyone should get it as long as they obtained credible private health insurance. The amount of the subsidy would be comparable to the cost of Medicaid enrollment.
Universal Coverage. Since some people will turn down the offer of a tax credit, unclaimed credits can be used to reimburse safety net healthcare institutions.
Portability. Portability insurance should be available to employees in case they change jobs or become self-employed.
Patient Power. Health Savings Accounts need to be made more available and also more flexible so that they can wrap around any third-party insurance plan, as indicated in the above chart.
Real Insurance. Under ACA millions of people are losing access to out-of-network providers. People should be allowed to purchase “change-of-health-status insurance” in case they develop expensive-to-treat conditions.
The ACA addresses the access problem for healthcare but has little effect on the cost problem. American healthcare, both public and private, is way too expensive. This is why fundamental change is still needed.
It is widely understood that the rapid increase in spending for entitlements (Social Security, Medicare and Medicaid) is the main driver of our debt problem. Anything that can be done to get spending for these programs under control is of great value.
The problem with Medicaid is that a fixed percentage of each state’s costs is paid for by the federal government. The more a state spends, the more that is contributed by the federal government which is a disincentive for states to control their own spending. From 1989 to 2013, the share of state budgets devoted to Medicaid rose from 9% to 19%. This upward trend is a problem for both state and federal government and is clearly unsustainable.
One way to change the spending incentive is to turn Medicaid into a block-grant program whereby the federal government contributes a specific amount of money to each state each year and gives states more leeway in designing their own programs. States would then have a much bigger incentive to hold down costs and the flexibility to be able to do it. Progress is being made in this direction with the use of waivers:
Rhode Island received a waiver in 2009 to try out various cost-saving measures such as wellness programs, co-payments, etc. It has been quite successful and very well received.
Last year Pennsylvania agreed to expand Medicaid to an additional 500,000 people along with a waiver allowing people above the poverty line to be charged premiums of up to 2% of their household income as well as being charged an $8 copayment for use of emergency rooms.
Additional states such as Idaho, Wyoming, Utah, Tennessee, Alabama and Florida are also considering Medicaid expansions and likely will be influenced by the possibility of receiving similar waivers.
Waivers are not as cost effective as block-grant funding but they are an improvement over the existing one-size-fits-all federal rules. If more individual states are able to show that waivers really do work to reduce costs, this will increase the likelihood of implementing a block-grant system.
The Affordable Care Act has improved access to healthcare by already enrolling over 7 million Americans who were previously uninsured. It is estimated that there will be a total of 20 million new enrollees by the end of this decade. But as the above chart from a recent Gallup survey indicates, the cost of healthcare is now a big barrier for an increasing number of people with health insurance.
The University of Chicago economist, Casey Mulligan, discusses the cost issue in a recent Wall Street Journal article “The Myth of ObamaCare’s Affordability” as well as in a new book. He makes the following points:
Although the ACA helps specific populations by giving them a bigger piece of the economic pie, the law diminishes the pie itself by reducing the amount that American’s work and making their work less productive.
35 million men and women currently work for employers who don’t offer health insurance. These tend to be small and midsize businesses with lower paid employees. The result of penalizing businesses for hiring and expanding will be less hiring and expanding.
The “29er” phenomenon is a good example of how the law harms productivity. If a business has 50 or more employees who work over 30 hours a week, it is required to offer health insurance. Many employers have thus adopted 29-hour work schedules which lessens overall productivity.
Mr. Mulligan estimates that the ACA’s long-term impact will include about 3% less weekly employment, 2% less GDP and 2% less labor income. He also claims that these effects will be visible and obvious in just a few years by 2017!
The ACA is thus weakening the economy. For the large number of people who continue to pay for their own healthcare, healthcare is now less affordable.
Conclusion: we need true healthcare reform which addresses cost as well as access and this can be achieved by fixing Obamacare. It is not necessary to repeal it. The Manhattan Institute’s Avik Roy has developed a plan to do this: ”Transcending Obamacare.” Mr. Roy’s Plan would keep the exchanges, end both the individual and employer mandates, and migrate both the Medicare and Medicaid programs onto the exchanges over time. These features will greatly reduce the cost of American healthcare. Check it out and see for yourself!
Our country faces two major fiscal and economic problems:
How to boost the economy in order to put more people back to work.
How to either increase tax revenue or better control spending in order to shrink the deficit.
My last post, “The Great Wage Slowdown and How to Fix It” makes a specific tax reform proposal to cut tax rates for all by shrinking tax deductions for the wealthy. This would put tax savings in the hands of millions of wage earners with stagnant incomes, who would likely spend it, thereby boosting the economy. As the above chart clearly shows, there is only one realistic way to shrink the deficit. We have to do a better job of controlling entitlement spending (Social Security, Medicare and Medicaid.) As a practical matter, this means we have to cut back the cost of American healthcare in general, both public and private.
The Manhattan Institute’s Avik Roy has come up with an attractive Plan for doing just this, “Transcending Obamacare.” Mr. Roy’s proposal is to:
Repeal the individual mandate. Insurers are encouraged to design policies of high quality tailored to individual need. By lowering the cost of insurance for younger and healthier individuals, the Plan will expand coverage without a mandate.
Repeal the employer mandate, thereby offering employers a wider range of options for subsidizing employees insurance.
Keep the exchanges to provide broad access as well as subsidies for those with low incomes.
Migrate the Medicaid population onto the exchanges.
Raise the Medicare eligibility age by 4 months per year indefinitely. Over time this will maintain future retirees on exchange-based or employer sponsored health plans.
By gradually moving the Medicaid and Medicare recipients onto the exchanges, both of these very large populations will receive equal quality coverage to everyone else, delivered in a cost effective manner. Mr. Roy estimates that the Plan will expand coverage by 12 million above Obamacare levels by 2025 and reduce the deficit by $8 trillion over 30 years.
This is the sort of major healthcare reform which we need to get entitlement spending under control!
So declares Jim Jenkins, an independent candidate for the U.S. Senate from Callaway in western Nebraska. Several weeks ago I endorsed Jim based on his common-sense centrist views on many important issues such as fixing the debt, tax reform, Obamacare, and immigration reform. Check out his campaign website for the details. Now Jim has come out with additional common-sense reform ideas:
My 5-Point Bipartisan Reform Agenda
Nebraska doesn’t belong to a political party; Nebraska belongs to our people. Unless you can develop a framework in Congress by which you actually debate, discuss and negotiate, we’re not going to be able to move forward. Here’s my 5-point, bipartisan reform agenda to end gridlock in Washington.
Fix the Debt. Debate recommendations from the bipartisan National Commission on Fiscal Responsibility and Reform, more commonly known as the Simpson-Bowles Commission that presented Congress and the President with a comprehensive plan to reduce the deficit.
Biennial Budget. Congress should adopt a biennial budget process, an approach to budgeting utilized by many states, including Nebraska that allows for a more thorough evaluation of budget proposals in year one and a review of budget effectiveness in year two.
No Budget, No Pay. Unless Congress passes a budget by the end of its fiscal year members of Congress will not receive pay. I also support legislation that suspends Congressional recesses until it has passed a budget. Failure to pass budgets undermines the greater economy and undermines the credibility of Congress with its citizens.
Immigration Reform. President George W. Bush presented a bipartisan plan on immigration that had the backing of a significant number of Democrats. The passage of immigration reform will require a meeting in the messy middle. Both Democrats and Republicans are going to have to yield.
Leadership Council. Congress should adopt a bipartisan leadership group each session that would identify the top legislative priorities.
We need leaders in Washington who will work together to find common-sense solutions to our very challenging national problems. Jim Jenkins is such a person and I hope you will consider voting for him on November 4!
This is the title of an article in the current issue of Atlantic. Of course, it is a rhetorical question, but it raises a very serious issue. There are 43 million Americans age 65 or older today and this number is expected to reach 108 million by 2050. How will society cope with so many more senior citizens? This blog is concerned with the most critical fiscal and economic problems facing our country. The biggest fiscal problem we have is how to pay for the three major entitlement programs: Social Security, Medicare and Medicaid. Social Security can be shored up with small adjustments to either the benefits formula or by raising taxes a little bit. Medicaid can be kept under control by block-granting the program to the states. But Medicare is a much bigger problem. The cost of healthcare, both public and private, is rising rapidly as shown in the above chart from the New York Times. We badly need a new approach to control costs and Avik Roy from the Manhattan Institute has given us such a plan “Transcending Obamacare: A Patient-Centered Plan for Near-Universal Coverage and Permanent Fiscal Solvency.”
The problem is that, as Mr. Roy explains, “by creating a universal, single-payer health care program for every American over 65, regardless of financial or medical need, the drafters of Medicare made the program extremely difficult to reform.” But now we have to reform it because the costs are becoming so huge. How do we do it?
First of all, Mr. Roy’s plan keeps the exchanges created by the Affordable Care Act and turns them all into state-based exchanges. It also eliminates both the individual and employer mandates, replacing these mandates with financial incentives.
Mr. Roy’s core Medicare reform is very simple. The plan increases the Medicare eligibility age by four months each year. The result is to preserve Medicare for current retirees, and to maintain future retirees – in the early years of their retirement – on their exchange-based or employer-sponsored health plans. In other words, retirees will gradually be migrated to the same system, with the same level of subsidy, as for working people.
Everyone, workers and retirees alike, will be treated the same. Not only is this an eminently fair system, it insures that Medicare remains affordable, for both retirees and the whole country.
Even though economic growth is much too slow, it has been steadily increasing since the end of the Great Recession at a rate of about 2.2% per year. But our economy actually shrunk at a 2.9% rate in the first quarter of 2014. Healthcare spending decreased by 6.9% in the first quarter and therefore contributed to this overall drop in GNP. The New York Times’ economic reporter, Neil Irwin, discusses the connection, ”Our Economic Growth Is a Mystery. Obamacare is the Reason.” in yesterday’s paper. Since healthcare makes up one-sixth of the economy, and the implementation of Obamacare is expanding the healthcare sector, it is not surprising that the economy stumbles if Obamacare stumbles.
But he continues “The United States also has the most expensive healthcare system in the world, without producing better health outcomes. If the nation succeeds in reducing health care costs while also getting coverage for more people, it would be a huge win for the country’s long term competitiveness. Overtime the dollars that aren’t being spent on overpriced or unneeded health services can go to other stuff which makes life better: houses, college education, restaurant meals and the like.”
Conclusion: we need to try all the harder to figure out how to grow the economy faster. The best single thing we can do about this is to implement fundamental tax reform whereby individual tax rates are cut across the board, paid for by closing many of the loopholes and deductions which primarily benefit the rich. The two thirds of taxpayers who do not itemize deductions will automatically receive a tax reduction in this way. Since they are middle and lower income wage earners, with largely stagnant incomes, they will tend to spend their tax savings, thereby boosting the economy.
The loopholes enjoyed by the wealthy are example of crony capitalism which both liberals and conservatives complain about. Closing these loopholes and other deductions is a very good way to lessen income inequality. Our leaders should be able to work together in this direction!