It is no surprise that yet another attempt to “repeal and replace” or maybe just “repeal” or maybe just “pass something so we can say we did something” failed. None of the proposed bills came close to fixing the core problems in our healthcare system. It is better to go back to the drawing board rather than pass dangerously-flawed legislation.
Any legislator who thinks that passing bad legislation with the hope of fixing it later in conference (or worse yet, kicking the defective can down the road and hoping a later Congress fixes it) has been drinking too much Potomac River water.
{mosads}The Republicans have a serious chance to fix the fundamental problems in our healthcare system, yet they seem bent on snatching defeat from the jaws of victory. If they do not pass an economically-sound reform, the voters will throw them out and put in a new set of legislators bent on shoving a single-payer system down our throats. If you like waiting in line at the DMV, you will love having the Post Office deliver your medical care.
The problem with healthcare reform is that most Americans have good coverage. If you are in the roughly 85 percent of the population covered by a good employer-based plan, Medicare, Medicaid or Veteran Affairs, you have access to the best healthcare in the world. But if you are in the remaining 15 percent of the population, you are in trouble.
Therein lies the problem: How do we cover the remaining 15 percent who have fallen between the cracks of our social safety net? The ObamaCare solution was to require all but the tiniest employers to provide insurance and force everyone else to buy coverage through state-run “exchanges.” This system was economically unsound from the start and doomed to fail for many reasons.
Those outside the employer-based plans are on average, older, sicker and poorer than the working population. They are more expensive to insure, and many are less able to pay for the coverage. The younger and healthier in this pool balk at being forced to pay high prices for the limited coverage they get under the “exchange” plans. As healthy potential buyers flee, only the sickest are left causing the exchange pools to melt down through what economists call “adverse selection.”
We as a society have mostly decided to take care of our poor and our sick. The question is how to do this in the most cost-effective manner. The solution is not to isolate the 15 percent into the expensive exchange penalty boxes, but to include them in ALL of the other risk pools so that their costs are spread through the entire population, not just the sick 15 percent.
We need to move away from the discriminatory closed plans that are only open to members of certain clubs. Just as we no longer let public accommodations like restaurants discriminate against people of color, we should not let insurance companies offer plans available only to members of certain exclusive employer-based clubs.
This can be done with a simple change in our tax code. Currently, employers can deduct what they pay for employee healthcare as a business expense and the employees get it as tax-free income. The solution is to only allow these tax breaks for insurance plans that are open to everyone. Such plans should meet the following criteria:
- They are open to anyone in the country on the same terms and conditions.
- Insurers may not prevent enrollment because of pre-existing conditions.
- Plans must provide certain basic services such as immunizations and catastrophic coverage.
- They disclose to a public database the prices paid for procedures to promote price transparency in medical care.
This will effectively force large employers to open up their plans or else they and their employees will no longer enjoy the juicy tax benefits. Even non-profit and government employers will also modify their plans so that their employees retain the tax-free income.
Such a system will reduce costs and thus make insurance more affordable. Employers and insurance companies will no longer be devoting resources to the custom design and negotiation of one-off plans for each employer. Instead of each employer custom negotiating a plan based on their own risk pool, they will gravitate toward a standardized set of products. There is no need for the government to finetune the product mix.
Increased price transparency will reduce administrative costs and promote price competition, further bringing down costs. Nationwide availability will create nationwide economies of scale.
There is still the problem of what to do with the free riders who do not purchase insurance. With insurance more affordable, the size of the problem will shrink, but it will still be a problem. If someone washes up on the shores of the medical system without the ability to pay, they should be assigned to a plan that will cover them.
The cost of their coverage plus a suitably stiff penalty would then be added to their income tax bill. The truly poor should be appropriately subsidized through refundable tax credits that can be assigned directly to insurers.
To paraphrase Shakespeare, “The problem, dear president, is not in our stars, it is in our tax code.” The solution is as well.
James J. Angel, Ph.D., CFA is a finance professor at Georgetown University’s McDonough School of Business.
The views expressed by contributors are their own and not the views of The Hill.