The best health care reform is already in place

As with the previous Democratic debates, this week’s debate in Houston will likely start with our country’s forever question: How can we provide health insurance to all without bankrupting the country?

The Republican Party’s answer is to define basic health insurance as no health insurance. The party yearns for, and is suing in the courts, to restore the halcyon pre-ObamaCare days when 50 million Americans were uninsured and insurance companies could deny coverage at will.

This stance isn’t going to fly with the Party’s rank and file, whose own future health care and that of friends and relatives is at stake. But, hey, political self- immolation seems all the rage.

Vision two is Senator Sanders’ traditional Medicare (Parts A, B, and D) for All. Actually, it’s a far more generous version than traditional Medicare, which features co-pays, co-insurance, limits on catastrophic coverage and significant monthly premiums. As a result, millions of participants are forced to purchase Medigap coverage. Under BernieCare, there are no co-pays (except for prescription drugs) and no limits on coverage. Bernie care includes lab work, maternity, vision and dental care, and long-term care for the disabled.

Employers would, to their joy, be banned from the health care business. But their workers will be able to keep their doctors and use the same hospitals, who will simply send their bills to Medicare. Indeed, setting aside requisite tax hikes, BernieCare is far more generous than most employer-provided plans.

BernieCare, which Senator Elizabeth Warren (D-Mass.) and several other Democratic presidential candidates endorse, works great in theory. And it may in practice. The biggest bottom line is the share of GDP spent on health care. Other developed countries are delivering excellent universal health care at well south of 14 percent of GDP. We’re at 18 percent of GDP and growing. And they are all doing it with a healthy dose of central government control.

If it’s a choice between our current system and BernieCare, I’d go with BernieCare in a heartbeat. Yes, there are lots of concerns — people overusing the system, costs that far exceed the senator’s estimates, government price control over what is a fifth of the economy, doctors opting out of medicine because of limits on their reimbursements and long waiting lines.

But 14 percent of U.S. GDP can surely buy a truly first-class health care system for all. Also bear in mind that medicine in our country is already largely government run but done so with maximum inefficiency, leaving 30 million uninsured and far more underinsured.  

BernieCare surely beats “Don’tCare” — the Trump-McConnell answer. But is there another reform that makes more sense?

Yes. “Medicare Part C for All.” This is the brain child of John Goodman, the father of Health Saving Accounts. I pushed for this solution in The Healthcare Fix. Goodman recently discussed the plan in the Wall Street Journal.

Medicare Part C is also called the Advantage Plan. Some 22 million Medicare participants – one in three – have opted for Medicare Advantage over traditional Medicare. It works like this. Each year you choose an Advantage Plan from the plans being offered by insurers. The government then sends the plan you choose a check to cover its cost of caring for you for the year. This is like the ObamaCare exchanges except the payment to the insurer doesn’t depend on your income, but rather your health status.

The government figures out based on your pre-existing conditions, recorded in its electronic medical records, what you will cost, on average, and simply pays the insurance company that amount. Hence, if you have diabetes, your Advantage plan gets a much bigger check than if you are perfectly healthy.

The brilliance of this system is that it eliminates the major problem in the health insurance market: cherry picking. If an insurer gets paid the same even though you have diabetes, they’ll do their legal best to keep from insuring you. But if they are fully compensated for the extra cost you represent, they’ll be eager to sign you up. (Note, no insurer can turn anyone down under Medicare Part C.)

Making your premium payment conditional on your health status takes what is now a highly balkanized and dysfunctional health insurance market and transforms it into a hyper competitive one.

Medicare Part C for All gives the government the ability to set a global annual budget for what are, in effect, its aggregate individual-specific voucher payments. To stick to this budget, it simply adjusts what’s covered by the vouchers. The more (fewer) things covered, the higher (lower) the size of each voucher as well as the system’s total cost. So, in adjusting what’s covered, the government can readily keep the system affordable.

Medicare Part C also deals naturally with employer-based health insurance plans. Employers can continue to offer their plans, but they have to offer them as Medicare Advantage plans. I.e., they have to cover what Medicare Part C requires be covered. Furthermore, their coverage needs to be extended to anyone who wants to participate.

Senator Sanders views insurance companies as the problem. I don’t blame him. They have cherry picked the American public literally to death for decades. But individual experience-rated vouchers, which are the essence of Medicare Part C, eliminates this problem, permitting intense competition. This will lower wasteful administrative costs and permit competition in health care to, at long last, flourish and deliver the same benefits it delivers in other markets. Yes, BernieCare beats Don’tCare. But Medicare Part C for All beats them both.

Laurence Kotlikoff is a professor of economics at Boston University (BU), a fellow of the American Academy of Arts and Sciences, a research associate of the National Bureau of Economic Research, a fellow of the Econometric Society, and president of Economic Security Planning, a company that produces MaxiFi.com — an economics-based personal financial planning tool. Follow him on Twitter @Kotlikoff.