By Dave Oberting
Obamacare 2.0 would have to be simple. If there’s one thing the original version isn’t it’s simple. It would have to provide real choice and competition, not just among insurance carriers, but within the healthcare delivery system itself — the only way to drive down costs and make any health system sustainable.
The individual mandate, having been declared constitutional as a tax, would remain in place and would apply to every U.S. resident. There is simply no way a private universal insurance regime can function without an individual mandate. The tax on non-compliance would be equal to the individual’s monthly premium and it could be garnished from wages or benefits. The key is it has be large enough to deter people from foregoing insurance, and it has to be enforceable.
A large, enforceable penalty and true universal coverage would allow community rating and guaranteed issue to function. It would also eliminate the fatal flaw of adverse selection.
First, we should decouple health insurance from employment. Over the past twenty years or so, income gains have stagnated at the same time that healthcare costs have skyrocketed. Annual raises and bonuses haven’t magically disappeared, they’ve gone to cover the increasing costs of healthcare.
Decoupling health insurance from employment would free employers to provide larger wage increases. It would also decrease the cost of doing business, which would be good for economic growth.
Next, we should get rid of Medicare, Medicaid, the original Obamacare, as well as group and family health insurance policies. Every American, from the moment of birth to death would be required to carry a private individual health insurance policy.
There would be no state level regulation of health insurance and all policies would be eligible to be sold all over the country. Essentially, you would have one giant 320 million person risk pool. Policies could be sold on an exchange, through a broker, or directly to consumers. The required benefits on such plans would be less extensive than current law allows, and there would be no limit on how policies are sold.
The Obamacare exchanges have laid the groundwork for competition among insurance companies — this would foster even more. Unable to compete, some insurers will go out of business, but there are antitrust laws on the books to keep any one or a small group of insurers from amassing too much market power.
The single most important element of Obamacare 2.0 is that it must drive down the underlying costs of the healthcare delivery system. Choice and competition are the mechanisms that have proven effective in driving down prices in a relatively free market. It’s been said that market principles do not apply to healthcare because it is not truly a free market system.
There is a grain of truth to this in the sense that you’re not going to comparison shop on your way to the emergency room, but roughly 50% of all care is routine and would be sensitive to price signals. The economic terms for what the healthcare system largely lacks and needs are price transparency and price sensitivity. There are ways to implement both:
All plans would be high-deductible plans, say a deductible of $5,000. Each U.S. resident would be given a national healthcare debit card that could be used only at registered healthcare providers. Depending on income, your debit card would be charged with between $0 and $5,000. If your earnings are low enough your debit card could be charged with $5,000 and you would have no co-pays or other out of pocket costs.
If you are healthy enough that you don’t use up your deductible in a given year, you keep the remaining balance at the end of the year.
This introduces a level of price sensitivity that does not currently exist. If your income is high enough, you would be responsible for paying the entire deductible out of pocket, some or all of your monthly premiums, and again, depending on income, you would encounter increasing levels of co-pays and other cost sharing.
This essentially implements strict means testing throughout the system. The movement away from fee for service medicine and towards accountable care organizations would probably continue even though they allow certain hospital systems to acquire too much pricing power, but if these organizations end up helping to lower the cost of care and increase its quality, the experiment should continue.
To promote price transparency, we need an Orbitz for routine care and testing such as annual physicals, mammograms, etc. You would enter the type of routine care you are seeking, the date you’d like to receive the service, and providers would post their availability and the price they charge for a particular test or treatment.
If you have a healthcare provider that you like, but who charges more than the competition, you have the power to manage your deductible, but that would be less money for you to keep at the end of the year. It seems it would be wise to let Amazon or Orbitz itself handle setting up this marketplace.
No system will be perfect, but this one meets the needs of both parties. It covers everyone from the moment of birth, and it is a private, market driven regime that encourages choice and competition. As mentioned above, it also eliminates the problem of adverse selection.
As to why single-payer won’t work in the United States, here are some reasons: If you look at all the European countries held up as a model for single-payer, many of those countries are bordering on national insolvency. Government spending makes up 40-50% of GDP in these countries, and they are slowly coming to the realization that the social welfare systems they’ve created are not sustainable especially in a time of low economic growth and aging, declining populations.
A single-payer health healthcare system is not wholly to blame for their economic woes, but when economies depend that much on government spending, they become uncompetitive in the long run and the social welfare system collapses. France is exhibit A. Many hold Canada up as model of single-payer success. Aside from the 12 month wait to see a specialist, Canada and the U.S. are two totally different countries with different views on the role of government and tax policy.
To begin with, Canada is a country of 34.88 million people. The United States is many times more massive with over than 320 million people. California alone has 35 million people. The economics of healthcare in Canada and the United States are vastly different. The Canadian appetite for taxes is also different from the American people’s. Government spending represents over 39% of Canada’s economy and their total tax burden is 32.3% of GDP. While government spending at all levels made up 39% of the U.S. economy in 2011, that is abnormally high due to the recession — it is historically much lower, and the total U.S tax burden is 26% of GDP. Americans like their taxes low.
As importantly, the countries that offer single-payer do not carry the global responsibilities the United States does. The U.S. is the guarantor and underwriter of global security. This responsibility comes in the form of a $600 billion per year military budget. You cannot cut that budget much more without putting global security at risk. The $1 trillion non-defense discretionary budget is also not a luxury. This portion of the budget provides all the day-to-day government services Americans expect, such as food safety and scientific research.
We point this out because Americans are taxed at a rate many consider to be higher than they’d like. A government run single-payer system would not be sustainable absent what would amount to very significant tax increases across the board. Quasi-socialist Vermont ran the numbers of single-payer and concluded it was impossible. It would also inevitably lead to price controls and more rationing than exists in the current system. With all this in mind, it is unlikely the American people would see the logic of a healthcare system run entirely by the federal government.
We are not health economists nor healthcare policy professionals and we’re sure nothing could be this simple, but we are confident the healthcare system will look more like what’s outlined above in twenty years than what it looks like now. We like this option because it provides true universal coverage and still incorporates the private health insurance system.
The one thing we haven’t done is address the costs of such a system. We believe that through the power of price transparency and sensitivity, it could end up costing trillions of dollars less than the current mess of a system. Maybe the Congressional Budget Office could score it.
Dave Oberting is the Executive Director of the DC Economic Growth Action Fund, a political and economic advocacy group. Follow him on Twitter @GrowthDC.