Fix the Bill: A Call for Future Bipartisan Health Care Reform
By Stephen T. Parente, Ph.D.
This winter, Congress has been crafting legislation that fundamentally changes the health care system and provides incentives for millions of uninsured Americans to gain health care coverage. Although the congressional leadership and President Barack Obama have praised the bill as a milestone, it is partisan, too costly, and will not do much, if anything, to bend the cost curve down.
But if the bill passes, there is still time for a fix. As the three- to four-year implementation timeline rolls out, there will be two Congressional elections—one in 2010 and another in 2012—after which a more bipartisan Congress will have the opportunity to fix the flaws in this bill. With some basic edits, we could achieve a fiscally responsible bill that would solve many of the problems in the current health care system. Five things could make this bill more palatable to those of us who want a more market-based approach to health care reform.
First, reform the health insurance market by providing guaranteed issue as well as modified community rating. This would provide individuals who have a pre-existing condition with an insurance policy at a fair price. If they purchase that policy, they would not be dropped (unless there is evidence of insurance fraud). To be clear, these consumers would be offered insurance at an actuarially fair price. Those unable to afford the premium because of their health status and restricted personal finances could be rolled into a separate high-risk insurance pool—an idea proposed by both President Obama and Sen. John McCain in 2008.
Second, allow the purchase of insurance across state lines. Large employers who self-insure have been able to do this since 1974 because of the federal ERISA law. It is time for others to enjoy this benefit. If the federal government can offer plans to its employees with a range of benefits that are not determined by idiosyncratic and premium-crushing state policies, why can’t other employers? As has been documented before in peer-reviewed studies, this change would reduce the number of uninsured by up to 8 million by 2011.
Third, use the excise tax for employer-sponsored coverage to help pay for reform initiatives. Congressional leaders have successfully repackaged for political purposes the highly repudiated McCain tax on employee health insurance as an excise tax on employer-sponsored insurance. This tax should be calibrated to the proposed tax on the popular Blue Cross and Blue Shield plan offered to federal employees, where any benefit above $7,000 for single and $17,000 for family coverage would be subject to additional federal income tax. Putting an excise tax on employer-sponsored coverage would remove a subsidy that every health economist will privately tell you is a massive drain of resources.
Fourth, use the proceeds from the excise tax to help individuals and families purchase health insurance coverage. Vouchers would be available to those who are not eligible for Medicare and have annual incomes up to 300 percent of poverty, or roughly $66,000 for a family of four. The subsidy would amount to as little as $1,600 for singles younger than 34 years of age and as much as $6,780 for families where the contract holder is between ages 50 and 64 years.
Fifth, use already-established organizations such as eHealthInsurance Services (www.ehealthinsurance.com) as insurance exchanges. Plans could be labeled as gold, silver, or bronze on their websites to help consumers understand the level of generosity of benefits. In addition, with more advanced underwriting capabilities, buyers could indicate their healthy behaviors online to gain discounts. Individuals would be able to purchase insurance themselves, thus reducing crushing broker fees that can add 10 percent to 15 percent to the price of premiums.
This combination of changes would reduce the number of uninsured Americans by nearly 18 million at a cost of $430 billion over 10 years. The revenues generated from the amelioration of the tax subsidy would equal $489 billion during that time period, yielding a truly revenue-neutral health insurance reform proposal, according to a recent analysis from the Congressional Joint Committee on Taxation.
Furthermore, these changes could be implemented before 2014, the year the reforms in the current Democratic bill fully kick in. By then, the number of uninsured will likely be close to 56 million.
Although this approach does not provide coverage to all U.S. citizens who find themselves uninsured at some point during the year, it does extend it to nearly half that population for less than half the cost of the current bill. It also doesn’t rob Medicare of resources it needs to avoid bankruptcy. (The current bill reduces the amount of money that goes to Medicare Advantage plans, putting seniors’ health at risk because of unnecessary health plan transitions.)
A market-based reform approach would result in incremental health insurance reform and a bill that truly would have bipartisan support.
Stephen Parente is a professor of finance and director of the Carlson School of Management’s Medical Industry Leadership Institute at the University of Minnesota.