ACRU

The Coming Liberation: Health Care for All without Obamacare

This column by ACRU General Counsel and Senior Fellow for the Carleson Center for Welfare Reform (CCWR) Peter Ferrara was published August 18, 2013 on Forbes.com.

Obamacare was pushed through on the promise of universal health coverage for everyone. But the CBO now scores Obamacare as leaving 30 million uninsured even 10 years after implementation!

In fact, Obamacare will increase the uninsured rather than reduce them. Former CBO Chief Douglas Holtz-Eakin published a study in 2011 arguing that more than 40 million workers will lose their employer provided health insurance under the incentives of Obamacare. That is because employers can save enormous sums dropping the highly expensive, Obamacare mandated, employer health insurance, leaving their workers to gain the taxpayer subsidies on the Exchanges, and giving them a raise out of the savings to boot.

Millions of others are already suffering pay cuts, as their employers are cutting them back to part time, below 30 hours a week, to evade the Obamacare employer mandate altogether. Labor markets will increasingly organize as well around hiring lower skilled, lower income workers as independent contractors with no benefits, as the employer mandate does not apply to such non-employees.

Workers will similarly evade the individual mandate as well to avoid Obamacare’s costly requirements, especially since under Obamacare’s guaranteed issue and community rating regulations, they can wait until they get sick to buy health insurance at the same standard rates as everyone else. Why would younger and healthier workers shell out anything for health insurance, especially in this difficult economy, where middle class incomes have been falling for Obama’s entire Presidency, when they can get it later at no extra charge if they get sick? After the insurance pays for them to get well, then they can drop it again.

A recently released study by the National Center for Public Policy Research found that nearly 4 million single childless people 18 to 34 would save $500 if they declined required Obamcare insurance next year, even counting the Obamacare subsidies for their insurance, and even if they paid the mandate penalty for failing to insure. More than 3 million would save $1,000 or more.

Universal Health Care through the Free Market

But free markets provide bread for everyone, with some help for the needy through social safety nets. And they would do the same for health care, if the government and the control freak liberals would just get out of the way.

A comprehensive plan to do precisely that has been developed by National Center for Policy Analysis (NCPA) President John Goodman, to which I have contributed in John Goodman and Peter Ferrara, “Health Care for All Without the Affordable Care Act,” NCPA Issue Brief No. 116, October, 2012, and John Goodman and Peter Ferrara, “A Healthcare Contract with America,” Issue Brief No. 110, July, 2012. The plan achieves health care for all with no individual mandate and no employer mandate, with a savings of $2 trillion over the first 10 years alone, based on scores for components already published by CBO.

The plan is based on extending the same, favorable tax preference for employer provided health insurance to everyone, on equal terms, through a universal health insurance tax credit of $2,500 a year or so. That tax credit can be used by every worker to help buy the health insurance that he or she chooses, not that Kathleen Sebelius and the government chooses for them. This means no one will be telling the Catholic Church that they must buy health insurance paying for abortion, or Liberty University that they must buy health insurance paying for contraceptives.

This universal health insurance tax credit could be used by any individual to buy into Medicaid, as it is equal to the official, estimated, average cost of extending Medicaid coverage to another individual. This means anyone with any pre-existing condition could gain coverage this way, no matter how sick and costly they have become.

But better coverage and benefits are available through private health insurance, including Health Savings Accounts (HSAs). Workers with employer health insurance they do not like would be free to use their credit to help buy an HSA, or any other insurance they preferred.

Those who do not use the universal health insurance tax credit to buy health insurance effectively suffer a penalty by losing the $2,500 available to them through the credit each year. For those who do not use the credit, the $2,500 would be sent to indigent care facilities providing health care for the poor in their local area. So if 10,000 people in Dallas do not buy health insurance, that would mean $25 million would go to hospitals and clinics in Dallas that focus on serving the poor. That would be part of the health care safety net under the plan.

But the primary safety net role would be served by reforming Medicaid through block grants back to the states, as in the enormously successful 1996 welfare reforms of the old, New Deal, AFDC program. Those 1996 reforms changed the federal financing of AFDC from a federal matching formula, where the federal government sent more money to the state for the program the more the state spent on it, to fixed, finite block grants, where any additional costs were paid entirely by the states, but any savings were retained by the states to be used for other purposes. Under those transformed incentives, within a couple of years, changed state priorities in administering the program resulted in two-thirds of those dependent on the program getting a job and leaving the rolls entirely. Their incomes were documented to rise 25% on average as a result, while after 10 years the program saved taxpayers 50% of what it would have cost otherwise, based on prior trends.

Similar results would be achieved through block grants to the states for Medicaid. States would then each be free to redesign Medicaid to best assure that the poor in their state can get good health care (which they can’t under Medicaid today), preferably by providing health insurance vouchers for the poor to buy the private health insurance they each preferred, including HSAs. The poor would consequently have both the health insurance tax credits, and these Medicaid vouchers to help them buy insurance. CBO has already scored Paul Ryan’s proposed Medicaid block grant, included in the GOP budget already adopted by the entire House, as saving taxpayers nearly $1 trillion over the first 10 years alone.

Part of the Medicaid block grants would also be used by each state to set up their own High Risk pool providing coverage to those uninsured who had become too sick and costly to then go out and buy insurance in the market, just as homeowners with houses already on fire cannot then go out and buy fire insurance. Those insured by the High Risk pool would pay premiums based on their ability to pay, with the state paying remaining costs. This would be another component of the safety net assuring health care for those in need with pre-existing conditions. Several states have long sponsored such high risk pools, which have proven effective in providing coverage for the uninsured already sick with costly illnesses, who could not then go out in the market and buy health insurance on their own, at minor cost to taxpayers.

Competition, Choice and Incentives Proven to Control Costs

While the alternative NCPA plan would assure health care for all, unlike Obamacare, the NCPA plan would also control health costs, again unlike Obamacare. That is achieved through competition, choice and market incentives to control costs.

Health policy economists have been puzzled by a persistent slowdown in the growth of health care spending that seems to have started in mid-2005, and accelerated since then. As the Wall Street Journal noted, “The health [spending] growth rate has flattened out at about 3.9% over the last three years—a record low since the 1960s and down from the old normal of 6.2% to 9.7% in the 2000s.”

At first, economists thought that the recession was causing the slowdown in spending, because people didn’t have the income to increase health care spending as much as in the past. But new research published in Health Affairs provides “evidence that the moderation [in rising health spending] is durable, and that it is structural—the result of permanent changes in the health system itself rather than the business cycle.” The Health Affairs papers indicate a sharply reduced role for the recession in slowing the rise in health spending, and a greater role for market choice, competition and incentives. That stems from the adoption of HSAs in December, 2003.

Traditional health insurance involves a low deductible, leaving the insured to pay only the first $100 or $250 each year, with the rest of the bills covered by the insurance. Sometimes the insured makes a modest copay above the deductible. That structure creates the “third party payment” problem. With the insurance company paying virtually all the bills, neither the patient nor the doctor have any incentive to control costs. They decide between themselves what and how much health care to consume, and bill the insurer. Naturally, this process makes health insurance very expensive.

HSAs are designed to greatly reduce the cost of health insurance by offering coverage with a high deductible, in the range of $2,000 to $6,000 a year or more. The savings achieved from the lower premium expense then funds the HSA, which pays for health care costs below the deductible. The patient keeps any leftover HSA funds for future health care expenses, or to spend on anything in retirement. This process creates full market incentives to control costs for all noncatastrophic health care expenses, because the patient is effectively using his or her own money to pay for them. Since the patient is now concerned about costs, doctors and hospitals will compete to control costs.

The premium savings from a higher deductible is generally enough to finance a substantial deposit to an HSA. And after one healthy year, the insured typically has more than enough in the HSA to pay for all subsequent expenses below the deductible. Moreover, patients with HSAs enjoy complete control over how to spend their HSA health care funds. They don’t need to ask for the approval from a health insurance company to spend their HSA funds on the health care they want.

HSAs can be advantagous for vulnerable populations, particularly the sick and the poor. Because they have complete control over their HSA funds, the sick become empowered consumers in the medical markplace. Because they can pay for care themselves out of their HSA account, the poor have ready access to a wide range of providers.

HSAs and their incentives have proven very effective in controlling costs in the real world. Total HSA costs, including the savings to fully fund the HSA savings account to cover the deductible, have run about 25 percent less than costs for traditional health insurance. Annual costs increases for HSA/high-deductible plans have run more than 50 percent less than conventional health care coverage, sometimes with zero premium increases. As a result of these costs savings:

  • The number of HSA accounts rose 22 percent in 2012 alone, to more than 8 million.
  • Total HSA account assets zoomed 27 percent to $15.5 billion.
  • By 2015, HSA balances are expected to increase to almost $27 billion.
  • That booming growth has continued since HSAs were adopted in 2003.

HSAs are typically paired with high-deductible health insurance coverage—either an employer-sponsored plan or an individually purchased policy. About 13.5 million people were covered by HSA-qualified high-deductible health insurance as of January 2012. There are also other types of consumer-directed accounts, such as Health Reimbursement Accounts (HRAs) and Flexible Spending Accounts (FSAs). Such accounts help the insured pay higher deductibles; more than one-third of individuals covered by employer-provided health plans face cost sharing of $1,000 or more.

Consumer-driven health plans probably now exceed enrollment in Health Maintenance Organizations, which are designed to deliver strictly managed care. As HSAs and similar plans have soared in the private market, health-spending growth has plummeted. That result proves the success of market competition and incentives.

The NCPA health plan would control costs by liberating consumers all across the health care system to choose HSAs. Those on Medicare, on Medicaid, and workers both with and without employer provided health insurance, would all be free to choose HSAs for their coverage. That would be assured under Medicare by opening up Medicare Advantage to HSA plans which seniors would be free to choose. It would be assured under Medicaid through the Medicaid vouchers for the purchase of private health insurance described above, which could be used to purchase HSA coverage as well. And workers with and without employer coverage would be free to use their universal health insurance tax credit to purchase HSA coverage as well.

The universal health insurance tax credit is also designed to provide market incentives and competition to control costs. The fixed, dollar amount of the credit provides no incentive to purchase more costly health plans, like an unlimited health insurance deduction does. Rather, the credit provides assistance, but market incentives remain to hold down the costs of health insurance as much as possible, because the credit does not pay for all the costs of typical health insurance plans. Insurers will consequently compete to lower costs to attract consumers with continuing incentives to control costs. Consumers would consequently have strong incentives to control costs by choosing low cost HSAs.

Costs would be further reduced under the plan, because all of the tax increases of Obamcare would be repealed, as would all of the cost increasing regulatory requirements and burdens mandating required benefits, and imposing costly guaranteed issue and community rating regulatory burdens. Consumers would instead be free to choose their own preferred benefits, that they could truly afford.

Prospects and Predictions

If Republicans would pass a comprehensive alternative to Obamacare, like this NCPA plan, through the House, it could no longer be ignored. I predict House Republicans will do precisely that within the next 12 months, as legislative drafting of the plan is already underway.

I further predict the public would embrace it as vastly preferable to Obamacare. Instead of the oppressive individual and employer mandates of Obamacare, under such an alternative GOP plan, consumers would be liberated to choose the health care plan they prefer, with the same tax credit available to all. The poor would receive additional assistance, preferably with Medicaid health insurance vouchers. The uninsured sick with pre-existing conditions would be free to use their credit to buy into Medicaid, and would be protected by High Risk pools as well.

Instead of the federal government mandating costly benefits in all health plans that individuals and employers would be required to buy, consumers would be free to choose lower cost plans in the competitive marketplace. That would include HSAs for all, which have proven very effective at controlling costs in the real world, unlike Obamacare, which offers no proven means or incentives to control costs.

Moreover, again unlike Obamacare, this plan really does ensure universal health care for all, but with no individual mandate and no employer mandate. Yet, it further reduces costs and government spending through block grants of Medicaid back to the states.

Finally, again unlike Obamacare, the plan would no longer lead employers to reduce workers to lower income part time work, and to independent contractor work, with no benefits. It would not lead to reduced jobs and wages and incomes, because of the higher costs on employment of Obamacare. Instead, through the repeal of Obamacare taxes, and liberation from costly and unnecessary Obamacare regulations, this GOP alternative would help restore economic growth and prosperity for all.