Proposal for Post-Obamacare National Health Insurance System
Presented by Titus North to Representative Mike Doyle, September 19, 2017
I. Rationale: Obamacare is a mixed bag and will ultimately need to be fundamentally overhauled or replaced.
A. Obamacare’s benefits
1. Millions more people with insurance
2. Millions more with highly subsidized polices
3. End to pre-existing condition exclusions, rescissions, etc.
B. Obamacare drawbacks
1. Higher premiums and out-of-pocket costs for people with little or no subsidies
2. Failure to contain underlying costs
3. Feedback loop of premium hikes due to taxes on healthcare system (35% of Obamacare funding)
4. Move towards narrow networks.
II. Why do we have rising costs?
A. Hard to avoid factors
1. The aging of society
2. Increased use of advanced technology
3. Deterioration of public health due to lifestyles
B. Avoidable factors
1. Competition between companies based on underwriting(to be explained below)
2. Corporate dividends (in the neighborhood of 5% of premium revenues for private companies)
3. Advertising, inflated executive salaries (some fraction of 1%)
III. Weaknesses of “market solutions”
A. Markets for most goods and services encourage innovation and efficiency.
However, the core function of insurance is the distribution of risk according to probability (underwriting). Mathematical laws cannot be altered, and thus there is little room for innovation in the insurance industry.
B. Insurance companies compete by chopping up the risk pool, which leads to a plethora of policies. This leads to:
1. Loss of economies of scale
2. Loss of bargaining power in setting prices
3. Massive redundancy in administration (plan design, regulatory approval work, actuarial work, etc.)
IV. Drawbacks of “Medicare for All”
A. Medicare is a largely pre-paid system for the elderly. How do we expand it to the younger people who do not have a history of paying into the system without undermining it for seniors?
B. The massive transfer of resources required by HR678 from middle and upper class taxpayers to lower income people creates a powerful opposition.
C. The idea of a transfer of wealth from the rich to the poor has been an obstacle to the establishment of a national health insurance system for 70 years now, although any system, including the pre-Obamacare system, is bound to include a certain amount of wealth redistribution. However, the idea of a transfer of wealth from middle-class working families to the Guatemalan or Somali peasantry is a complete nonstarter.
V. What roll do insurance companies play?
In Obamacare: In most locations, there are only one or two insurers. Big companies like UnitedHealthcare and Aetna have basically withdrawn.
In most Medicare for all proposals: Insurers completely out of the picture
In Medicare supplement policies: Providers directly bill Medicare for about 80% of costs. The remainder goes through supplemental insurance companies, who assume risk. They are allowed to exclude people for health reasons.
In Medicare Advantage: Medicare makes monthly payments to insurance companies to cover most premium expense. Insurance companies design plan, assume risk, but cannot exclude people for most health reasons.
In Large self-funded group policies: The employer assumes the risk, funds the plan, pays the bills. Insurance companies only administer plans. They do no underwriting.
VI. Shape of the proposed National Health Insurance System
Divided into two parts, based on funding
A. Part A:
Funded by excise taxes on unhealthy products based on the negative impact those products have on health care costs in America, and also on a small but broad value-added tax.
1. A discount card that gives all Americans access to the prices that Medicare sets for providers (probably perhaps a certain percentage mark-up if necessary to make it palatable to the doctors and hospitals).
2. Preventative coverage
3. Catastrophic coverage
B. Part B
1. Funded by premiums, likely with subsidies or tax credits available.
2. The policies would be based on Medigap, with a limited number of plan choices all designed by the government.
3. Unlike Medigap, the plans would be underwritten by the government, but enrollment would be through companies, who would receive a commission. The government would write and cash all checks, but would not set up a new bureaucracy to handle enrollment and many other administrative functions.
4. There would be a single risk pool for all the plans.
5. All would be guaranteed-issue, but people would pay a premium penalty for a period of time after re-enrollment for any gaps in coverage.
Currently some 16% of the American GDP goes towards healthcare, which is more than double practically any other country. Even government spending on healthcare (Medicaid, Medicare, CHIP, VA, Indian Affairs, Tricare, etc.) is much greater than almost any country with nationalized health insurance. By moving to the national health insurance system described in this paper, the United States will realize enormous savings. (https://data.oecd.org/healthres/health-spending.htm)
Even if we could just half-way close the gap between us and the number two country in terms of per capital spending on health care (Luxembourg), it would represent a savings to the economy of some $250bn per year. If we could achieve parity with countries like Japan, France, and Canada, we would cut our healthcare expenditures in half.
This national healthcare proposal would save enormous amounts of money through the following means:
Eliminating unneeded or redundant work within insurance companies, provider offices, and state regulatory organs.
Encouraging preventive care that reduces more costly future problems.
Creating a giant risk pool that capitalizes on economies of scale, bargaining power vis a vis providers, and the elimination of administrative expenses by insurance companies and regulatory costs by government.
Containing costs through reliance on the Medicare fee schedule and government negotiation of drug prices.
It would meet the main objectives of healthcare access advocates by:
Guaranteeing that everyone has preventative care, catastrophic coverage, and reasonable prices.
Being affordable for middle- and lower-income people.
Establishing lower prices for health care services that are known in advance (unlike the current system in which prices for major procedures are not known until the bill comes).
Eliminating medical underwriting and pre-existing condition exclusions while containing moral hazard.
It would address the concerns of fiscal conservatives by:
Not establishing a large new bureaucracy
Making sure that everyone, including low income people with poor life style choices, will be contributing to the system
Financing the system through earmarked sales taxes and premiums with limited subsidies and tax write-offs, thus reducing dependence on existing revenue sources
It would address the concerns of social conservatives by:
Minimizing the wealth redistribution aspect of the health insurance system.
Encouraging personal responsibility and giving no one a free ride.
Not being accessible to undocumented aliens (although many providers may choose to charge them the Medicare negotiated price even without being enrolled in the system).
This system was devised with economic and social rationality foremost in mind, with consideration given to political realities. It represents the best last chance to move to the kind of national health insurance systems that all other advanced economies have adopted. Without such a move, it is just a matter of time (and likely not a very long time) before the entire health care system falls apart. Such a collapse would have a devastating impact on the economy as a whole, on social cohesion, and even the integrity of the American state.