As the Democrats and GOP leaders prepare to meet with the President at the February 25 health summit, the Republicans have a big problem. They don’t have a plan. While demanding a clean-slate do-over from the Democrats, all they have to offer in return is a grab-bag of simplistic, ineffective remedies that won’t fix the problems of our unsustainable health care system. They lack the vision thing. They need to recognize the market failure at the root of the system’s dysfunction and to propose the following actions to fix it. (Note: Hyperlinks provide additional discussion for those wanting to delve further.)
First, let’s agree on our ultimate goals. Neither party has done this. Here they are:
1. Access to affordable health insurance for all Americans
2. Sustainable medical care affordability and value
3. Free-rider prevention that allows universally available insurance to work
4. Voluntary participation with no individual or employer mandates
5. Financial protection against unaffordable, medically necessary care
6. Individual choice of insurers, providers, and treatments
7. Portability of coverage regardless of employment or government assistance
8. Effective prevention of chronic diseases that now consume 75% of total medical costs
Second, we don’t need a clean slate. The Democratic health plan has a core feature that can form the basis for achieving these goals: the individual health insurance exchange.
Third, here are the necessary changes to the Democratic proposals:
1. Open the insurance exchange(s) to everyone. Employers, FEHBP, Medicare, Medicaid, and CHIP will allow their constituents to opt out of their current health plans and to receive equivalent funds to enable them to buy their own portable health insurance from a plethora of private insurers through the exchange.
2. Create Super HSAs. Improve affordability and provide tax equity by allowing everyone to open health funding accounts (HFAs) that permit tax-exempt contributions by individuals, employers, and government programs sufficient to pay for individual insurance premiums and out-of-pocket costs. Replace any Cadillac-tax or fixed-dollar-tax-rebate proposals with uniform tax-exemption limits on HFA contributions.
3. Reform Medicare and safety-net programs. Replace current proposals for middle-class welfare subsidies with safety-net reforms in which Medicare, Medicaid, CHIP, and other programs will provide defined-contribution HFA funds for those who cannot otherwise afford to buy adequate health insurance and medical care.
4. Redefine health insurance. Minimum benefit requirements will assure financial protection against the unaffordable costs of medically necessary care. Any other benefits that increase premiums will not be required. Consumers will decide whether to buy additional insurance coverage for normally affordable, regularly consumed medical services or to buy them directly from providers. Individuals will be encouraged to choose the highest out-of-pocket deductibles, coinsurance, and copayments they can reasonably afford, thus reducing unnecessary insurance premiums and incentivizing consumers to focus on provider quality, price, and value. Insurers will be allowed to offer negative copayments and other consumer incentives to seek high-value medical care.
5. Get Medicare out of the medical price-fixing business. Allow providers to set their own prices in a competitive market in which consumers, assisted by insurers, have the money and the clout to demand value, convenience, and customer service.
6. Allow voluntary insurance purchases, but with strong controls to prevent free-riders. Replace mandates with voluntary participation and stringent controls to prevent people from gaming the system by waiting until they get sick to buy bargain insurance.
7. Require insurers to use modified community rating. Premiums based on individual health status and history will not be allowed. Premiums may vary only by a person’s age, gender, residence location, occupational risk, and the degree to which the person effectively controls health risk factors that are amenable to personal control (e.g., smoking, obesity, alcohol abuse). Likewise, employers and government programs will be allowed to vary their contributions to their constituents based on these factors, with appropriate adjustments to incentivize personal control of individual health risks.
8. Optimize participating insurer regulation. Eliminate any public option proposals, and instead allow participation by any licensed insurer that self-certifies compliance with the exchange’s requirements for minimum benefits, enrollment eligibility, and premiums. Rely on audits, complaints, penalties, and corrective orders to assure compliance. Maintain current state regulation of insurer financial health. Encourage development of community-based health plans.
9. Allow the states to experiment within the above parameters. Give them the flexibility to iteratively develop optimal solutions to be copied by others. Avoid one-fix-fits-all solutions.
The above modifications to the Democrats’ proposed health reform plan will empower America’s consumers to demand the answers to two fundamental questions: (1) Which are the best, most appropriate insurers and medical providers for my needs? (2) Which of these are the least expensive? This deceptively simple value proposition is the same one that has powered America’s unparalleled economic success and generated the widespread affordability of high-quality, infinitely varied food, clothing, housing, transportation, and recreation. The same dynamic will work for health care. Under this proposed health reform package, the consumer will reign supreme. The government’s roles will be appropriately limited to those of rule maker, fair referee, enforcer, and safety net of last resort—not insurer or regulator of actual prices or benefits (beyond the above requirements).
Properly implemented, this program will produce massive benefits that achieve all eight of our long-term health care goals.