Editor’s note: This was originally published on MarketWatch on August 6, 2019.
A mix of universal catastrophic coverage and private insurers would be cheaper than Medicare for All
The one area of agreement in the debate over health insurance is that too many Americans lack it — now 27 million and counting. The differences emerge over how to expand coverage and how to pay for it.
On the Democratic side, Senators Bernie Sanders, Elizabeth Warren and Kamala Harris back Medicare for all (very expensive). Former Vice President Joe Biden wants to keep employer-based plans but have the government compete with private insurance in the exchanges on the Affordable Care Act (not as expensive, but still a big bill).
Meanwhile, officials in the Trump administration reportedly are readying a plan for him that would seek more insurance options for consumers and help him finally fulfill his 2016 promise to “provide insurance for everybody.”
There is a way forward that borrows from both camps and promises a much brighter future for American health care. The idea, which has been vetted by economists at the USC Schaeffer Center, the Niskanen Center (a think tank), and Rand Corp. (a research organization) for financial rigor, would guarantee coverage for all Americans from the day they were born. At the same time it could heighten competition within the system and restrain costs.
A plan devised by my colleague Kip Hagopian and me would cost the federal government about what the Affordable Care Act costs today, or less than a third to a quarter of the estimated $2 trillion to $3 trillion annual price tags of the Medicare for All proposals.
Even though it vastly expands the number of people getting insurance, the plan is cost-effective because it doesn’t cover all services all the time. Nevertheless, basic treatments such as prevention services, prenatal care, statins to prevent heart attacks, vaccines and the like would be exempt from the deductible.
Our plan varies the deductible based on family income — a feature not available in employer-sponsored plans. Premiums would also be means tested. We calculate that a person living at less than 125% of the federal poverty line would have a deductible of $63 a year, while the richest Americans might pay 10% of income. Premiums, also on sliding scale, would average $300 a month.
Why not use Medicare to achieve universal coverage, as Sanders and others suggest? First, there is the massive cost. And contrary to popular belief, the system is woefully inefficient. Physicians are paid using an arcane system that has ballooned to more than 140,000 procedure codes, all of which is supervised (and gamed) by physicians themselves. Standard private-sector cost-saving measures, like competitive bidding for routine services, are rarely used.
Sen. Harris has taken a step in right direction by advocating broader use of Medicare Advantage, in which insurers compete for Medicare customers. Under our government-paid catastrophic plan, insurers would offer supplemental insurance, and create networks of low-cost but reasonable quality providers.
No tax break for employer-based health insurance
A big political hurdle in our plan calls for the elimination of the tax-protected status of employer plans. When consumers say they like the plan they have, they are most frequently referring to employer-based health insurance. But those plans cost the federal government $280 billion last year because companies can deduct the cost of premiums as a business expense. That’s about the same amount as the mortgage interest deduction, charitable donations and retirement benefit tax exclusion combined, according to the Tax Policy Center. That money can form the bedrock of payment for universal coverage.
A host of problems in the current system would be eliminated by lifting the burden of catastrophic care off employers, and extending the protection to all Americans. There would be no more worries about pre-existing conditions, no more losing insurance when changing jobs, and no more mandated buy-in.
Importantly, there would be no more upward spiraling of premiums because healthy people are staying uninsured and not paying their share. And this coverage could be taken to any provider.
A government backstop of universal coverage with cost-sharing tied to family resources fits with Democratic tradition. At the same time, treating routine health expenses like normal household expenditures, and using private insurers to compete for customers, echoes conservative hopes that an efficient consumer market in health care could emerge. This public-private partnership gets us the best of both worlds. Whichever party adopts it should have a decent chance of winning bipartisan support in the general election.
Dana P. Goldman is the director of the Leonard D. Schaeffer Center for Health Policy & Economics and a distinguished professor at the Sol Price School of Public Policy and School of Pharmacy at the University of Southern California. He owns equity in Precision Medicine Group, a consulting firm to the life sciences industry. Follow the USC Schaeffer Center on Twitter @SchaefferCenter.