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Riding Reagan’s pony out of the health care muck

August 3, 2017

Remember the old Ronald Reagan story about a boy locked in a room full of manure who was happy because he was sure he would find a pony hidden somewhere in the muck? In the wake of failures to repeal and replace Obamacare, Congressional Republicans should quit focusing on the muck and follow the Gipper’s counsel: look for ponies.

Republican efforts to replace Obamacare are themeless and difficult to understand. President Reagan believed in one principal role for government in health care: expand catastrophic coverage. Republicans should join this popular idea to (a) direct funding of Health Savings Accounts (HSAs) and expanded tax credits and (b) a restoration of the private insurance markets by ending Obamacare’s essential benefits provisions. Together these policies would be three legs of their Obamacare repeal and replace efforts.

Under this proposal, carriers would offer a catastrophic policy to anyone who wants one (because the essential benefits requirements are scrapped) and Congress would pay the premiums for lower income people to get them. These policies would cover costs of care exceeding, say $80,000, giving everyone who acquires them enormous peace of mind.

Assuming an annual catastrophic policy cost of $1,500, a $30 billion appropriation could cover 20 million low-income individuals; when combined with non-subsidized policy purchases, more people could have private catastrophic health care policies than now have Obamacare policies. While this federal funding is not a complete replacement for the House bill’s tax credits, compare this $30 billion cost to the $85 billion price tag for those provisions. And the catastrophic policies we envision would cover pre-existing conditions and ensure children under 26 years of age can remain on their parent’s policies. These policy subsidies would, over time, pay for themselves by offsetting Medicaid and Medicare payments because policyholders would use catastrophic coverage for serious illnesses instead of accessing government programs.

With the widespread use of catastrophic policies and the end of essential benefits requirements, private policies that insure up to the catastrophic limits would be on the market to pay for non-catastrophic care. Insurance coverage for medical costs below the deductibles in catastrophic policies would become relatively inexpensive, exactly the relief middle-income Americans need right now.

HSAs would be funded directly for lower-income citizens who obtain a catastrophic policy. Participating recipients would receive an annual HSA contributions of, perhaps, $2,000 to $5,000. Direct contributions are not a novel idea: Secretary Tom Price proposed a $1,000 payment to kick start HSA’s for all individuals, a more expensive proposition than restricting such payments to lower income recipients.

Secretary Price is right that funding HSA’s will inject badly needed pricing selectivity as recipients shop for the best health care prices using their own HSA cash. After all, they keep what they don’t spend. As a result, costs for everyone else will drop. Owner-participants of these new HSAs will have a stake in financing their health care and form new relationships with financial institutions, many for the first time. By permitting both participant and employer to contribute additional tax-free funds, these accounts will build over time; in ten years, healthy participants can accumulate significantly more than $10,000 to $20,000, perhaps as much as $40,000 to $60,000, and even beyond that after investment returns. At some point, the accounts could be withdrawn for long-term care benefits or even as retirement supplements for healthier participants who manage their health resources wisely.

With price sensitive consumers using funds they own in their HSAs, savings for federal health care programs could be significant. Combined with early screenings (which could be a condition to receive subsidized catastrophic policies, HSA payments and/or tax credits), injecting market-based health care pricing would save Medicare and Medicaid expenditures and reduce health care costs for everyone else. Further, this HSA “first-out” feature means that much of the money in HSAs will get spent before Medicaid is tapped. Like subsidized catastrophic policies we propose, subsidized HSA health care spending will in the long-term dramatically reduce other federal health care spending.

Neither the catastrophic policies nor the HSAs/tax credit benefits have to be enacted as new entitlements. Congress can make reasonable projections on the number of citizens who may sign up for such programs, fund them, and make adjustments later as needed. The programs would be re-appropriated each or even every other year, the traditional way the founders envisioned the budget process. Insurance costs will drop significantly with the end of Obamacare’s policy restrictions, so adjustments will need to be made sooner rather than later.

Congress could fix most of what needs fixing with a law that restores competitive insurance markets by removing Obamacare’s essential benefits requirements, makes available catastrophic policies covering more Americans than Obamacare (including those with pre-existing conditions), and provides resources for lower and middle income Americans to pay for ordinary medical care and premiums through a targeted mix of directly funded HSAs and tax credits. Doing all this without new entitlement programs would be a big plus. This compelling package on a first lift would set powerful themes for the 2018 midterms.

If he found himself stuck in our current health care muck, these are ponies we think Ronald Reagan would use to ride out of it.

Mark Mackie is former Chief Counsel for the US Senate Committee on Rules and practices law in the Dallas/Fort Worth area.

Steve Kuzmich also practices law in the Dallas/Fort Worth area.

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