Most people can agree the ACA will be up for revision in the new congress. Never popular with a majority of Americans, most think as written it will never deliver universal coverage at reasonable cost. Like a dish the chef thought would be a success but the patrons sent back en mass, we have to change the recipe. How do we do that? A good place to start would be to keep the ingredients that patrons say they like. In the ACA”s case that would be universal coverage, no lifetime limits, children can stay on their parents plan till age 26, subsidy support for those just above Medicaid and the plan can never be cancelled. Keep these. Next what do the critics say is lacking? First, it’s too complex. Second, fails to use the market to give you choices of what you personally need and who delivers your care. Third, no real way to control prices except through government imposed restrictions. Putting the choice squarely in the individuals hands and pocketbook would move us in that direction as would expand the market for plans across state lines. Let’s add these to the pot.
Next we look in the cupboard to see what’s available. Some things look familiar. Catastrophic Health insurance, 401ks, IRAs, health savings accounts, the IRS and credit cards. Most people are familiar with these and using these could make it palatable.
To understand how this new recipe would work, we have to go back to how we used to pay doctors bills and how we still pay for everything else. We pay out of savings, present income or future income. For our normal transactions we deal directly with provider of the goods and services. The idea that we would transact all our business through a third-party is inefficient and expensive for everyone. But what if an expense came along that couldn’t readily be handled in the usual way? Years ago ship owners faced this tough problem. They could pay for ships and their upkeep. What they couldn’t readily handle was the sudden loss of a ship and it’s cargo. Their answer was to band together and form an insurance company that would reimburse them in a time of great loss. Most of us use this principle in our own lives. The house burns down or you total the car we look to our insurance to prevent personal catastrophe. We don’t use it for oil changes or new rugs. Just for the really big stuff.
So how did we get so far off track? World War II. With wage and price controls in place, employers with an overwhelming need could only compete for labor over benefits primarily health care. Strong unions and little competition from the rest of the world, let these practices continue in the post war era. Third party insurance paid not only for catastrophe but for most mundane health care costs. Company personnel departments took on a new meaning. It also gave large corporations a big cost advantage over smaller competitors. So long as employers could pass along the costs, the shortcomings of this practice could be covered up. However, the rest of the world did recover in spades and now we compete on every dime of cost. It doesn’t help that most of foreign companies don’t even pay for their worker’s health insurance.
How then do we move back to a system where people use insurance, income and savings in a normal way and do it in a way that covers everybody? First let us realize that we have had universal health insurance for a long time. Ever since it was ruled that care givers can’t turn away non payers. It’s just that the costs are passed on to the insured, taxpayers and caregivers in a system that has no real incentive to lower costs. The high cost emergency room became the care giver of choice. Why not? The uninsured had no skin in the game. This is how we got our high cost inefficient system. The ACA does little to change this mess.
Let’s put our ingredients together and see if our plan goes down better than the ACA.
First. Every person not on medicare or having contractual benefits would open a Personal Benefits Account (PBA). All existing 401k, IRA, small business plans or similar would be rolled into that account. Employers and the Self Employed would instead put the allowable contributions directly into those accounts just as they make direct paycheck deposits to banks.
Second. Every PBA would have a Catastrophic Health Insurance Policy associated with it. These policies could be bought across state lines and through groups. They would have no lifetime limits, can never be cancelled and if part of a family plan, the kids can stay on till 26. However, preexisting conditions would not be covered. Those would be handled through high risk pools. There is no sense including a cost that would disappear over time into present Catastrophic Plans.. Everyone would have a tax-deductible minimum deposit 10% of compensation with a maximum equal to the current 401K limits plus $10,000 medical). Employers and self-employed would make the appropriate payroll deductions and directly deposit them. Medicaid would simply be handled by depositing the age appropriate average annual cost covered by each state directly to the recipient’s PBA. Subsidies would be handled the same way. 10% of the earned income tax credit would be deposited in the PBA.
Third. Each PBA would have an associated medical credit card that could be used only for legitimate medical expenses. We would hope these would be modern photo,chip and pin cards with a pay app possibility.
Fourth. The first $10,000 in each PBA would be invested in a government guaranteed fund paying 3% on balances. Any money still invested in this fund at retirement would be adjusted for inflation. This fund would subsidize the preexisting conditions pool and be available for medical charges. By making this a closed financing rather than using the general fund, we could better gauge on costs and when the need would no longer exist.
Fifth. Everyone would file an income tax form. Besides what it does presently, it would direct Medicaid and subsidies to the PBAs just as we send the Earned Income Tax Credit.
That’s it. Other than the Government Fund’ we have used what presently exists and the majority of people are familiar. Will people find this more to their taste? Future posts will show how the plan would actually work from the point of view of the individual, provider, government and employer.