Marian Hagler’s Health Care Plan

6 Oct

Marian Hagler, my wife, wrote this health care plan. Marian is an attorney who has worked on international transactions, energy, and start-ups.

Here is her proposal to reform our health care system.

Overview. I became inspired to put together a health care plan after listening to many critiques of ObamaCare coming without concrete proposals for improvement or replacement. I encourage others to go through this exercise. I have a new appreciation for the difficulty in finding something that works and incentivizes stakeholders in a positive way. I can now also read proposals for change with greater insight as to why they are good, even if imperfect, and whether there is a better option.

The following proposal is designed to simplify and improve the existing system, and hit all Republican and Democrat “must haves” (repeal/replace/improve ObamaCare, minimize government involvement and leverage the private sector, reduce premiums, keep increasing the number of people covered, maintain pre-existing conditions coverage, maintain coverage for persons 26 and under, reduce employer admin costs, incentivize people to buy affordable private insurance, guarantee equal rates for men and women, allow people to keep their doctors, and reduce prices of prescription drugs). In addition, it addresses other key problems..

The core of the proposal is to guarantee everyone at least some minimum of free medical insurance that covers them if their medical expenses reach a catastrophic level (“MajorCare”) and give 100% insurance to children (“YouthCare”). Taken together, the proposal essentially provides a safety net for retirees (by keeping Medicare), children and young adults (through YouthCare), the poor (by keeping Medicaid), and for major medical (by introducing MajorCare). It also turns over to broader private competitive market all plans supplemental to these (Private Supplemental Policies or “PSPs”), without the employer necessarily being in the middle and without state barriers.

How we pay for the plan and reduce drug prices is discussed last.

Disclaimer: I have no dog in this hunt other than to see us advance down a path towards a better system. If I have a tilt, it comes from the fact that I am a mother, a lawyer and a Democrat, but I am not a medical professional, nor do I work for a health insurance company, or pharmaceutical company, nor do I own such a company (unless a share or two is buried somewhere in my investment portfolio), although one of my clients is a medical device company. I am not on Medicare or Medicaid. Our family has private group health care insurance that is affordable for us. My sister is on ObamaCare and my parents are on Medicare.

I also work with a number of very inspiring entrepreneurs who sometimes walk the line between ObamaCare and Medicaid. Finally, my husband is a health care economist and has encouraged and helped me think through some of the issues here, together with my 13-year-old son.

Here is the proposal.

I. Medicare is maintained. This keeps retirees out of the private risk pool, which will keep premium and costs down for everyone else. This also keeps a political promise to “not touch Medicare”. We can think about whether to take the opportunity to tweak Medicare to improve it. Private Medicare supplements would still be available.

II. Medicaid is maintained. This keeps the poor covered and keeps them out of the private risk pool, which will keep private PSP premiums down for everyone else. A few key tweaks here: (1) Eliminate the month-to-month review, which is too frequent. Change to every six months. While this may lead to some temporary over coverage, there will be savings from reduced bureaucracy and reduced structural costs from people rolling on and off Medicaid. (2) We get everyone who is 26 and under off of Medicaid. They will be covered by YouthCare. This will help improve the health of the next generations, which should save costs down the road. (3) Develop incentives for the States to improve Medicaid. (4) Find ways to eliminate the problem of doctors who refuse to take Medicaid patients (or cap the number of Medicaid patients), so people can keep their same doctor as they roll on and off of Medicaid.

III. MajorCare and YouthCare are created as private insurance programs, with the premiums being paid by the US Government (USG):

A. General. MajorCare is a high-deductible policy designed to cover catastrophic/major medical expenses for everyone over 26 who is not covered by Medicaid or Medicare. YouthCare is a policy for anyone 26 and under, including children (because there is no income test, CHIP children would now be covered by YouthCare along with everyone else). Together, these policies ensure that the 20 million people picked up by ObamaCare will still have some minimum of health insurance at an affordable price (FREE), and we increase this 20 million dramatically by covering EVERYONE.

Also, with MajorCare in place, private policies won’t need to cover high, catastrophic costs, and this should lower significantly premiums paid under private policies. Further, unlike ObamaCare, no one would be required to sign up for MajorCare or YouthCare via a government website that does not work well or be limited by what is offered in their state. At its heart, MajorCare gives everyone peace of mind that they won’t be totally wiped out by medical expenses or incur high premiums because their private insurance company is covering catastrophic risk, and YouthCare ensures all of our children are covered (without the complications of Medicaid), and gets children and young adults in the good habit of going to see the doctor regularly. YouthCare picks up the ObamaCare coverage for people 26 and under and takes it a step further – young adults, and all our precious children, are fully covered, independent of Medicaid/CHIP or their parents’ insurance (or lack) and the limits of their parents’ policies.

B. Objectives. MajorCare and YouthCare should appeal to Republicans, Democrats and Independents. They follow the principle that a minimum amount of health care is a human right (regardless of income level) and our future depends on making children a priority. Importantly as well, these policies are provided and managed by the private sector with minimal USG involvement. USG negotiates the private insurer contract and pays the premiums. Since USG is paying the premiums, there is no higher premium charged to women or for pre-existing conditions and, so, this ObamaCare protection is maintained and even improved.

C. USG Contract Negotiation. The private MajorCare and YouthCare insurers would be selected by the USG in a negotiated process designed to yield USG an optimal policy and premium price. Here, we can take advantage of the Trump Administration’s skills in negotiating private sector contracts and ensure that MajorCare and YouthCare contracts are structured in a way that meets program goals and works within the private sector health insurance industry that will manage them. Also, retirees and non-youth poor, as well as everyday medical care for all non-youth, are all out of the risk pool. So, this lowers the premiums cost to USG. Also, these programs eliminate the problem of people electing to pay the ObamaCare tax penalty and then signing up for ObamaCare once they are really sick. Eliminating this problem helps to stabilize the risk pool, further optimizing the cost to USG.

The winning insurance company may team/reinsure so they can spread the risk/reward with other private insurance companies, so long as they don’t collude in the bidding process. If the YouthCare and MajorCare contracts are too big for a single winner, they may be divided into a series of regional contracts, so that a 25-year old who enters a hospital in Region A would be covered automatically by YouthCare in Region A. A 27-year-old resident in Region B would sign up for Region B MajorCare.

D. Required Bid Terms. Required bid terms for YouthCare and MajorCare would include: (1) pre-existing condition coverage (thus, keeping a key ObamaCare promise and making sure those who need it most are covered), (2) a max deductible ($0 for YouthCare and, say, $15,000 per year for MajorCare), (3) the costs that count towards the MajorCare deductible would include the usual medical expenses, as well as premiums and insured expenses paid by PSPs (see below) and perhaps even discretionary costs (vitamins, gym and sport fees, massages, discretionary therapies, etc.) as part of a “Make America Healthy Again” initiative, (4) seamless transitions between MajorCare/Youth Care and Medicare/Medicaid, so no one falls in a crack (in other words, MajorCare/YouthCare automatically picks up someone who is not on Medicaid/Medicare and, vice-versa, MajorCare/YouthCare continue to cover someone until their Medicaid/Medicare coverage actually commences, (5) MajorCare and YouthCare include prescription drugs and dental/orthodontia (and such expenses would count towards the MajorCare deductible), and (7) financial condition covenants on the winners and a USG guarantee, in case of insolvency/failure as well as other unusual events (epidemics, etc.) paid for by a reinsurance fee (the scope of the guarantee and amount of the fee to be bid by the private insurer) paid to the USG (and perhaps netted from the premium). USG premium payments would be biweekly or monthly (same as premiums currently paid by employers) to minimize exposure and misuse. How the premiums could be invested, and length of contracts would also be negotiated. There are clear risk trade-offs with longer contracts and investment freedom, versus the cost of the reinsurance/ guarantee.

E. Economic Experts. Health care economists can help USG and insurance companies determine the optimal levels (bang for the buck) for: (1) the MajorCare deductible (recognizing the inverse relationship between deductible level and premium cost), (2) the age for transition from YouthCare to MajorCare/Medicaid, (3) contract term, investment freedom and the USG guarantee/reinsurance fee. For example, data suggests that a $15,000 deductible for MajorCare will alleviate higher costs for only 7% of the population but this will absorb about 80% of all working age medical costs nationwide, which should thus reduce individual PSP premiums for individuals dramatically. YouthCare would cover the approximately $275 billion in annual medical expenses, and MajorCare (assuming a $15,000 deductible) would cover about $595 billion in annual medical costs.

The numbers on use and share of expenditures on expensive health care cases are from the 2014 MEPS survey. Some additional work on this topic can be found here.

IV. Private Supplemental Policies (“PSPs”): To eliminate the gaps in coverage from Medicare, Medicaid, MajorCare and YouthCare, PSPs will be offered in the open private market place, and not through employers or state limited exchanges.

A. Premium Affordability. PSPs should be more affordable than ObamaCare because while they contain the same restrictions (preexisting conditions, same rates for men/women), they exclude catastrophic costs, and all young people (who are covered by YouthCare). In addition, state exchanges and other barriers to national competition would be eliminated, something that has caused frustration due to limited choice. This also was a change that was proposed by Trump during the campaign. The vision is that access, information and competition would also be fostered by private brokers that allow people to compare policies meeting their criteria (similar to LendingTree and QuickenLoan for mortgages).

B. No Mandate. One of the most unpopular aspects of ObamaCare is the tax penalty, which was viewed as a necessity to ensure that healthy people join the risk pools. Under this proposal, because everyone is covered by MajorCare and YouthCare, this mandate can be eliminated and people would also be free to choose not to sign up for a PSP. To cover non-MajorCare/YouthCare costs, they can choose to rely on their own savings (see below re Health Cash) and, if they are healthy, the low probability that they will have unaffordable medical bills. My hope is that by offering everyone MajorCare and YouthCare, there is universal coverage and those risks pools are optimized (both sick and healthy are in) and therefore the adverse economic and societal effects from some (largely healthy) people choosing to not buy PSPs until they are really sick will be far less dramatic and, so, unlike the ObamaCare structure, there is less reason to force them to do so. This also eliminates a costly, economic inefficiency that arises from forcing people to buy plans that they just don’t want or feel they need. Individual discretion will also encourage insurance companies to offer healthy people attractive policies, by offering plans that are properly scoped and affordable.

C. Regulation. USG regulation of the private PSP market would be limited to (1) eliminating state barriers to competition, (2) requiring that pricing and coverage be blind to gender and pre-existing conditions (thus keeping two important ObamaCare benefits), and (3) creating incentives for purchasing PSPs (discussed next). Re pre-existing conditions and gender neutrality, insurers would be required to offer a premium pricing before they know the applicant’s identity (much like what is done now based on standardized pricing matrices depending on plan level and other factors). The cost to PSP insurance companies of covering pre-existing conditions and, as a result, premiums should be significantly reduced, because catastrophic costs are excluded and covered by MajorCare and children are covered by YouthCare.

Other means of regulating premiums in the PSP market would be considered and debated. The important point is that the existence of universal catastrophic coverage will reduce the incentive for insurance companies to cherry pick healthy customers.

D. Incentives.To help and incentivize people to buy PSPs, and stay with the same PSP (and doctors) if they change jobs, a few new rule changes would be introduced:

1) Low-income families would receive a tax credit equal to a certain percentage of the PSP premiums they pay for.

2) Employers would no longer be required to offer group plans and, instead, all individuals could reduce their taxable income by placing funds (“Health Cash”) into special accounts (“Health Care Accounts” or “HCAs”) maintained at a bank or other financial institution in the same way as current Flexible Savings Accounts (FSAs) and Health Savings Accounts (HSAs). Health Cash would reduce employer costs by eliminating the admin and other costs associated with maintaining mandatory group health plans. So, for example, say an employee is offered $90k today plus a health plan. The employer is paying part of the group health plan premiums and has admin costs relating to managing the group plan. The employee pays taxes on the $90k, including the amount he is paying for his share of the health plan (usually) and out-of-pocket medical and health-related expenses. With Health Cash, the employer can save an amount equal to its cost of old group health plan and the employee can reduce his income tax by reserving some of his income as Health Cash.

3) So that this proposal does unnecessarily disrupt the status quo, employers would still be free to organize and arrange group plans and supplement the cost by giving employees Health Cash as part of their compensation/benefits packages. This way, a large employer could still use its collective bargaining power to achieve premium discounts for its employees from PSP providers. The only changes would be that (1) group plans are no longer mandatory for any employer, (2) premiums would not fluctuate depending on how sick or well the group is (this cost/benefit is spread to the entire PSP pool), and (3) COBRA bureaucracy is eliminated and PSP contracts are individualized, so that individuals can keep their insurance (and doctors) if they lose or change their job.

4) Because contributions to HCAs are tax free, there is no longer a need for a limited deductibility of medical expenses, so this tax rule can be eliminated. This rule was not that useful for a great many families because of the high threshold.

5) The kinds of medical expenses could be paid from an HCA could be expanded to be the same as those that count towards the MajorCare deductible (medical expenses as well as health related expenses), as part of the “Make America Healthy Again” initiative. PSP premiums, for example, would be both payable from an HCA and count towards the MajorCare deductible, as well as gym/sport fees.

6) Unlike HSAs and FSAs, HCAs would never expire and anyone can have them. Importantly, these accounts could be passed on as part of an estate (although like the rest of the estate, an estate tax may apply), and they would be exempt from personal bankruptcy and not count as assets for purposes of Medicaid eligibility. These accounts would solve a few problems: (a) no more use-it-or-lose-it principle forcing people to guess how sick they will be in a calendar year, (b) we uncomplicate the administration of FSAs and HSAs by having one type of account with fewer rules/restrictions, and (c) by encouraging people to shelter and pass on cash in HCA lock-boxes, we build access to, and the affordability of, health care for current and future generations.

7) Contributions to HCAs (either by employer Health Cash or personal contributions) could have no cap or, if needed to control the fiscal hits to USG budgets, they could be subject to an annual cap to encourage good, regular savings habits. This is a point currently being reviewed and debated for HSAs.

8) Finally, people could use HCAs to pay themselves back for PSP premiums and medical costs not paid out of their HCA (e.g., because they did not have an HCA set up at the time or their HCA was depleted). Some cap or carry-forward time limit may need to apply here.

V. How to Pay For It. The cost of the plan needs to be evaluated in terms of how much more it will cost than current outlays under Medicaid, Medicare and ObamaCare, including the premiums to be paid by USG for the MajorCare and YouthCare plans, and the estimated fiscal losses from taxable income being diverted into HCAs, and where the new plan saves USG money (e.g., reducing internal USG admin costs, moving children out of Medicaid CHIP).

Ways to cover the added cost or reduce the cost:

A) negotiate prescription drug prices that will be paid by Medicaid, Medicare, YouthCare, and MajorCare. Reduced drug prices should help reduce costs of Medicaid and Medicare and reduce the premiums charged to USG for YouthCare and MajorCare. However, we need a way to prevent the drug companies from simply transferring the costs of this cap onto consumers who pay for drugs directly or through their PSP premiums.

B) include in the bid requirements for the YouthCare and MajorCare contracts, a requirement that the insurance company remit to USG 50% of any excess profits they make on the contracts. This may also reduce the incentive they have to improve profits by denying or fighting coverage. (Penalties in the contract for bad faith and private rights of action should also be added.)

C) reduce some of the employer tax savings on Health Cash. We still want employers to be incentivized to give Health Cash in lieu of wage income, but we may need to limit the tax savings. For example, FICA and Medicare taxes and may still need to apply to Health Cash payments, avoid fiscal hits to Social Security and Medicare.

D) float from MajorCare and YouthCare reinsurance fee: a current budget receipt v a long term contingent obligation. Note that this fee could be netted directly to reduce the USG premium outlay.

E) it might be possible to reduce USG premiums further and help pay for the plan through the sale of securities backed by the premium contracts for PSPs, YouthCare and MajorCare, which USG would purchase and, in the case of PSPs, guarantee. This would work much like Freddie Mac, Fannie Mae or SLABs (student loan asset backed securities). More analysis is needed to see if this would work and how much savings/leverage USG could achieve.

F) caps on tax deductions for HCA contributions, as discussed above

G) raising the MajorCare deductible to reduce the USG premium outlay, as discussed (we need to be careful here not to narrow the benefit too much)

H) develop incentives on health care industry and insurance companies to reduce costs without sacrificing quality or denying coverage.

I) other taxes



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