The Better Solution for Our Health Insurance System: A Plan You Can Actually Keep

Sometimes, liberals and conservatives agree on a policy problem, but disagree strongly on the best solutions to that problem. Our health insurance system presents one case of such a disconnect between problems and solutions.

In the last Democratic presidential debate, hosted by CNN in March, Vermont Sen. Bernie Sanders said that the coronavirus pandemic made the “dysfunctionality of the current health care system … obviously apparent.” He elaborated in an April op-ed in Politico, in which he noted that “already, an estimated 9.2 million workers have lost their employer-sponsored insurance, and as many as 35 million people might lose coverage by the end of the crisis.”

Sanders makes a valid point: The pandemic does illustrate the shortcomings of our system of health coverage. But his single-payer health care plan — or even Joe Biden’s proposal for a (purportedly) voluntary government-run “option” in which individuals could enroll — would take the system in the exact opposite direction.

The dysfunctionality of the system exists largely because employers control most Americans’ health insurance. Most conservatives would therefore support letting individuals control their health coverage, rather than liberals’ plan to replace employer control with government control. Thankfully, the Trump administration has moved health policy in that exact direction, laying the groundwork for a movement toward more personalized insurance options.

The Problem: Employer-Provided Health Insurance

Sanders cited a study from Health Management Associates stating that as many as 35 million individuals could lose access to employer-sponsored insurance due to coronavirus-related layoffs. A revised paper, released in late May, did not specifically update estimates for the number of people losing employer insurance, but still showed significant coverage losses. Other estimates have indicated similarly large numbers of Americans losing their employer coverage.

The sudden job losses sparked by coronavirus lockdowns have illustrated one of the three major problems with employer-provided health insurance. Individually and collectively, these flaws have represented a problem hidden in plain sight for decades.

Lack of choice: The largest survey of employer-provided health insurance found that in 2019, exactly three-quarters of firms (75%) offered only one type of health insurance plan. In general, large firms offer more choices than small businesses, but even among the largest firms — those with more than 5,000 workers.

Because the employer and not the employee owns the insurance policy, workers often end up stuck with whatever plan their employer chooses. An individual who doesn’t want to enroll in an HMO, or whose doctors lie outside his or her employer’s provider network, might have few choices but to switch jobs or accept a plan that does not meet his or her needs.

In its first season, the U.S. version of “The Office” satirized this dynamic, when resident megalomaniac Dwight Schrute got charged with picking the office health plan — and let the power go to his head. While Americans don’t have to worry about contracting “Count Choculitis,” one of the fictitious diseases Schrute’s co-workers invented to needle him in the episode, they do face the very real worry that their employer’s choices and wishes regarding health care might not align with their own.

Flawed incentives: A conversation with one of my friends several years ago illustrated this problem. My friend said he loved the insurance plan his employer provided: “I can go to the doctor and it only costs me a $5 co-pay.”

I posed a thought experiment: What if your health insurance suddenly became taxable, and you had to pay $1,500 or so in taxes on that coverage? (At the time, a top-of-the-line plan cost about $6,000 for an individual, and I assumed a 25% state and local tax rate.) He responded immediately: “I wouldn’t want the plan — I would tell them to raise my co-pays and deductibles.”

That response illustrates the policy problem of employer-sponsored insurance: Everyone thinks they’re spending everyone else’s money. Employees don’t pay taxes on employer coverage; an IRS ruling during World War II, later codified by Congress, exempts employer-provided benefits from both income and payroll taxes.

All the incentives regarding employer-provided health care point in the wrong direction. Exempting employer coverage from taxation encourages individuals to take more compensation in untaxed health insurance benefits rather than taxable wages. Many employees don’t even realize that the employer’s share of the contribution for their coverage — which averaged nearly $15,000 for a family policy in 2019 — comes out of their own wallets in the form of lost wages.

All the flawed and misaligned incentives mean that the co-pay of “only” $5 my friend talked about years ago costs far more than that — to workers, employers and the economy as a whole. It’s one major reason why our health care system represents such a large, and rising, share of our economy.

Lack of portability: This issue arises because employers and not individuals own their health plans. As a result, when individuals lose their jobs, they also lose their health coverage. That dynamic results in the double whammy Americans have experienced during the pandemic, when workers lose their coverage at the same time they have unexpectedly lost their job — compounding families’ financial distress.

Lack of portability also exacerbates the problem of pre-existing conditions. Upon entering the workforce in their teens or 20s, most individuals have yet to develop a pre-existing condition like cancer or diabetes. But every time individuals switch jobs, they lose their employer-provided health coverage — making them vulnerable if they have developed a condition in the intervening time.

The worst kinds of situations occur when individuals must leave their jobs because they have become too sick to work. These patients face not one but two potential sources of financial ruin: They have lost their source of income, and face the prospect of astronomical medical bills without a means to fund them.

Cure the Disease, Not the Symptoms

In the past several years, Democrats have spent lots of time talking about the need to protect individuals with pre-existing conditions. But in focusing on pre-existing conditions, the left focuses on the symptom, rather than the underlying problem.

Remember: When Obamacare went into effect in January 2014, at least 4.7 million individuals received cancellation notices, according to The Associated Press. These individuals had plans that they liked, and wanted to keep — but the Obama administration wouldn’t let them. Politifact called the promise that Americans could keep their plan the 2013 “Lie of the Year,” and that lie affected many individuals who had developed, or feared that they would develop, a pre-existing condition. Let’s spare the notion that Democrats want to “protect” people with pre-existing conditions, when they “protected” millions of people right out of their coverage.

Liberals don’t talk about the underlying policy issue that creates the pre-existing condition problem — that people don’t own their own health coverage — because they don’t want people to own their own insurance. They want Washington to control health care decisions, not individual patients. It’s the classic example of former President Ronald Reagan’s nine most terrifying words in the English language: “I’m from the government and I’m here to help.”

But if individuals could buy an insurance policy upon joining the workforce — one that they owned, not their employer — and retain that policy from job to job for decades, most individuals could buy coverage well before they develop a pre-existing condition, and keep that coverage after they do so, the pre-existing condition problem would rapidly diminish. (Yes, a small percentage of Americans, most notably those born with congenital illnesses, develop pre-existing conditions very early in life, but other policy solutions can address this population.)

Trump Administration’s Solution

You wouldn’t know it, given all the carping and hostility from the left, but the Trump administration has put forward a very positive solution that answers the policy problems associated with employer-provided health coverage. It should increase portability in ways that help solve the pre-existing condition problem, while also providing additional choice and competition.

The administration’s policy, implemented through regulations finalized in 2019, allows employers to contribute funds to workers on a pre-tax basis through Health Reimbursement Arrangements. These HRAs allow individuals to purchase coverage that they own, not their employers — making the coverage portable from job to job.

The HRA concept provides wins for employers, employees and the economy as a whole:

• Employers get predictability when it comes to their health insurance offerings. By providing employees a fixed sum (say, $300 or $500 a month) into the HRA, they will not have to worry about changing plans from year to year, a sudden spike in costs because of a sick employee, or many of the other paperwork hassles associated with offering coverage.
• Employees get both choice and portability. They can select the insurance plan that best meets their needs — the doctors, deductibles and plan features that they want. Not only can they keep the plan when they switch jobs, the fact that they and not their employer chose the coverage in the first place will make them more likely to do so.
• The economy will benefit from individuals selecting the plans they want, rather than the plans employers select for them. Insurers will have to provide better, more customized plans that fit individuals’ needs, and employees will have incentives to make better choices to stretch the HRA dollars their employers provide them.

Ideally, Congress would amend the law regarding Health Savings Accounts, to allow individuals to use HSA dollars to fund health insurance premiums. Because HSA funds cannot pay insurance premiums in most cases under current law, the Trump administration had to use Health Reimbursement Arrangements (which are owned by employers) rather than Health Savings Accounts (which are always owned by individuals) to fund individual coverage.

Providing contributions via an HSA, as opposed to an HRA, would allow employees to control any unused employer contributions upon leaving a job. That way, individuals would not only have a source of coverage in the event of a layoff, they could develop a source of savings to pay for that coverage while unemployed. But until Congress acts, the Trump administration’s Health Reimbursement Arrangement regulations represent a tremendous step forward toward a more logical, patient-centered insurance system.

Empower Patients, Not Government

Coronavirus has made the problems with government control of health care apparent. As Joe Biden (of all people) noted in the March CNN debate, Italy has a single-payer system — and that nation had to ration access to ventilators, whereas the United States did not.

The pandemic has exposed the flaws in our health insurance system. But it comes just as the Trump administration has shown a better path forward. By empowering patients rather than government bureaucrats, Health Reimbursement Arrangements can help transform the coverage system into something that lowers costs and provides the care American patients prefer.

This post was originally published at the Daily Caller’s American Renewal blog.

What’s Behind the Latest Obamacare Problem

An Associated Press story Wednesday detailing how at least 2 million individuals have data discrepancies in their applications for Affordable Care Act insurance subsidies provides another example of executive implementation gone awry.

The issue lies with verification of income, citizenship and immigration status for those applying for health insurance subsidies. Legislation that reopened the federal government last fall included a requirement (Section 1001 here) for the secretary of health and human services (HHS) to certify that only eligible individuals would receive insurance subsidies.

The 16-page HHS report complying with that requirement has more than a dozen pages of references to federal regulations, statutory requirements, government agencies and administrative processes—suggesting that taxpayer funds would be spent wisely.

Except the processes weren’t ready at all. The Washington Post reported last month that the federal computer systems central to the verification process had yet to be built—meaning that verification documents sent in by Americans have been gathering dust.

Wednesday’s AP story cited an administration official saying that about 60% of exchange applications with discrepancies remain in the 90-day window provided under the law to adjudicate disputes. The implication is that 40% of applications—or about 800,000 individuals’ paperwork—haven’t been resolved, and it’s not known when they might be.

All this means that those Americans receiving subsidies in error—who may later be forced to pay back sizable sums as the verification process drags on—and all taxpayers, who will ultimately foot the bill for any fraud, could face nasty surprises in future months.

This post was originally published at the Wall Street Journal Think Tank blog.

Could Obamacare Cause More People to Lose Coverage than Gain It?

Obamacare’s supporters have always claimed that the law will help increase the number of Americans with health insurance. But an analysis released yesterday provided persuasive data showing that the number of people losing coverage under Obamacare could exceed the number of people who gain it.

Health insurance industry expert Robert Laszewski’s updated analysis of Obamacare’s insurance exchanges included the following nuggets:

The U.S. individual health insurance market currently totals about 19 million people. Because the Obama administration’s regulations on grandfathering existing plans were so stringent about 85% of those, 16 million, are not grandfathered and must comply with Obamacare at their next renewal. The rules are very complex. For example, if you had an individual plan in March of 2010 when the law was passed and you only increased the deductible from $1,000 to $1,500 in the years since, your plan has lost its grandfather status and it will no longer be available to you when it would have renewed in 2014.

These 16 million people are now receiving letters from their carriers saying they are losing their current coverage and must re-enroll in order to avoid a break in coverage and comply with the new health law’s benefit mandates––the vast majority by January 1. Most of these will be seeing some pretty big rate increases.

In total, 16 million people who purchase insurance for themselves could lose their current health plans on January 1. And that number doesn’t even count the Americans losing employer-provided health coverage—because their firms are dropping spousal coverage or dropping coverage for part-time workers.

Earlier this year, the Congressional Budget Office (CBO) estimated that in 2014, Obamacare would enroll 7 million people in exchange coverage and 9 million people through Medicaid. (Medicaid’s problems with physician access and patient outcomes are so widespread that some beneficiaries don’t consider the program “real insurance,” but that’s a separate story.) The CBO total of 16 million who will gain coverage is exactly equal to the 16 million Robert Laszewski estimates will lose their existing health plans due to Obamacare’s new mandates.

But based on the opening weeks of Obamacare’s open enrollment period, it’s far from certain that the CBO’s estimate of 7 million exchange enrollees will be reached. Laszewski estimates that only 20,000 people have actually enrolled in health plans in the 34 states using a federally run exchange. Based on internal Administration estimates obtained by the Associated Press and released earlier this week, enrollment is well behind even its meager projections for the first few weeks of open enrollment. Moreover, the ongoing technical difficulties faced by insurance companies and users alike give little prospect for massive new uptake any time soon.

Given the ongoing exchange chaos, it’s entirely likely that Obamacare could result in more people losing their current health insurance next year than obtaining new coverage. Any way you slice it, that’s not reform.

This post was originally published at The Daily Signal.

The Broken Promise Underlying Obamacare’s Exchange Debacle

The public recriminations continue surrounding Obamacare’s terrible, horrible, no good, very bad week and the myriad problems plaguing health insurance exchanges. But the concerns about flawed websites and consumer privacy are also symptoms of trying to mask the massive premium increases due to Obamacare.

The Associated Press (AP) explains that many of the flaws on the federally run exchange stem from the fact that consumers cannot “window shop” for health plans without first establishing an account. IT consultants called the exchanges’ lack of anonymous shopping capabilities a “major design flaw,” because it creates potential bottlenecks in the system as soon as the customer enters the site and needs to register. It’s one of many reasons why companies like Amazon and Orbitz let their customers browse anonymously before creating an account. But the Administration took a completely different approach when designing the federally run exchange, and the AP explains why:

Health and Human Services spokeswoman Joanne Peters said Tuesday the government omitted a window-shopping function because officials first wanted consumers to know the amount of the subsidy they might be eligible for. Those income-based tax credits can dramatically reduce premiums for people with modest incomes, and personal financial information is needed to calculate the subsidies.

“Our process allows us to show consumers plans with prices that reflect what they will pay with the tax credit they may be eligible for,” Peters said. “Window shopping would not allow for this.”

One obvious reason why the Administration wants to highlight the cost of health insurance after the application of premium subsidies is because the law’s new mandates and requirements dramatically raise the cost of insurance before those subsidies are applied. But compiling and processing all the subsidy information for consumers has overwhelmed the exchange website—the warnings that “the federal exchange was not ready to launch” were not heeded, and the results have been obvious.

While running for President in 2008, then-Senator Obama promised his health plan would lower health insurance premiums by $2,500 per family. As many Americans are realizing, Obamacare is raising, not lowering, the cost of health insurance. Unfortunately, it appears that the Administration’s unwillingness to acknowledge this broken promise may have been at the root of the ongoing technological debacles with Obamacare’s exchanges.

This post was originally published at The Daily Signal.

Is Obamacare Working? Broken Promises and a Broken System

Developments this week suggest that for many Americans, Obamacare will not be worthwhile. The administration’s report on premiums claimed that insurance rates will be “lower than projected” — clever code for “premiums will go up by slightly less” than the 2009 Congressional Budget Office estimates. That’s far from the $2,500 premium reduction that Obama promised his health plan would deliver, during his 2008 campaign.

What’s more, many of those exchange plans will have limited physician networks, as reported by The Times this week. The problem is obvious: “Decades of experience with Medicaid, the program for low-income people, show that having an insurance card does not guarantee access to specialists or other providers.”

While Obamacare may not be worthwhile for many Americans, implementing it certainly has been a problem — for both state exchanges and the federal government. Wednesday morning, The Wall Street Journal reported that Colorado, like Oregon before it, would delay online purchases of health insurance through its exchange; “some people will have to enroll by phone or in person” instead. Later Wednesday, the District of Columbia announced delays for its exchange; customers in the nation’s capital won’t be able to see what insurance subsidies (if any) they qualify for until at least November.

Then on Thursday — even as President Obama was publicly claiming that Obamacare is “here to stay” — The Associated Press reported another series of delays, these postponing online sign-ups for both the federally run small business exchanges and the Spanish-language exchange.

The combination of broken premium promises, limited access to care and continued implementation failures all send one clear message: Congress should stop Obamacare before it starts, and focus on common-sense solutions that can reduce health care costs for all Americans.

This post was originally published at The New York Times.

Obamacare Is a Fraudster’s Paradise

Ever wonder why government programs are so rife with waste, fraud and abuse? Consider what’s been happening with the Affordable Care Act.

The administration recently announced that was reducing by 50 percent — from 30 hours down to 20 — the required training for the law’s navigators, individuals paid to help Americans enroll in the health care act’s new entitlements.

The administration has thrown numerous other requirements overboard in its drive to get the law’s exchanges up and running by Oct. 1. Unfortunately, many of the requirements being jettisoned were designed to ensure taxpayer dollars are spent properly.

As a result, the law is shaping up as a fraudster’s paradise — a potential “Wild West” where individual citizens and taxpayers as a whole can easily get scammed.

Take the administration’s decision to put Americans on the “honor system” when it comes to qualifying for exchange subsidies next year. That decision will have two significant effects.

The law says that only individuals who lack access to “affordable” coverage through their employers should qualify for the subsidies. But in reality, the administration will have to take applicant’s claims at face value, because they won’t be able verify their accuracy. As the Associated Press noted, “a scofflaw could lie, and there’s no easy way to check” — a great recipe for fraud.

Second, the administration will conduct limited checks of applicants’ income, giving individuals a strong incentive to under-report their earnings on their application, to receive the maximum possible insurance subsidy. Individuals can lowball their income numbers on the application, and receive thousands — even tens of thousands — of dollars in taxpayer-funded insurance subsidies. While those who receive subsidies improperly will have to pay some of the subsidies back, in many cases individuals can receive much more in improper subsidies than Obamacare ever requires them to repay.

You might think that the federal government itself, or its contractors creating the exchanges, would have the tools to protect taxpayer dollars from being abused through these loopholes. But the contractor that just won a multi-year contract valued at up to $1 billion to verify exchange applicants’ claims was just placed under investigation in Britain for over-billing the British government to the tune of tens of millions of pounds.

In addition to fraud against the federal government, the health-care law could also lead to a rise in fraud against individual Americans. The training program prescribed by the government does not require anti-fraud training for navigators. It also does not require “minimum eligibility criteria and background checks” for those participating in the program.

The lack of background checks means scam artists could easily use the navigator program to prey on vulnerable individuals. Even California’s insurance commissioner — a strong supporter of the law — said, “We can have a real disaster on our hands” when it comes to navigators.

More than three years ago, Nancy Pelosi famously claimed that we had to pass the law to find out what’s in it. Over the past several months, we have seen a series of announcements and policies that show why it could be a fraudster’s dream — and a nightmare for the American taxpayers who will pay the bill for con artists’ scams.

This post was originally published in McClatchy.

Important Context on Next Year’s Premium Increases

The Associated Press yesterday published an article that at first appears to contain exciting and important news:

There’s good news for most companies that provide health benefits for their employees: America’s slowdown in medical costs may be turning into a trend, rather than a mere pause.

A report Tuesday from accounting and consulting giant PwC projects lower overall growth in medical costs for next year, even as the economy gains strength and millions of uninsured people receive coverage under President Barack Obama’s health care law.

As with many things in health care, however, if it looks too good to be true, it probably is. Only in the tenth paragraph does the full picture become clear:

PwC’s report forecasts that direct medical care costs will increase by 6.5 percent next year, one percentage point lower than its previous projection.

In other words, overall employer health costs in 2014 will rise by more than twice the rate of economic growth and nearly four times faster than overall inflation, based on recent Federal Reserve projections. Moreover, the PwC report notes that insurance premiums may rise even faster on insurance exchanges due to the massive uncertainty associated with Obamacare: “Insurers face the uncertainty of who will enroll—the sick, the healthy, or a combination of the two.”

The study also points out that consolidation in the health care sector has served to drive up prices: “Studies have shown that hospital mergers in concentrated markets can increase prices by more than 20%.”

The bottom line is clear: Then-Senator Obama promised that Obamacare would lower premiums by $2,500 for struggling American families. Today’s report from PwC puts President Obama even further away from living up to that promise.

This post was originally published at The Daily Signal.

For Low-Income Families, Obamacare Is the UNAFFORDABLE Care Act

Yesterday the Associated Press published an article summarizing how Obamacare’s supposed benefits may well turn out to be a mirage for many low-income workers:

It’s called the Affordable Care Act, but President Barack Obama’s health care law may turn out to be unaffordable for many low-wage workers, including employees at big chain restaurants, retail stores and hotels….Because of a wrinkle in the law, companies can meet their legal obligations by offering policies that would be too expensive for many low-wage workers. For the employee, it’s like a mirage — attractive but out of reach.

The company can get off the hook, say corporate consultants and policy experts, but the employee could still face a federal requirement to get health insurance.

Here’s how it could work: Obamacare includes numerous mandates that will raise premiums. CBS News reported this week that one survey of employers showed “Obamacare may cost more than previously thought” for many firms. Due to these new mandates, some employers may feel forced to scale back the employer’s percentage of premium costs. But as long as the employer’s insurance policies cost less than 9.5 percent of an employee’s income, the employer will not face taxes under the employer mandate—and the employee will not qualify for subsidies on the exchange.

The end result could be a no-man’s land for many low-income workers. The AP notes that a worker making $21,000 could face premium costs of as much as $1,995—and that coverage would still be viewed as “affordable” under Obamacare’s standards. In reality, the worker may not be able to pay that much in premiums—but under the law would have no other coverage option.

That’s not the only way Obamacare harms low-income families. The non-partisan Congressional Budget Office (CBO) concluded that under Obamacare, many workers could work fewer hours or give up working altogether. Thanks to the law’s perverse incentives, which according to CBO “will effectively increase marginal tax rates,” work will be discouraged.

What has been the Administration’s reaction to the plight of low-income families? In a word, complacency. From the AP:

White House senior communications advisor Tara McGuinness downplayed concerns. “There has been a lot of conjecture about what people might do or could do, but this hasn’t actually happened yet,” she said. “The gap between sky-is-falling predictions about the health law and what is happening is very wide.”

American families of all incomes deserve better than to be placed in a poverty trap that deprives them of health coverage while simultaneously discouraging work. They deserve better than Obamacare.

This post was originally published at The Daily Signal.

On Raising Premiums — And Raising the Retirement Age

Earlier this week, the Center for American Progress released a report about the potential effects of raising the retirement age.  Among the reasons cited in the report to oppose an increase in the retirement age was the following:

Since 65- and 66-year-olds would be older and on average less healthy than the nonelderly population in the exchanges, shifting these individuals to the exchange pools would increase premiums for all enrollees in the exchange by an average of about 3 percent.  Premium increases in the exchanges would be highest for the youngest exchange beneficiaries, as those younger than age 30 would see an increase of 8 percent and those between the ages of 30 and 34 would see an increase of 5 percent.  Such substantial increases in premium costs for young and relatively healthy individuals could result in these individuals choosing not to purchase health insurance—a process known as adverse selection—which would increase costs for the less healthy individuals remaining in exchanges.  This scenario could threaten the viability of the exchanges.

These claims are particularly interesting for CAP to make, because there’s one law that guarantees skyrocketing premiums for young Americans – and it’s called Obamacare.  An Associated Press study, and story, the week after the law passed noted the impact:

Under the health care overhaul, young adults who buy their own insurance will carry a heavier burden of the medical costs of older Americans — a shift expected to raise insurance premiums for young people when the plan takes full effect. Beginning in 2014, most Americans will be required to buy insurance or pay a tax penalty.  That’s when premiums for young adults seeking coverage on the individual market would likely climb by 17 percent on average, or roughly $42 a month, according to an analysis of the plan conducted for The Associated Press….The higher costs will pinch many people in their 20s and early 30s who are struggling to start or advance their careers with the highest unemployment rate in 26 years.

So if the Center for American Progress really wants to lower premiums for younger Americans – as opposed to attempting to defend America’s unsustainable status quo on entitlements – it should whole-heartedly endorse a repeal of Obamacare, and its onerous new regulations that will jack up premiums for millions of 20-somethings nationwide.

Fact Check: Paying in to Entitlements

The President just talked about seniors “paying in” to Social Security and Medicare.  The problem is, that claim is half true.  While individuals obviously do pay in to the Social Security and Medicare programs, most beneficiaries receive more in benefits than they paid in in taxes.  An Urban Institute study about the entitlement benefits and taxes recipients will receive (and pay) over their lifetimes found that a senior with average wages retiring this year will have paid $58,000 in Medicare taxes – but will receive over $167,000 in Medicare benefits.  The Associated Press ran a story on this issue in December 2010, and its headline was clear: “What You Pay for Medicare Won’t Cover Your Costs.”

Our nation’s entitlement programs are in dire need of reform, to become more sustainable.  Perpetuating myths about their long-term viability, which the President’s comments imply by saying individuals fully-fund their benefits when paying into the system, only makes generating the political consensus necessary for true entitlement reform more difficult.