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.

Who Am I To Decide How My Own Health Care Should Be Handled?

Several months ago I began experiencing problems walking. I was born with deformed bones in my left foot, and the pressure from walking on this abnormal foot structure for more than 30 years has begun to take its toll. I visited several podiatric and orthopedic specialists to evaluate my options. Non-invasive methods like orthotics and therapy helped, but it became apparent to me that they weren’t really solving the problem; they were just delaying the inevitable. So I consulted with a surgeon, and he arrived at a plan of action — fusions, grafts and a tendon lengthening — which should significantly alleviate my pain and improve my gait. Feeling comfortable with the surgeon’s level of expertise and with his recommended treatment plan, I scheduled surgery for a few weeks from now.

However, the recent debate over the Independent Payment Advisory Board (IPAB) — Obamacare’s body of unelected bureaucrats who will control Medicare spending — has prompted me to reconsider my decision. After all, who am I to decide how my own health care should be handled?

  • Paul Krugman has taught me that “patients are not consumers” and that “making [health care] decisions intelligently requires a vast amount of specialized knowledge”;
  • The Center for American Progress, in making “The Case for Bureaucrats in Health Care,” has taught me that health care is different from buying shoes;
  • Ezra Klein has taught me that “consumer-directed health care is a silly idea” because “patients are not qualified to evaluate good care”; and
  • CMS Administrator Donald Berwick has taught me that “I cannot believe that the individual health care consumer can enforce through choice the proper configurations of a system as massive and complex as health care. That is for leaders to do.”

These statements have left me in a serious conundrum, and forced me to reconsider my thinking. After all, I’m not an expert on health care — I’m not even close:

  • I don’t have a PhD in economics, which, as Health and Human Services Secretary Kathleen Sebelius recently pointed out, qualifies individuals as “experts” in how to run a health care system;
  • Neither I nor my surgeon graduated from an Ivy League school; and

I do, however, now recognize that I am not only clearly incapable of making my own health care choices, but also that my health — and our entire country — would be better off leaving those choices to “experts” who are my intellectual superiors. After all, President Obama promised that the stimulus would prevent unemployment from rising above 8 percent, and who thinks joblessness is still a major problem more than two years later? And just look at how Obamacare has already delivered the $2,500 reduction in premiums that candidate Obama repeatedly promised.

So all I need now is to find a suitable “expert” to tell me whether I should have the surgery or take the painkiller. Therein lies my open request to IPAB’s defenders, to provide me with the enlightened knowledge of my own medical condition that I so clearly lack:

  • Peter Orszag, who supports IPAB as a way “to improve Medicare’s cost-effectiveness,” can tell me whether my surgery will cost too much;
  • Dr. Berwick can tell me if I’m one of those cases where “Most people who have serious pain do not need advanced methods; they just need the morphine and counseling that have been available for centuries.”

I do hope that one of these individuals — or indeed other political commentators who have supported IPAB in recent weeks — can tell me how I should proceed when it comes to my foot. After all, I now realize that my surgeon could be recommending an operation just for the reimbursement check, because most medical professionals base their decision-making processes on whether they will obtain a $50,000 payday (as opposed to Obamacare’s “experts,” whose decisions will be based on the fact that “the social budget is limited — we have a limited resource pool”).

There is a catch, however: While I will defer my own opinion to those of the “experts,” I do expect that any individual who passes judgment on my case will assume full financial and legal liability for same. That may be a problem for some of IPAB’s defenders. After all, Section 3403 of the statute exempts the IPAB and its members from ANY legal liability associated with its decisions.

And therein lies the point of this proposal, and this story: If the IPAB’s defenders — and its so-called “experts” — aren’t willing to put their own money where their mouths are, then how good will this board of unaccountable bureaucrats be?

This post was originally published at The Daily Caller.

How Can You Implement a Law If You Can’t Deliver a Letter?

The Daily Caller reports today on a letter sent by HELP Committee Ranking Member Enzi to Vice President Biden, noting that the Vice President’s office has thus far failed to provide official transmittal of the Administration’s Medical Loss Ratio regulation to the Senate.  HHS has confirmed it sent the rule to the Vice President’s office, but the Vice President never delivered the rule to the Senate Parliamentarian.  And because the Vice President’s office has not done so, the Senate cannot debate or vote on legislation seeking to modify this new Obamacare mandate.

As a reminder, candidate Obama repeatedly pledged to televise all health care negotiations on C-SPAN – yet the Administration cannot deliver a letter to the Senate allowing an open debate on one of Obamacare’s regulations to occur.  More broadly, it’s worth asking:  How can this Administration implement a 2700 page law if it can’t deliver a simple letter…?

How the Health Law Is Bad for Veterans — and the Economy

This morning the Wall Street Journal runs a story featuring comments by the influential Chairman of the New York Fed, William Dudley.  When asked in a speech yesterday about how the health care law will affect the economy, he said the law will cause “uncertainty” which will cause “people to be more cautious in terms of their behavior” – meaning businesses may not hire new workers due to the prospect of more than $500 billion in tax increases and mountains of new federal health care regulations.

Separately, the Daily Caller has an op-ed outlining how the law harms the troops – from the tax on medical devices to the lack of an SGR fix (TriCare utilizes Medicare reimbursement rates for most services, meaning veterans will also be harmed by the 30% physician pay cut coming at the end of the year) to the doctor shortages caused by the addition of 30 million newly insured Americans.

At a time when unemployment remains near record-high levels, passing a law that causes businesses not to hire undermines the prospects for future growth (even if the President believes his economic team is doing a “heckuva job.”)  Similarly, when our nation remains at war, passing a law that will adversely impact troops and veterans returning home from battle sends the wrong message to America’s soldiers.