DODGY CBO FORECASTS
Last Monday, the CBO released its score of Senate Republican plans to repeal and replace Obamacare. It doesn’t look great. They estimate 22 million people will lose their insurance by 2026. However, half of the healthcare coverage losses are driven by people voluntarily choosing not to buy insurance without the individual mandate. This isn’t the first time the CBO have given the individual mandate near magical powers. In 2014, they estimated that 24 million people would enrol in the exchanges by now. The actual number is 11 million.
OBAMACARE’S DEATH SPIRAL
Since the ACA came into effect four years ago, widespread adverse selection has left a third of the counties in America with only one insurer. Premiums and deductibles have doubled. This is driven by Obamacare regulation. The ACA’s age-based community ratings, requirements on benefits and dependants, and $150 billion tax on insurance companies should be repealed. Insurers ought to be able to sell policies across state lines and charge more for those who wait to get sick before getting insurance. The CBO estimate these reforms would reduce insurance premiums by roughly twenty percent.
CONSUMER-DRIVEN INDIVIDUAL MARKET
The tax exclusion for employer-sponsored health insurance incentivises employers to put more money into healthcare. This contributes to the problem of wage stagnation and leads to forty percent higher spending relative to the individual market. The ACA’s Cadillac tax makes sense, but it further complicates the tax code, so Congress ought to replace it with a cap on the tax exclusion. Freezing this threshold, as well as repealing the employer mandate, would encourage more people onto the exchanges over time.
To encourage more direct spending and price negotiation, catastrophic insurance should become the default plan on the exchanges. Health Savings Accounts ought to be greatly expanded, increasing the annual contributions limit to $6,550 for individuals and $13,100 for families. The federal government should allow people to pay for weight loss programs, exercise equipment, nutritional supplements and other health-related expenditures out of HSAs, giving them the incentive to keep healthy and build up a nest egg for retirement.
REDUCING HEALTHCARE COSTS
There is a distinct lack of price competition in US healthcare. Only eleven percent of expenditure is spent directly by patients, compared to over fifty percent in Singapore. In one of the few areas not covered by insurance, lasik eye surgery, prices have come down by three quarters over the last fifteen years. This price competition is possible in the rest of the healthcare industry as the vast majority of it is elective. Reducing the amount of money spent on insurance company administration would also save hundreds of billions of dollars.
Encouraging greater out of pocket spending would likely reduce defensive medicine. There are lots of wasteful, unnecessary tests in the US healthcare system. However, the rationing of MRI scans and mammograms in most European systems could explain why you are sixty percent more likely to die of cancer being treated on the NHS. Patients should be the ones weighing up these trade offs, not politicians and bureaucrats.
Similarly, there is evidence a lack of price controls in the pharmaceutical industry has led to lifesaving innovations with the rest of the world free riding at America’s expense. However, there are a number of reforms that could lower the price of drugs for Americans. The FDA could speed up its approval process to reduce the $2.5 billion cost of bringing news drugs to market. Congress could also allow patients to import drugs not yet approved by the FDA from other developed countries. Moreover, they should repeal the ACA’s $6 billion tax on medications and $26 billion tax on prescription drugs.
The main benefit of Medicaid is that it protects people on low incomes from financial ruin due to healthcare costs. However, roughly a third of doctors refuse to take recipients because of low reimbursement rates and this leads to much worse healthcare outcomes compared to private insurance. They may have a card saying they have insurance, but might not actually be able to find anyone in their area willing to treat them.
Therefore, it makes sense to migrate recipients onto the exchanges to buy catastrophic insurance. The federal government should abolish federal subsidies and convert Medicaid into a block grant to the states, capped at a growth rate of 3.8%, to ensure fiscal sustainability. Congress could then change it into a state-based, means-tested HSA tax credit program – providing assistance to those under forty up to 250% of the poverty level, rising to 500% for people in their sixties. Low income households would be able to use tax credits to pay for premiums and out of pocket costs. This would deliver universal coverage and improve outcomes by increasing access to high quality, affordable healthcare.
Instead of being dependent on a government program, the gradual taper on the tax credits would incentivise former Medicaid recipients to take extra work. Doctors may not take $20 for a visit if they have to deal with Medicaid’s bureaucracy, but are likely to accept cash.
BENEFITS OF ENTITLEMENT REFORM
Reforming Medicaid to put it on a more financially sustainable footing makes it possible to repeal all Obamacare taxes. This includes the $20 billion medical device tax, which is disliked across the political spectrum. However, the CBO also forecast Medicare spending to rise from $700 billion in 2017 to $1.4 trillion in 2027. Putting new recipients on a premium support program similar to Obamacare from 2022 could reduce this figure by $200 billion.
As a result, Congress would be able to pass comprehensive tax reform. They could reduce corporation tax from 35%, the highest in the developed world, and introduce full expensing of capital investment. The Tax Foundation believes this would increase after tax incomes by more than 8.4% and create 1.7 million jobs. Whereas the $13.6 trillion tax hike to fund single payer could reduce incomes by 12.8% and cost six million jobs.
HOW THIS RELATES TO BRITAIN
America spends more on public healthcare than any other major country, so it’s easily achievable to cover everyone for less. This is important for the UK debate. Americans need to show us that market-based reforms can lower costs, save taxpayers money and deliver universal coverage. However, it is important to acknowledge our statist instincts and aversion to paying for healthcare ourselves. A similar system in Britain would probably have to incorporate social insurance and universal tax credits. It may also include a strong individual mandate, which would be considered unconstitutional in the US. This system would be a mixture of those in France and Singapore, rather than the Swiss-Singapore model I propose for the United States.