The Affordable Care Act, also known as the “ACA” and “Obamacare,” was passed in 2010. It remains unpopular. In this article, I summarize the current situation and offer a way forward that makes substantive changes, while retaining its advantages and allowing a flexible transition.
The ACA set minimum coverage standards for medical (insurance) plans, and made it somewhat easier for an unemployed person to obtain coverage. However, these standards are so stringent that they require very high deductibles and costly premiums, and are therefore often unaffordable for those without subsidies: An individual could easily pay well over $10,000 annually before receiving any benefits, while still facing copayments (“copays”) and exclusions for plans that in many cases have weak doctor networks. For a healthy person, this is close to a catastrophic plan.
Health care is still too tightly bound to employment, and it is certainly reasonable to assume that increased ACA costs have had some depressing effects on employment.
The enrollment of new individuals is disappointing. Approximately 11 million people were added to Medicaid, which, with its weak doctor networks and low-quality care, has not reduced emergency room visits. About 12 million have been added through insurance exchanges, but about 4 million of these were individuals terminated from other plans due to the ACA. Furthermore, about 10 percent didn’t pay the first premium. And 36 million remain uncovered.
Before providing my proposals, I should briefly note the harsh economic realities of medical care. Medical care has become costly because high-technology tests are costly. America does spend a higher percentage of its GDP on medical care than other countries, but we receive better care. Our life span is a bit shorter than some other countries, but that is because of the culture, not bad doctors: We eat poorly, and engage in too much violence, drinking, and unsafe driving. While senior citizens often point out that they contributed to Medicare, their contributions cover only a modest proportion of total costs, and Medicare faces an unfunded liability of many trillions of dollars.
Reflecting our ethical values, preventive tests are widely available in America, but the assumption that these save money for the United States is not necessarily true: The results of many expensive tests are negative, meaning the costs will dwarf any savings resulting from identifying the few individuals who have positive test results.
Proposed Solutions
These proposals are not a single piece of legislation, which was the problem with the ACA. Instead, they represent an evolving process, over a period of a decade, where ACA plans are gradually replaced by viable new plans. Some supporting legislation will be required.
Rationalizing the federal/state roles. There is less conflict of interest if one level of government, the federal government (“Feds”), sets the overall goals and enforcement, while the states implement the programs. We would thereby replace the confused lines of authority of programs such as Medicaid. The Feds would set the minimum coverage requirements, which would be less generous than the ACA but would include doctor visits, hospitalization, pregnancy, and mental health care.
States could form groups, as long as there were at least 12 “state groups.” They could add additional coverage, implement a single payer model and/or allow private plans, and individuals could buy across state lines. Allowing purchases across state lines would create larger plans that could more easily average out healthy and sick patients, thereby eliminating the need for “high risk pools.”
“Single payer” will not work. If the Feds alone control the entire market as one buyer, they become a “monopsony,” the equivalent of a supplier monopoly. Through price controls, they can close out promising drugs and other treatments, play politics, and impede innovation. For example, the Vaccines for Children program of 1993 established federal price controls for a substantial percentage of the vaccine market. The result: Companies stopped manufacturing vaccines. Centuries of experience demonstrate that competition, not price controls, improves services, and this would work well with the states, which are competitive with each other but also conscious of their governmental role.
Strong state groups could provide the buying power necessary for cost-effective drug purchases and other medical solutions, without the extremes of the one-buyer problem noted in the previous paragraph. A choice of plans would also end the contentious religious issues in the largely “one size fits all” ACA. The states could also fund medical research, including weakly funded diseases, as it is impossible for the federal government alone to please everyone in this endeavor.
Phase out employment insurance. When one starts a new job, the employer doesn’t provide housing, grocery, or clothing services. There is no reason to do so with health insurance, especially with the volatility of employment tenure that characterizes the American economy. The subsidy of employee health insurance is negated by lower salaries. The employer tax deductibility and the tax-free benefits to employees should be phased out over a period of about seven years, roughly within the terms of many politicians. The new government revenues would be transferred to those buying medical plans directly. The resulting reduction of (employment) group plans would not matter to the United States as a whole, since one way or the other, we provide (by law) health care to everyone—it just isn’t efficient and fair.
Simplifying the payments. Deductibles are not necessary, as they make personal budgeting complex and confusing. Instead, higher copays could make the plans cost neutral (overall).
Needy persons. Based on a formula, such as the three-year average of adjusted gross income, the percent copays and required premiums could be reduced, depending on need; the states would pay the difference. Everyone would pay something, however modest the fee, except for cost-saving/public health treatments like flu shots. This would greatly simplify the highly disorganized current subsidy system. An additional adjustment might be necessary for people who lost their jobs.
Is participation required? No. There might be a modest penalty for nonparticipation (perhaps $250 annually) and a small incentive to participate ($100 annually). However, enrollment would be necessary to receive the subsidies outlined above, which would be financed by taxes.
Price system. At least 80 percent of services provided (measured by revenue) should be based on published prices. The single best tool for effective competition is a published price list, because the price disparities in similar services are astounding.
Here is a hypothetical that shows how the system would work. If the average price for treating conjunctivitis (“pink eye”) is $150 for a single visit, and the medical plan covers 80 percent ($120), the copay is $30 ($150 minus $120). However, if the doctor only charged $140, the copay would be $20 ($140 minus $120), with reduced copay percentages (noted above) for the needy.
More physicians. Immigration policy must address the current doctor shortage as well as the approaching retirement of millions of baby boomers.
Medical tort reform. The current civil lawsuit system should be replaced with a court system specialized in medical malpractice cases. Defendants would also have the option to choose an impartial panel of specialized professionals (financial analysts, accountants, and economists), instead of a traditional jury.
Justice is improved if a court has expertise in the relevant underlying issue, as is the case with drug and family courts. Juries are incapable of doing the complex analysis required for a fair verdict, or distinguishing between a bad result and a bad doctor, and even professional analysts cannot predict the future. Therefore, the professional panels would set up long-term payment schedules with five-year review periods to adjust settlements in light of new medical knowledge and altered patient circumstances.
Drug prices. I don’t pay less for my groceries because other people in Manhattan are wealthier than I am. Profits in the pharmaceutical industry are in line with other industries. The problem is that they charge less in other countries, meaning Americans must subsidize them to maintain the industry profit margin. There should be consistent prices across all developed nations: Drug companies could charge what they wish but they would have to choose a uniform, single price for each drug regardless of country. The exception would be for poorer countries that should get a discount, in the form of supplemental payments that would be part of foreign aid programs.
This would help ensure reasonable prices, and end the practice of citizens ordering drugs from other countries.
Simplified surgery planning. If the hospital and the surgeon are approved for an operation, all other individuals, such as anesthesiologists, should be covered.
More analytical work. Data from the new plans should be used to improve databases focused on the efficacy of medical treatments, using the latest developments in data mining and artificial intelligence.
The Way Forward
I have not explicitly priced this 10-year evolution, a task which I view as impossible. What I have provided is my assessment of the best balance between compassion and efficiency. The compassion results from the minimum standards with appropriate subsidies. The efficiency comes from competition and consistent pricing.
Arthur Wiegenfeld is an independent investor in New York City. He has training in economics, finance, physics, and computer simulation. Comments to [email protected]
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