The Republican party is in disarray. The latest moves by Republican leaders seems to be backing away from repealing Obamacare and make some small changes to mandates and taxes. Great. The Obamacare control and influence over healthcare will continue.
My objective for these two amendments is to put individuals in charge of most of their healthcare decisions–not insurance companies and particularly not the government.
The two proposals are designed to satisfy moderate and conservative Republicans:
1) Ensure 100% of households have access to catastrophic coverage (12.8% of households lack insurance today). This can be accomplished by simply changing the way healthcare expenses are deducted. Employer provided health insurance shields the typical household from about $4000 in taxes. Instead of a tax deduction based on overall insurance cost, provide a flat tax rebate of up to $4,000 per household for any insurance–including catastrophic such as an insurance that only covers expenses greater than $50,000.
For uninsured households, the flat $4,000 deduction essentially makes purchasing private catastrophic insurance “free” since the tax rebate exceeds the typical cost of this type of catastrophic insurance for families* thus providing these households with coverage. For insured households, they still get their deduction.
Households that do not or cannot obtain insurance, such as high-risk households, would be covered by Medicaid. Since households would prefer the better quality and selection of doctors under private insurance to the poorer quality and smaller selection of doctors under Medicaid; Medicaid use will be small. However, since high-risk households can obtain catastrophic coverage through Medicaid, insurers would not be mandated to cover high-risk households for catastrophic policies. This will keep rates affordable and encourage more households to purchase coverage. The cost to the government would be a reduction in taxes paid by previously uninsured households taking advantage of the insurance deduction and direct payments. Together, based upon actual usage by uninsured households, would cost the government $80 billion.
States could offer more generous coverage than outlined here and Medicaid would still be available for poorer households.
2) Require households use Health Savings Account (HSA) funds BEFORE Medicaid. To promote HSAs provide every household who puts aside 5% of their income into an HSA a substantial payroll rebate to help fund their HSAs along with a line of credit to smooth out larger expenses. Since most Medicaid payments are relatively small, these HSAs would reduce the number of households utilizing Medicaid from 45 million to fewer than 8 million! It would also reduce the percent of households utilizing any third party payment from around 80% to only 10%. With households paying more expenses out of their pocket, they would control their own care and have the incentive to control costs. These payroll rebates of $2000 for 46-64 year olds, $1500 for 27-45 year olds and $500 for those under 27 would cost $300 billion but would be partially offset by savings from drastically reduced Medicaid use and by providing tax relief that President Trump and Republicans were planning to provide anyway.
These two amendments, taken together or separately, would both be an improvement over Obamacare and are only 1.5% of GDP. The first would cover more people than Obamacare without destroying private insurance. The second would enable households more control over their healthcare since they would be using their own funds rather than depending on the government or an insurer for payment.
*For example, a 46-64 year old couple with 2 children can typically purchase catastrophic insurance for around $4,000 and a 27-45 couple with 2 children for only $2000. Any unused rebate could be applied to lower deductible policies.