Restoring Quality Health Care: A Six Point Plan for Comprehensive Reform at Lower Cost

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The current trajectory of the health system threatens its sustainability. Instead of the trade-off "take away benefits or raise taxes," I propose a six-point plan that restores the appropriate incentives to increase health care quality and simultaneously reduce its costs. Over the decade, private and federal health expenditures will decrease by trillions of dollars, and access to high quality care will significantly improve.

Reform #1: Expand Affordable Private Insurance

Access to doctors comes through private, not government insurance. Doctors who closed practices to Medicare or Medicaid by 2012 had increased by 47percent since 2008, according to a survey by the Physicians foundation. Already, 55 percent of major metropolitan area doctors refuse Medicaid patients. Of those providers signed by contract to provide care to Medicaid, HHS reported in December that 51 percent were not available to new patients. Likewise, one-quarter of doctors no longer accept Medicare or limit the patients they see; in primary care, 34 percent refuse Medicare. 

Permitting limited-mandate plans with high deductibles in every state would add coverage that many consumers value. According to a National Bureau of Economic Research study, spending decreases 15 percent annually in high-deductible plans, without increases in emergency room visits or hospitalizations. Research has shown that more than one-third of savings is due to lower costs per utilization, reflecting value-based decisions by consumers.  

Let's reduce Obamacare's "minimum essential benefits" that increased premiums by almost 10 percent, and the 2,270 state mandates requiring coverage for everything from acupuncture to marriage therapy. Remove the 3:1 Affordable Care Act dictate on age rating that raised premiums for younger enrollees by 19-35 percent. Abolish anti-consumer barriers to interstate insurance purchases, and repeal the ACA's Health Insurance Providers Fee ($11.3 billion in 2015) that, according to the CBO, increases insurance costs by thousands of dollars over the decade for individuals, businesses, and even for enrollees in Medicare and Medicaid.

Reform #2: Establish and Liberalize Universal Health Savings Accounts (HSAs)

HSAs make health care more affordable. They allow individuals to set aside money tax-free for uncovered expenses. Incentives of HSAs differ from out-of-pocket health spending deductions, because HSAs also incentivize saving.  Amelia Haviland, in a study published in Health Affairs, showed HSAs increased savings from 5.5-14.1 percent, up to more than double the savings of high-deductible plans alone. Annual expenditures would fall by $57 billion if only half of Americans with employer-sponsored insurance enrolled in HSAs with high deductibles. Savings would increase further if deductibles were truly high, e.g. $5,000. 

HSAs will be automatically opened for everyone, while increasing maximum contributions to the ACA's out-of-pocket expenses allowance ($6,850 for individuals), extending uses to include elderly parents, and eliminating the counterproductive requirement of coverage with specified deductibles. Since wellness programs benefit both employees and employers, remove ACA-specified limits on incentives, including employer deposits into HSAs for participation.

Reform #3:  Instill Appropriate Incentives with Rational Tax Treatment of Health Spending

The income tax subsidy for unlimited health spending is one of the great mistakes of U.S. tax policy. Excluding employer and employee contributions cost approximately $250 billion in 2013, according to the Congressional Budget Office, and 85 percent of the subsidy goes to the top one-half of the income distribution. Beyond the numbers, the tax exclusion created perverse incentives. It made health spending seem less expensive. This encouraged expensive insurance and higher demand for care, regardless of cost, while distorting insurance into covering almost all billable services, and it greatly increased health care costs.

My tax reform has three main features: 1) universality, to level the playing field; 2) limits on total exclusion to the maximum allowable HSA contribution ($6,850), with far greater impact on upper income earners; and 3) new criteria on eligibility for exclusion, limited to HSA contributions and limited-mandate coverage premiums.

Reform #4: Modernize Medicare for the 21st Century

Today's Medicare is highly fragmented, indecipherable, inadequate in its benefits, and permeated by fraud and waste that the Government Accountability Office estimated at $60 billion in 2014.  Medicare's Hospitalization Insurance fund is currently projected to be depleted in 2030. The population of seniors is dramatically expanding, and the taxpayer base financing the program is shrinking. Meanwhile, actuarial data indicate the already high health expenses for a 65-year-old will triple by 2030. 

Reformed Medicare will contribute to the private health premium of the enrollee's choice. The benefit will be based on the average of the three lowest-priced plans, including one limited-mandate high-deductible plan. All plans will include catastrophic coverage, as well as prescription drug benefits. If one chooses a plan with a premium less than the benchmark, then the difference would be rebated into that individual's HSA; if the enrollee chooses a higher cost plan, the enrollee would be responsible. Premium subsidies for the highest income earners would be completely phased out. For those over age 35 today, traditional Medicare will still be an option.

Since Americans live 25 percent longer after age 65 now, with a life expectancy of 85 years, seniors need to save for decades of future health care. Therefore, expand HSAs with the features and higher contribution limits of HSAs outside Medicare, and allow tax-free rollovers from retirement accounts into Medicare HSAs. Even if Social Security benefits have begun, allow HSA contributions, and permit family members to use their HSA for elderly parents. 

Third, life expectancy from age 65 has increased about five years since Medicare's inception. Moreover, the age at which Americans plan to retire has increased by five years since the early 1990s, according to Gallup surveys. Slowly increase eligibility by two months per year until age 70. 

Reform #5:  Overhaul Medicaid and Eliminate the Two-Tiered System for Poor Americans

Instead of a pathway to excellent health care for poor Americans, Obamacare's Medicaid expansion continued their second-class health care status, at a cost rising to $890 billion in 2024. My plan transforms Medicaid into a bridge program geared toward enrolling beneficiaries into affordable private insurance with the same access to doctors, specialists, and treatments as the general population. This would change the purpose of Medicaid offices from running special government-administered plans to finding private health coverage for beneficiaries.

New Medicaid will include a private, limited-mandate insurance option. It will also seed-fund HSAs, creating assets and incentivizing healthy lifestyles to protect those assets. Federal funding will be contingent on meeting thresholds for enrollment into private coverage and HSAs.

Reform #6:  Strategically Enhance the Supply of Medical Care While Ensuring Innovation

Routine primary care through retail clinics staffed by nurse practitioners and physician assistants is 30-40 percent cheaper than by physicians and 80 percent cheaper than at emergency departments, according to a study published in the Annals of Internal Medicine. Simplify credentialing for insurance payments to clinics, and follow Institute of Medicine recommendations to remove outmoded scope-of-practice restrictions on nurse practitioners and physician assistants. Let's also modernize physician licensing. State non-reciprocal licensing limits patient care, especially as telemedicine proliferates. It's time to relax medical school graduation limits that have stagnated for 40 years and to abolish restrictive residency quotas that artificially limit competition.

The ACA also threatens innovation. Obamacare's $500 billion taxes caused companies like Boston Scientific, Stryker and Cook Medical to announce job cuts and establish overseas centers for R&D and manufacturing.  According to a survey of 200 medtech companies, FDA approvals now take far longer than in Europe. This hinders technology and drug development and increases consumer prices.  Repeal the ACA's $24 billion medical device tax and the $30 billion tax on brand-name drugs. Restore tax incentives for funding early stage innovation, and simplify device and drug approvals, so the FDA becomes consumer-friendly for discoveries and expedites cheaper generics. Finally, initiate skills-based visa programs that target graduates in STEM subjects (science, technology, engineering and math) fundamental to health care innovation.

Lower cost private insurance and HSAs drive important efficiencies into health care. They increase consumer purchasing power and enhance market competition for better value and more choices. And voters overwhelmingly support such reforms. When asked in a Rasmussen poll, "What would do more to reduce health costs-more free market competition between insurance companies or more government regulation?" 62 percent chose more free market competition; only 26 percent chose regulation. And 73 percent of Americans say they have a right to choose between insurance that costs more and cover nearly all procedures, and other plans that cost less while covering only major procedures; only 12 percent are opposed. It is the responsibility of elected leaders to create reforms that reflect these important principles held by the American people.

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