Private health insurance is an entirely unnecessary economic institution, whether a health care system is organized around public, co-operative, sole proprietary, private partnership, corporate not-for-profit or corporate for-profit provision of the health care services themselves. Therefore, the profits associated with private health insurance are a legacy rent extracted by private health insurers, protected by the backward-looking nature of our economic institutions, and the least justifiable of the institutional overheads that we pile on top of the necessary costs of providing health insurance.
The purpose of an economic subsystem is to provide material support to the social system that contains it. We are social animals sharing a common humanity, and making the quality of access to medical care for different members of our society depend upon the size of income flows and wealth balances they can tap into betrays a fundamentally perverse set of priorities. Before our society allocates resources to production of luxuries for a wealthy few, or even the production of luxuries for an adequately well-off many, it should allocate resources to meet the Basic Needs of all.
The Affordable Care Act (ACA) quite deliberately attempted to solve as few of the institutional problems as feasible among the many that we in the US face in ensuring access to, provision of, and quality of our basic need of medical care, while still hoping to possibly delay or stave off the collapse of our system for financing health care services that was already in progress by 2009.
Therefore, even if the ACA succeeds in staving off that collapse, we are left with a health care system that needs further reform. And if the ACA merely succeeds in delaying that collapse, then that simply increases the urgency and necessity of solving additional institutional problems.
Thus the fundamental issue that the ACA faces. The fundamental issue is not the functioning of the web site for signing up for coverage. It is not the deliberate monkey-wrenching of our already thoroughly corrupted political system as a side-show to try to game the new system for maximum short-term profits (even at the risk of returning system of finance of health to its path of ongoing collapse). It is that even if the ACA “succeeds”, it succeeds in such in a reform with such limited ambitions that it inevitably requires much more to be done.
What are the options out there?
It seems likely that we will end up with some kind of mixed system, for many of the same reasons that the reform that was finally passed was such a ramshackle collection of different bits and pieces of different possible reforms. However, in ranking the different mixed systems we might at some point in time be advocating for, it helps to line up the different distinct types of reforms that may be made. Note that listing a reform here to attach a label to it is not the same as advocating for that reform:
- Tax-Funded National Health Service: the public health care service employs health care professionals, with a budget that is funded by tax revenues ~ ideally by progressive income taxation, but given the progressive effect of the service, acceptably funded by neutral income taxation.
- Tax-Funded Medicare For All: mainstream public not-for-profit health insurance, funded by tax revenues (with the same qualification as above).
- Premium-Funded Medicare for All: mainstream public not-for-profit health insurance, funded by premiums paid by those covered, where ‘for all’ implies that premiums must necessarily be reduced on a needs-basis for those who otherwise could not afford them.
- Optional Premium-Funded Medicare: mainstream public not-for-profit health insurance, funded by premiums paid by those covered.
- Tax-Funded Funded Medicaid: Medicaid here refers to public health insurance designed explicitly to address basic need health care and therefore is a component for some system that may otherwise failing to cover Basic Needs.
- Premium-Funded Medicaid: premium funded Basic Medical Needs public health insurance implies a tax-funded sliding scale premium based on need, but in a mixed system would also available at actuarial cost to anyone who wishes to meet their Basic Medical Needs without paying substantial additional levies to the health care system in place.
- Pay or Play Employer Funded Health Insurance: Employers must either provide comprehensive health insurance to employees or pay an employment tax into some pool that helps in some way to fund provision of health care service for people without employee-provided health insurance.
- Direct Pay or Play Employer Funded Health Insurance: most Pay or Play proposals direct the ‘pay’ side into a common pool, and so it is a distinction of some substance when the ‘pay’ side is directed into an account in the employee’s name.
- Income Subsidized Regulated Health Care Insurance Exchanges: a common proposal for mixed systems features some form of marketplace with multiple insurance policies allowed into the exchange if they conform to specific regulatory limits, and in return have access to customers receiving an income subsidy to meet some standard of “affordability” of health insurance.
- Automatic Enrollment: Some insurance coverage in the system is automatically provided to individuals, whether or not there are terms under which they can opt out.
- Individual Mandate: Individuals are required to obtain some coverage, with some sanction or penalty applying if they do not do so
Even if we assume a primarily private system of health care provision, we can sort out the different ways to provide for the access to and finance of that health care in terms of how much unnecessary private-tax they extract for the benefit of unnecessary for-profit health insurance companies, and how much they link access to our Basic Health Service Needs to our level of success in the economic subsystem of our society. The list below is, of course, not a comprehensive list, but I hope is extensive enough to be representative:
- Plan A: Tax-Funded Single Payer Health Insurance for All (ideally funded by Progressive Income taxation);
- Plan B: Premium Funded Single Payer Health Insurance for All, with tax-funded premium subsidies based on income;
- Plan C: Direct Pay or Play Insurance, with Automatic Enrollment of all without comprehensive employer-provided health insurance into Premium Funded Medicare.
The first three cover Basic Needs without discrimination in health insurance coverage between mainstream health insurance coverage available via Medicare funded in one or another way, which sets them above those plans that cover Basic Needs by recourse to a specific Public Basic Needs Insurance Plan, which given the US legacy is most clearly communicated by calling it Medicaid:
- Plan D: Optional Premium Funded Medicare and Automatic Enrollment into Premium-Funded Medicaid;
- Plan E: Direct Pay or Play Insurance, with a Health Insurance Exchange including Optional Premium Funded Medicare and Automatic Enrolment into Premium Funded Medicaid.
- Plan F: Individual Mandate Pay or Play Insurance, with a Health Insurance Exchange including Optional Premium Funded Medicare and Premium Funded Medicaid.
As one would expect if it was a letter grade, Plan F fails to meet several standards of a desirable health insurance system. And it is still would represent an upgrade from what we will have if the Affordable Care Act system succeeds can get its Health Insurance Exchange Act together, “Plan G” which may be considered to be stand for either “genuinely minimal reform” or “generally ramshackle mess”:
- Plan G: Individual Mandate Pay or Play Insurance, with a Health Insurance Exchange including neither Optional Premium Funded Medicare nor Premium Funded Medicaid, and a separate taxpayer-funded Medicaid with a low income ceiling, only available in those states that have elected to accept it.
It Is The Worst Wheel That Creaks The Loudest ~ Poor Richard’s Almanac
If the ACA Health Insurance Exchange System is able to get itself going, which at this stage I find highly likely, then the associated regulatory reforms are likely to put the brakes on the rampant new price gouging in the system for at least the medium term … that is, until the subsidized private health insurance companies are able to recycle their government-subsidized increase in business into regulatory capture to allow for innovative new approaches to new price gouging (note that the system leaves massive price gouging that has already taken place in place, which is why the cost controls are referred to as “bending the curve” instead of as “eliminating the massive price gouging presently built into the system”).
And if we look at the challenge of moving the system from Plan G to Plan A, then in the words of the New England stereotype, “You Can’t Get There from Here”.
However, because it is such a ramshackle system, even if it succeeds in averting the long term collapse of the private health insurance system was already in process, it will still by subject to a number of stresses and challenges that will open a path to Plan A.
The Individual Mandate Tension. The Pay or Play nature of “Plan G” reduces the size of the insured populations in the Health Insurance Exchanges, and if relatively low-actuarial-cost individuals opt out of the Exchanges, then the result will be to increase the premiums in the exchanges, which will cause a blow-out in the subsidies people qualify for, which undermines the public sector savings from slowing or halting new price gouging. Additionally, the subsidies phase out over the range of incomes that qualify for subsidies, but if people at the upper end of the range still qualify for substantial subsidy, that creates a “premium cliff” when they earn the additional $1 that pushes them out of the subsidized range and all of the remaining subsidy is removed at a stroke.
The role that the Individual Mandate is supposed to play is to ensure that the lower actuarial cost individuals are included in the pool of insured, which both reduces the size of required public subsidy to meet any given defined “affordability” target, and also reduces the number of individuals in various parts of the country that will experience the “premium cliff”. But because of the political controversy surrounding the individual mandate, the sanction attached to the mandate is a relatively low penalty that is nearly toothless in terms of the ability of the IRS to either force payment or punish non-compliance.
The reform that most directly addresses the weakness of the individual mandate and the abuse of the individual mandate rule that will surely emerge over the balance of this decade is converting from a pooled Pay or Play system to a Direct Pay or Play system, with the “pay” component going directly into the account of those that opt into the Health Insurance Exchange system. This reform will also serve to politically entrench the Pay or Play component of the system, which has already been delayed for a year and is likely to be subject to political pressure in the years ahead.
The Medicaid Coverage Gap Tension. With a 5-justice coalition of Corporatist Republican and Obama Administration nominated-Supreme Court judges ruling that the Affordable Care Act could not penalize states that choose to brutalize low income members of their state population by turning down funding for Medicaid Expansion, we have the grotesque Medicaid Coverage Gap, where coverage for those living at or below the Poverty Line, a population dominated in most states by the working poor, is based on whether the state is captured by a radical reactionary Corporatist Republicans or moderately conservative Corporatist Democrats, and whether a Republican Governor is more concerned with a Republican Primary Base Electorate or a General Election Electorate. The system was originally built with an overlap between Medicaid Expansion coverage phasing out at about 140% of the poverty line and the Health Care Exchange subsidies extending down to 100% of the poverty line, but with half of the states opting out, we now see large sections of the country with insurance coverage denied to those most in need.
The first step to fixing this tension is to remove the income range for Health Care Exchange subsidy eligibility. The two extremes of the sliding scale are extended to cover all income. Below the poverty line, the index premium is subsidized to bring it down to 3% of income, while above the end of the sliding scale, the index premium is subsidized, if necessary, to keep it within 9.5% of income. The second step is is to introduce Premium-Funded Medicaid into all Health Care Exchanges for all people with income up to 250% of the poverty line (which is the limit for making subsidy payments directly to insurance companies, rather than via tax rebate), which offers an alternative to the high deductible, high out of pocket limit plans that the working poor will otherwise be forced to choose between.
The most egregious abuse of the subsidized pay or play system is the subsidy to insurance of large, profitable poverty wage employers such as Wal-Mart, which treat the tattered remnants of our social safety net as a subsidy to their wage bill in high cost of living areas where their employees would otherwise be unable to survive on the legal minimum wage. When this reform is combined with the switch to Direct Pay or Play, the direct “pay” contribution from the employer combined with the exchange subsidy will substantially increase the number of working poor that have access to low out-of-pocket insurance with little or not direct premium cost.
The Regulatory Capture Tension. In a number of states, the quality of coverage available in the Health Insurance Markets is likely to decline over time, as private health insurance companies engaged in “institutional innovation”, finding ingenious loopholes and work-around that allow them to boost their profits at the expense of the government that has committed to make for the gap between the second cheapest silver plan and the ceiling income shares for the insured. This will increase the amount of required subsidies above projected levels. Note that this does not contradict the expectation of some medium term success in cost control, since if they are experience, they will over time be incorporated into the fairly brain dead, past-bound projections that governments rely on for budgeting into an intrinsically uncertain future.
The reform that this will require is to provide alternatives that provide an alternative to regulatory restraint on private insurance prices. That is, in other words, to provide the “public option” that was stripped out by inside dealing during the deconstruction of Health Care Reform that resulted in the Affordable Care act. The first step is to introduce Premium-Funded Medicare into all Health Insurance Exchanges, and adding it to the “silver” plan price setting pool, even if the result covers more than 70% of the actuarial cost of insurance. The second step is to promote the optional Co-Op plans into mandatory Co-Op silver plans, tapping into the providers that are part of the already-expanded Medicaid system. The two combined ensure that if regulatory capture in a state treats the health care exchange as open season on subsidies from the Federal government to private health insurance companies in a state, the index price will pass over to the price of a Premium Medicaid plan.
Getting To Plan A
Now, lets look at the still complex ramshackle, but substantially improved in some respects, system that we have in place if all three reforms are successful. Note that there is no intrinsic necessary ordering to the reforms, since any one of the three will still leave the tensions in place which the other two are set forward to address.
We have a Direct Pay or Play system, with the “Pay” side feeding into health insurance markets containing Premium-Funded Medicare, Public-Co-Op and Medicaid plans. Given the systemic flaws of private health insurance, it is unlikely that all individual private insurers will be able to restrain themselves in pursuit of short term profits despite the tendency to drive customers into the public plans. The long term evolution of the health insurance exchanges will therefore be toward a growing share of customers in the exchange on public insurance.
If these reforms are put into place, the other likely long term trend is toward a growing number of companies electing to be on the “pay” versus the “play” side of the Pay or Play system, since the combination of the direct contribution toward the individual account plus the wide availability of public plans on the “pay” side will lead to many employees viewing the health insurance exchange being an upgrade over comprehensive private health insurance. And if as many or more employees support “abandonment” of the headaches of employer provided health insurance as oppose it, that will lead to a widespread shift to the “pay” side of the market.
So under the side effect of these reforms is to put the country on the path to a large majority of people covered on public health insurance. And it is at that point that we can make the push toward a modified version of Plan A, similar to the Australian system which made the concession of an “opt-out” Medicare system with tax breaks offered for those who opted out in favor of private health insurance. The entire complex apparatus of income-based subsidy can be replaced with a flat rate, no ceiling, Public Insurance Tax, directed to the individual’s choice of Medicare for All or Public Co-Op insurance, with Medicaid replaced by income-based Supplemental insurance for deductible and co-pays. Those employers that wish to continue offering insurance gain a tax break in the Public Insurance Tax for incomes up to five times the poverty level, and those individuals that wish to opt out of public insurance can direct their Public Insurance Tax on incomes up to five times the poverty level into the unsubsidized Private Health Insurance Exchange.
So, yes, the ACA is a racmshackle system which, yes, does not overturn decades of price gouging under the institutionalized abused of the status quo system and which, yes, exposes a whole bucketload of rough edges and exposure to problematic long term trends.
And from my perspective, it is hard to see how to get from the ACA system directly into the more economically efficient single payer Medicare for All system.
However, genuine fixes of immediate problems faced by the ACA system are highly likely to make a system that shares more features with a “Plan A” system. And that means that if we fight for genuine fixes of the flaws and gaps built into the ACA system, we are also likely to be fighting to get to a place where we can look around and say, “now here … you can get there from here!”