Defenders of the Affordable Care Act (ACA) often claim that Republican opposition has failed to offer any viable alternative plans for healthcare reform. The “Party of No” is merely standing in the way of a potential solution, when the current healthcare system is clearly unsustainable. Something must be done, and the ACA is something. Therefore, by the transitive property, it must be done. Q.E.D. But agreeing that the status quo is unsustainable is not the same as thinking the ACA is the way forward. Over the next few posts, I hope to outline what a market-based solution to exploding healthcare costs and the problem of the uninsured would look like.
Make health insurance less employer centric
Our current healthcare scheme’s focus on employer-provided health insurance is a relic of the New Deal era. Federal tax policy encourages employers to provide health insurance as a form of non-taxable income. But as workers become more transient, the employer-centric healthcare scheme has become anachronistic. Eliminating the special tax treatment of employer-provided as opposed to individually purchased healthcare plans will lower costs for the self-employed, insulate workers from the risk of losing their insurance as a consequence of a layoff or job change, and allow for a greater variety in the types of coverage that are offered.
For instance, individually purchased health insurance can allow for the development of multiyear health plans in which the beneficiary pays a rate that is fixed for a period of time regardless of changes in their condition or risk profile. Similar to life insurance, young and relatively healthy persons would pay higher premiums initially, but could ensure that they are covered at those same rates later in life as their demand for health services is likely to increase. Such plans are generally unavailable in the employer-provided market because it’s impossible to predict how long a worker will remain with their current employer. Health plans therefore tend to be renewed on a yearly basis, meaning that a formerly insurable consumer can lose their insurance if they develop a costly condition. Shifting to individually purchased plans will allow for the development of new coverage packages to insure against such risks.
Allow for variety in levels of coverage
State laws across the country mandate certain minimum levels of care that health insurance plans are forced to provide. But these minimum coverage requirements are often driven by the rent-seeking activities of healthcare and pharmaceutical providers and special interest groups. Individual consumers are better informed about their own potential coverage needs, and insurance companies should be allowed to provide a variety of coverage for services according to consumer demand and willingness to pay. Liberals like to argue that “Nobody should be a heart attack away from bankruptcy.” But minimum coverage requirements stand in the way of providing high deductible catastrophic care insurance that would allow for people to protect themselves from such low-probability, high-cost events.
Such plans would not kick in until the costs of care begin to become prohibitive. More predictable and routine doctors visits would be paid for out of the patient’s pocket. The argument against high deductible policies is that they deter consumers from seeking medical care at earlier stages when diseases or conditions are more easily treatable, but the empirical data justifying that argument is specious. In fact, consumers who purchase high deductible plans actually have similar health outcomes and consume more preventive care services.
Next Week: Internalizing healthcare costs to decision makers and opening insurance companies up to greater competition