Democrats and Republicans view healthcare differently. That’s not news. But there are also wide differences in how Republicans view healthcare, too.

Democrats seem to have the same point-of-view on healthcare. They all favor single-payer systems (see Single-Payer v. Market-Oriented Healthcare), or at least you don’t hear any other ideas coming from Congressional Democrats.

Republicans, on the other hand, are having trouble finding agreement among themselves. No one on the Republican side of the aisle is promoting single-payer systems, but there are wide differences in their ideas on how best to replace ObamaCare. This is the main problem facing Congressional Republicans who are trying to put forth new healthcare legislation they can agree on.

John C. Goodman, healthcare economist writing in Forbes, says there are three different schools of thought; “three parallel universes” he calls them. Here is his description of these three different universes:

Universe One: The Cafeteria Reformers

These Republicans want to “pick and choose” the things they like about ObamaCare and the things they don’t like and then retain the good while throwing out the bad. Don’t like a mandate? Throw it out. Want to retain coverage of pre-existing conditions? Just keep it as is. The problem with this approach is that these choices are not independent of one another.

For example, says Goodman, if insurers are not allowed to charge more for a pre-existing condition and people face no penalty for being uninsured, healthy people will stay uninsured until they get sick. Without these people in the marketplace, the price of insurance premiums will skyrocket for everyone else. This is already happening in the ObamaCare exchanges despite the mandates because the threat of consequences was low and the value of the insurance was also low.

If you don’t like the taxes of ObamaCare and repeal them without providing some other source of funding for the subsidies given to low-income Americans, these people will fall off the rolls of the insured. In part this is what happened in the CBO scoring of the AHCA, which predicted that the number of uninsured would rise with the new legislation. (There are other reasons the CBO got it wrong. See How Accurate is the CBO?)

According to Goodman, most of the Republicans in Congress belong in this universe of cafeteria reformers because they don’t really know much about health economics. But to be fair, neither do most of the Democrats.

Universe Two: The Luddite Reformers

The term “Luddite” refers to an Englishman, Ned Ludd, who reputedly smashed two stocking frames in 1779 in a vain attempt to prevent industrialization of the weaving industry. The Luddite Movement of 1811-1816 in Nottingham entrenched the term to mean “anyone who opposes automation, computerization, or technological advances in general.” In a broader sense it is resistance to change.

Goodman refers to the second universe as luddite reformers. Unlike the cafeteria reformers, the luddites understand the complexity of healthcare. They debate the merits of every policy proposal. If there is to be tax relief for people who buy their own insurance, what kind of tax relief? Should it be a deduction? Or a credit? Should it be refundable? Advanceable? Transferable? If people are not going to be allowed to game the system, what penalty should be faced by those who wait to insure until after they are sick?

These kinds of debates have been going on for decades. Although the luddite reformers is a small universe, nevertheless the debates can be vigorous. Refundable tax credits were in vogue during the HillaryCare debate in the 1990s. Then they rose again in the campaign of John McCain only to be disparaged by a vicious advertising campaign by Barack Obama that demagogued the issue. Now they are popular again in some conservative think tanks but not others.

Goodman calls them luddites because they see every problem through the lens of the past and every solution is drawn from the past. They are naturally resistant to any idea they haven’t heard several times before. He says they are universally committed to the managed competition model. Because of the similarity between the vision of ObamaCare and some of their proposals, disparagers of their thinking refer to them as “ObamaCare lite.”

Universe Three: The Visionary Reformers

Goodman says these people really believe in healthcare reform – and there are only three or four of them in Congress. (Needless to say, he identifies with this universe.) These people envision an ideal health care system and then ask how we can get there.

Goodman gives examples:

“In an ideal world people would choose between third-party insurance and individual self-insurance on a level playing field under the tax law. The appropriate amount of each should be determined by individual choice and competition in the marketplace, not by the tax writing committees of the Congress.”

“In an ideal world, chronic patients who manage their own care would be able to manage the money that pays for that care, without tax penalty. HSAs for the chronically ill is an idea I proposed many years ago and it has been a reality for home bound, disabled Medicaid patients for two decades or more. Yet, luddites can’t seem to grasp it – even though virtually every luddite health reform has called for a liberalization of HSAs.”

“In an ideal world, centers of excellence would specialize in the treatment of cancer, heart disease, AIDS, diabetes and other costly health conditions. They would reach out to patients with these conditions through print, broadcast and social media and in other ways. Instead of running away from the sick – with narrow networks and high out-of-pocket drug charges – the way plans in the ObamaCare exchanges are doing – these plans would compete for patients based on price, quality and access to care. To make that work we need a new type of risk adjustment, made possible by Health Status Insurance – something that would have happened naturally had the free market not been completely suppressed. Yet, this is a concept the luddites have never heard of.”

“In an ideal insurance system, group insurers (with 94% of the market) would not be allowed to dump their sickest, most costly enrollees onto non-group insurers (with 6% of the market).

“Finally, an ideal system does not trap low-income families into inferior health insurance with rationing by waiting (Medicaid). Instead, these families should be able to use their Medicaid dollars to buy into any plan available in the private marketplace. As their income rises and falls, and as eligibility comes and goes, there is no reason for anyone to be forcibly ejected from a plan that meets their needs.”

Goodman’s proposals include:

• A new type of insurance – Limited Benefit Insurance
• A new type of HSA – Roth HSAs
• A new type of risk adjustment – Health Status Insurance
• A new type of tax treatment for employer plans
• Integrating Medicaid into the private insurance system
• Protecting the individual market against unreasonable “dumping”

 

These proposals would move us much closer to an ideal healthcare system but unfortunately they are too new for the luddite reformers and too complicated for the cafeteria reformers to have any real chance of being incorporated into the new healthcare bill. But now you know why Republicans have so much trouble agreeing on the ObamaCare replacement!

 

 

Webster’s dictionary defines demagoguery as “appealing to the emotions and prejudices of people in order to gain political power.” This accurately describes the Democrats in Congress as Republicans discuss Medicaid reform.

Medicaid is badly in need of reform. There is no doubt of that. ObamaCare greatly expanded this second-class healthcare by about 15 million Americans bringing the total enrollment numbers in 2017 to 74.6 million according to Medicaid.gov. One in five Americans is on Medicaid.

The cost of Medicaid to the American taxpayer was $545 billion in 2015, a growth of nearly 10% over 2014. The rate of growth slowed down in 2016 but the cost grew to $574 billion. Projections for 2017 are for slower growth in federal spending but increased growth in state spending.

ObamaCare can be fairly described as mostly an expansion of Medicaid. This change in the healthcare law expanded the number of insured by 20 million, but 15 million of those were enrolled in Medicaid. This happened for two reasons:

• Expanded eligibility in those states agreeing to Medicaid expansion
• Mandates that forced previously un-enrolled eligibles to enroll to avoid a tax

 

Republican Reforms

Republicans have been working to reform Medicaid in the states for the last ten years. The modern era of Medicaid reform began in Indiana in 2007 under Governor Mitch Daniels who signed the Healthy Indiana Plan (HIP) that introduced consumer-directed insurance options, including Health Savings Accounts (HSAs). Two years later Rhode Island applied for a Medicaid block grant that gives states a fixed sum of money in return for Washington’s regulatory forbearance.

According to The Wall Street Journal editorial board, both programs were designed to improve the incentives to manage costs and increase upward mobility so fewer people need Medicaid. Over the first three years, Rhode Island saved some $100 million in local funds and overall spending declined about $3 billion below the $12 billion cap. The fixed block grant encouraged the state to innovate, such as reducing hospital admissions for chronic diseases or transitioning the frail elderly to community care from nursing homes.

Rhode Island joined the ObamaCare Medicaid expansion but has held “per member, per month “ spending – the category of block grant adopted by the House – to a minus 0.5% trend over the last five years without cutting eligibility or services. Notably, that measure excludes patients added under Medicaid’s ObamaCare expansion, who tend to be healthier and thus require less spending than the typical enrollee. As a result, overall per member, per month costs are falling 2.5% a year.

Even far-left liberal New York Governor Andrew Cuomo has accepted the block grants. After a scandal where federal investigators concluded the state had systematically manipulated Medicaid payment formulas to generate federal payola for more than two decades, Cuomo agreed in 2014 to a Medicaid waiver that caps “global spending” at the growth rate of long-term healthcare inflation (3.6%).

Vice President Mike Pence, formerly Governor of Indiana, updated the HIP plan with a reform called HIP 2.0 in 2015. The architect of this, Seema Varma, is now administrator of Medicaid nationally. Their insight was that able-bodied, working-age adults living near the poverty level need a different type of coverage than do Medicaid’s most vulnerable beneficiaries.

In other words, those adults with the capacity to work should be incentivized to do so and ultimately to get off Medicaid. Medicaid was never really intended for such people until ObamaCare brought them into the eligibility ranks.

The HIP plan requires enrollees to pay 2% of their income to an HSA. The first $2,500 is picked up by the state, the money rolls over, and unused consumer contributions are refunded pro rata when they leave HIP 2.0. This plan is working well in Indiana.

According to a recent audit by the Lewin Group, 70% of Hoosiers in HIP 2.0 make their regular contributions even though 85% of them are below the poverty level. If they fail to keep up their contributions they are bounced back to basic Medicaid. HIP 2.0 also is paired with skills training, job searches and career counselors to help people move from public assistance to the workplace.

These kinds of reforms are currently happening in 21 states, showing that programs with incentives to save money and provide training and job searches can lower costs and move people off the Medicaid rolls onto employer-provided or private insurance, saving money and providing improved healthcare.

The Wall Street Journal editorial board says this progress is being ignored by Democrats:

“This reform honor roll could continue: the 21 states that have moved more than 75% of all beneficiaries to managed care, Colorado’s pediatric “medical homes” program, Texas’s Medicaid waiver to devolve control to localities from the Austin bureaucracy. But liberals and the media ignore this progress as they try to frighten the GOP into doing nothing.”

 

Finding ways to improve Medicaid – and ultimately to move people from government healthcare to private insurance – is the next important step in fixing the problems with our healthcare system that have only been exacerbated by ObamaCare. This is the Senate’s chance to make that step.

 

Let’s start by agreeing that the goal is the best possible healthcare treatment for every American. That means the best access to medical care. But achieving that goal is much more complicated than it seems. To understand this complexity it is necessary to address some common assumptions that may seem intuitive but in fact are misleading.

Having health insurance leads to healthcare treatment. The assumption many people make is that having healthcare insurance leads to getting healthcare treatment. In fact, the wrong kind of healthcare insurance may be an obstacle to healthcare treatment. The best example of this is Medicaid. Since only about half of doctors accept Medicaid patients (and most of those limit the number of Medicaid appointments) it is very difficult for these patients to actually receive medical care. Furthermore, they are prevented from paying cash to those doctors who don’t accept Medicaid since this is illegal – the doctors could lose their licenses. As a result Medicaid patients have poor access to healthcare and use ERs for primary care 40% more than even the uninsured according to an Oregon study.

ObamaCare exchange private insurance is better than Medicaid, but not much. More doctors will accept this insurance than Medicaid, but the deductibles are so high ($6000 average for individuals; $12,000 for families) that they often can’t use this insurance, either. They have insurance, but still lack good access to healthcare.

Having any healthcare insurance is better than having none – This seems intuitive, but again it may be inaccurate. If your insurance is Medicaid, you may face the access problems I discussed above. For this reason and others, one-third of all Medicaid-eligible patients before ObamaCare did not enroll in this free government healthcare insurance.

Why not enroll in a free healthcare insurance program? Without Medicaid the uninsured can negotiate cash discounts from virtually any doctor they choose to see. Therefore, they have better access to healthcare without insurance. True, they risk catastrophic medical bills if they become seriously ill but many accept this risk. In reality, numerous medical studies have demonstrated that the uninsured have better healthcare outcomes than those on Medicaid.

The Congressional Budget Office (CBO) is non-partisan and accurate – If only this were true! (see my recent post How Accurate is the CBO?) In reality, the CBO has demonstrated time and again that it leans left with overly optimistic predictions about ObamaCare and overly pessimistic predictions about the American Health Care Act. Here is a graph showing the accuracy of the CBO in predicting ObamaCare enrollment:

The CBO is using faulty data with unreasonable expectations for the status quo (ObamaCare) when comparing it to the proposed new healthcare (AHCA). Most importantly, CBO predictions reflect what they think people will choose to do; not what the law will force people to do. Many will choose to drop their Medicaid or ObamaCare exchange insurance if freed from the government mandates that forced them to enroll in a plan they didn’t want.

The status quo (ObamaCare) is better than the proposed change (AHCA). Kimberley Strassel of The Wall Street Journal called the AHCA a “home run”. The AHCA is not perfect – far from it. It’s just so much better than ObamaCare that she characterized the improvement that way. But the AHCA is a good start for the process of finding a better way. (It could be improved by making the tax credits means-tested rather than flat to increase support for poorer Americans with less for those with higher-incomes.)

Left out of the discussion is the fact that ObamaCare is in a death spiral and will certainly collapse completely within a year. Many states will be down to one insurance provider in 2018 and some will have none! So the status quo is unacceptable and a better system must be found.

Free insurance for everyone is a good thing. Of course, there’s no such thing as “free insurance” because the taxpayers are paying for it. But the goal of Democrats is to provide “free insurance” for everyone. Senator Bernie Sanders likes to call it “Medicare for all.” The assumption here is that this solves all the problems because everyone will have health insurance. Yes, they may have health insurance – but they won’t necessarily receive healthcare.

This kind of system is referred to as “single-payer” healthcare – a variant of socialized medicine. The government pays all the healthcare bills – and is in complete control. That means they choose your doctor, your appointment time, and even your treatment – if you get treated at all! In such systems the government routinely decides that anyone over a certain age is no longer eligible for some treatments.

In every socialized medicine system in the world, (Canada, Great Britain, Sweden) the government controls costs by controlling access to healthcare. This not only delays treatment but leads to poorer healthcare outcomes. If you compare cancer treatment outcomes in these countries to our country we are dramatically better. That’s why anyone from these countries with the money to afford it comes to the U.S. for their healthcare. (see my recent post Single-Payer v. Market-Oriented Healthcare: Which is Better?)

But you don’t need to look outside this country to see the failure of socialized medicine. Right here in America we have a large socialized medicine system – it’s called the VA. The entire VA system is paid for and controlled by the government. These patients all have health insurance – yet many have died waiting to get medical treatment.

In 2014 it was revealed this tragedy was happening at the Phoenix VA and many others as well. Although there have been some improvements since then, the same basic problems persist. The only real solution is giving veterans the freedom to seek their healthcare through private physicians outside the system. Socialized medicine always leads to delayed treatment – and poorer healthcare outcomes.

ObamaCare has added 20 million Americans to the ranks of the insured – but 15 million of them are on Medicaid and the other 5 million have such high deductibles they can barely use the insurance they have. I believe there are solutions to these problems but it will not be easy in the politically charged atmosphere of Congress and with a mainstream media dedicated to promoting the distortions of Democratic talking points.

Sooner or later, there will come a tipping point when the American people will have to decide if they want socialized medicine or they want to retain the freedom to choose their insurance, their doctor, and their treatment. If they choose what Democrats are pushing, the once envied American health care system will become just another government run program.