How should centrists respond to Senator Warren on health care?
Centrist candidates have to do a better job explaining what they are for. A centrist/progressive health plan would expand coverage and reduce out of pocket health care expenditures but improvements would be smaller than plans advanced by Senator Warren. The primary advantage of the centrist approach to health care is that it insulates health care from fiscal shocks, government shut downs and the whims of Congress.
Senator Warren has adopted the slogan I have a plan for that. In response to criticism of Medicare for all, she said she did not understand why anyone would run for president to argue about what could not be accomplished, a compelling point.
I agree with Senator Warren that centrists need to spend more time advancing and explaining plans that would achieve progress. Simply saying I want to add a public option to state exchanges, which currently only serve around 5 percent of the working population, is not a plan towards progress. By contrast, Medicare for All would bring the nation to universal coverage, eliminate all premiums because it is tax financed and would substantially cut out of pocket health care expenses.
However, there is at least one major problem with this plan. The plan as written gives Congress and the President ultimate control over all health care expenditures and over compensation rates to providers. This is probably not a sensible approach because the priorities of government change with each election and under a purely public health plan chronic fights over government closures and and the debt limit would impact health expenditures and compensation to health care providers.
While we don’t want to run for president explaining what can’t be done, an answer to Senator Warren’s challenge might start with the slogan I have a viable plan for that.
A comparison of competing health plans should be based on how well these plans achieve goals. A viable progressive/centrist health plan would seek to — (1) reduce out of pocket costs, (2) expand coverage and reduce premiums for self employed people and workers at small businesses, (3) improvements in the safety net for lower income people who currently don’t have comprehensive insurance, (4) controlling the cost of prescription medicines and (5) remain insulated from fiscal and political pressures and shocks.
The remainder of this memo seeks to describe a progressive/centrist (not an oxymoron) health plan that makes progress on the first four goals and is both fiscally and politically viable.
Goal One: Reduce out of pocket health care costs and financial exposure for people with health insurance.
The growth in out of pocket costs for people with health insurance coverage is largely due to the increased popularity of high deductible health plans coupled with health savings accounts. Many people around 40 percent of household choose a health plan with high deductibles and high out-of-pocket limits. These plans have a minimum deductible and allow high out of pocket limits on household expenditures. As a result, households covered by high deductible health plans face substantial financial exposure even though they have comprehensive health insurance.
The rules governing these plans allow people to save funds in a health savings account but many people either do not have enough earnings to contribute to their health savings account or make health savings account contributions by reducing contributions to 401(K) plans. The growth of high deductible health plans and health savings accounts results in many low and mid income people having to choose between saving for health care by contributing to their health savings account or funding their retirement by contributing to a 401(k) plan.
The rules favor high income people with a high marginal tax rate over low income people. The financial incentives result in many people choosing to delay necessary medical procedures or to forego prescription medicines for chronic costly health conditions.
Some of the problems associated with higher deductibles and higher out of pocket limits can be mitigated through modifications to rules governing health savings account and high deductible health plans.
One change involves the creation of a tax credit for contributions to health savings accounts for low income people who do not benefit much from the deductibility of contributions. This change may encourage some lower income households to contribute to health savings account. However, even with this modest change low income households will have to trade off contributions to health savings accounts with other financial goals like saving for retirement or paying down student debt.
A second change involves allowing health savings accounts to be paired with health plans that have lower deductible or high coinsurance rather than a high deductible. Current rules only allow contributions to health savings accounts for higher deductible plans. Plans with lower deductibles or out of pocket limits will entail higher premiums somewhat limiting the effectiveness of this option.
A third policy change involves requiring insurance companies pay for prescription medicines prior to the deductible being met. This approach is similar to current rules governing payments for certain preventive tests and procedures and might be achievable through an executive order or a rule change originated by the department of health and human services rather than a new law. This policy change would lead to increase in premiums, unless the lower cost on prescription drugs was funded through a subsidy from the government or the pharmaceutical industry.
These modifications to health saving accounts would make high deductible health plans less expensive health and more palatable to lower income people. A shift towards higher deductibles could lead to lower premiums, relative to lower deductible health plans. This shift in demand for different insurance plans should be considered when evaluating the cost of the proposal. These modifications would reduce the tendency for people to forego necessary medical treatments.
These modifications do not do much to mitigate the tradeoff between the need to save for out of pocket health expenses and the need to save for retirement. Both of these goals are urgent for older workers nearing retirement. One way to reduce this tradeoff for older workers would be to allow workers over the age limits of 50 the right to purchase Medicare.
Reductions in out of pocket costs and financial risk achieved through modifications to rules governing health savings accounts and a new Medicare buy in option are not as considerable as either Medicare for All orMedicare for America. Both plans promise extensive reductions in out of pocket costs and it is difficult for the progressive centrist goal to compete with the Warren plan on this goal.
Goal Two: Expand Access to state health exchange insurance for free lance workers and employees of small businesses
The ACA facilitated the purchase of subsidized comprehensive health insurance on state exchanges at relatively reasonable premiums even if they have pre-existing conditions,
The debate over the rules governing state exchanges revolved around the need to create viable state exchange markets and the desire to maintain incentives for firms to continue to offer coverage to their employees. The final ACA rules favored the maintenance of incentives to continue employer based coverage over the creation of robust state exchange marketplaces. First, the ACA, phased out premium tax credits for households with income over 400 percent of the federal poverty line. Around half of the working age population would not receive any subsidy for a health plan purchased on a state exchange and many people with income below the threshold receive a relatively small tax credit. Second, the ACA rules prevent any person with an affordable offer of “affordable” employer based from claiming the premium tax credit.
The ACA rules have resulted in a situation where around 8 million people obtain health insurance from state exchanges compared to around 160 million people with employer based policies. Even after passage of the ACA, many free lance workers and employees of small firms which cannot afford employer based health insurance pay more for health insurance than their counterparts at larger firms. The ACA did not totally fix the job lock problem.
Several policies could be implemented to expand state exchange health insurance coverage for free lance workers and employees at small businesses. First, the premium tax credit could be expanded so that it no longer phases out at 400 percent of household income. Second, the rule preventing taxpayers claiming the premium tax credit if they have an offer of affordable employer based insurance should be repealed. (The House Democrats are currently proposing a modification but not repeal of this rule.). Third, the purchase of health insurance on state exchanges would be subsidized by proceeds from the wealth tax proposed by Senator Warren.
One of the advantages of Medicare for All and a competing bill Medicare for America is that both bills substantially reduce costs for small businesses that currently provide health insurance to their employees. The Medicare for America bill appears to appears to favor small firms and their employees over large firms.
These progressive centrist policy proposals also help free lance employees and small businesses and their employees. The changes should eliminate the practice of people picking a job based on the health insurance offer rather than the value of the job. This change should stimulate economic growth.
Goal three: Sew the holes in the safety net
One of the most disappointing aspects of Republican opposition to the ACA was the court ruling on Medicaid expansion and the opposition to Medicaid expansion in some states. Medicaid is not perfect but it effectively provides low cost insurance to low income households. The opposition to this program seems mean spirited and counterproductive. A centrist progressive plan would seek to expand Medicaid to all states by addressing the legal issues raised by the Supreme Court on this issue.
Some counties in some states have very few health care providers offering insurance through state exchanges. Some proposals allow states to provide Medicaid as an option on state exchanges. A centrist/progressive health plan would include this option.
The Trump administration issued an executive order that allowed for low cost temporary health plans for people who could not afford premiums on ACA plans. These plans entail large gaps in health insurance coverage and undermine state exchange markets. Many of these people would be better off with Medicaid than with private plans offering incomplete coverage. One approach that I have considered and written about in the past involves the combination of a comprehensive health plan with an annual cap combined with automatic eligibility for Medicaid once expenditures exceed the annual cap. The Warren approach would completely solve the safety net problem because both Medicare for All and Medicare for America make everyone eligible for reasonably priced health care. The progressive/centrist approach makes good progress on this point but is not as expansive as Warren’s plan.
Goal Four. Do something meaningful about prescription drug prices.
It seems as though concerns about prescription drugs have been part of the political debate forever. I remember it being an important topic in the Clinton/Dole debate. The main discussion points on drug prices — allow negotiation between government health plans and the pharmaceutical companies and allow Americans to purchase drugs from Canadian pharmacies are pretty superficial.
The core source of high pharmaceutical prices involves the monopoly power associated with patents. The pharmaceutical industry argues that patents are needed to allow companies to recoup the high cost of researching and developing new drugs. This argument has validity. Pharmaceutical companies deserve compensation for new highly effective drugs.
One part of the problem is that pharmaceutical companies have become adept at abusing the patent process. Pharmaceutical companies often obtain patents on new drugs that are not clearly more effective than current drugs and withdraw the old drug once the patent expires. Brand name pharmaceutical companies can and do take actions to delay the introduction of generic alternatives. The FDA tries but often fails to speed up this process. Often mergers between brand name and generic pharmaceutical companies. which reduce competition are approved.
Congress is considering some interesting anti trust measures to combat abuse by the pharmaceutical industry. Cornyn and Blumenthal propose defining patent thicket practices as anticompetitive to make it easier to bring antitrust lawsuits against drug makers that use the patent system to block competition. Grassley and Klobuchar propose giving the FTC power to go after pay-for-delay tactics, when a brand-name drug maker pays a generic company to delay entry of a low-cost alternative.
These anti-trust plans have merit and have some support on both sides of the aisle. They are progressing very slowly in Congress, a testament to the political power of the pharmaceutical industry. Anti-trust proposals are only part of the solution. Part of the solution needs to involves patent law and the way the FDA regulates the industry routinely gives new patents to drugs providing limited benefits and only slowly approves new generic alternative to brand name drugs.
However, part of the process needs to involve changes in the way patents are awarded, regulations governing patents on new drugs, which provide limited benefits compared to existing drugs and policies that will speed up the development and approval of generic alternatives to brand name drugs. Progress on these fronts has been painfully slow.
The impact of high drug prices on health care costs is getting worse due to the advent of new expensive gene base medicines. The FDA has recently approved a drug that cures a rare previously fatal disease, which must be given to infants prior to the age of two. The price for a single dose of this life threatening drug is $2.0 million dollars. Some insurance companies have refused to cover the cost of the drug citing the Its potential impact on premiums and the ability of the company to cover other services.
More drug gene based therapies are in the pipeline and the impact of these new drugs on health care costs is likely to grow. Policy makers may have to consider a new source of payments for these new drugs. One potential program would involve payments received from an excess profits tax on pharmaceuticals.
None of the candidates are doing a particularly good job in explaining how they would reduce or even control the increase of pharmaceutical prices. The most often cited policy proposal, increased negotiation between the pharmaceutical companies and Medicaid and Medicare is a panacea. A more comprehensive policy list would include several additional policies discussed here.
Goal five: Minimizing the impact of fiscal policy on health expenditures and health provider compensation
First, let’s concede that many countries around the world have excellent national or public health services. However, these services were created when health care was a much smaller share of the economy. There has never been a case of a country with a private health care system as large as the one in the United States moving towards a purely public one.
The countries with a dominant public system tend to offer competition from private options. Medicare for All gets rid of all private insurance. By contrast, an alternative plan. Medicare for America does allow for private options.
It is important to recognize that both Medicare for All and Medicare for America are misnomers. Both bills end the existing Medicare program and replace it with a new mire generous universal health care plan. People covered by the new plans would not need to purchase insurance to cover gaps in coverage. The financial protections stemming from the Medicare Trust fund and insulating Medicare from the politics of the annual budget will no longer exist if either Medicare for All or Medicare for America were enacted.
Medicare for All and Medicare for America would both result in the government having a substantial impact on health expenditures. Both plans as written would result in substantial reduction in health care provider compensation relative to the current system.
Both Medicare for All and Medicare for America would become a large share of the federal budget. Medicare for All is financed entirely with tax dollars. Every time there was an unexplained increase in health expenditures or an increase in the government deficit Congress and the President could get involved. In response to budget pressures Congress or the President through the Department of HHS could refuse to cover certain procedures or could cut a compensation for doctors.
The annual budget and debt limit fights in Washington could under Medicare for All or Medicare for America lead to increased debates on covered services, compensation rates, and even disruption in services. These conflicts will grow in intensity as the United States population continues to age and the country’s fiscal condition worsens. After the adoption of Medicare for All or Medicare for America a government shut down or a debt limit conflict could potentially lead to a disruption in medical services.
My background as a financial economist who worked for the U.S, Treasury forces me to consider fiscal issues ignored by many health care economists. The successful implementation of Medicare for All in the long term involves sound and stable fiscal policies. I am not optimistic that sound or stable fiscal policies are possible in the United States.
Goal Six: Minimize interference by government on payments for abortion and other reproductive services
The current draft of the Medicare for All bill includes language that exempts the Medicare for All from the Hyde Act, which prohibits the use of any federal payments for abortion services. Political power moves from one party to the other in the United States. At some point in the future there will likely be a period where Republicans control the presidency and Congress. Should Medicare for all be enacted a future Congress is likely to apply the Hyde Amendment to Medicare for All, thereby, ending all insurance payments for abortion services.
Senator Warren would transform health care and health insurance in the United States. Her plan if successfully implemented would result in universal coverage and lower health care costs. By contrast, most of the centrist currently under consideration make incremental changes to state health care exchanges a small share of the overall insurance market and ignore or have little impact on many health insurance problems. The progressive/centrist proposal presented here does a much better job in addressing a wide range of health care and health insurance problems in addition to shoring up state exchanges.
The Medicare for All approach would give the government direct control over all health care coverage and compensation decisions. Under Medicare for All your coverage and doctor compensation would be affected by fiscal shocks and political whims. After passage of Medicare for All, a future conservative president and Congress could easily enact a new Hyde Amendment eliminating all health insurance payments for abortion services.
Medicare for All would have great upside in a world where it was always administered by people who believe in or have some support for the concept. Universal publicly run health insurance programs have some support from all ends of the political spectrum in European countries. Broad support for a publicly run universal health insurance company does not exist in the United States. Instead, we have chronic fights over whether the government will remain open or we will even pay our debts on time. One would think that the Trump Administration would give liberals a sense of what could go wrong when government is run by people who don’t believe in government
The progressive/centrist reforms described here involve new subsidies and financial incentives but basically maintains the ability of private parties to create contracts. The new and improved regulations do not go as far as Medicare for All but these changes are real progress. The primary advantage of the progressive/centrist option over the Warren approach is that it does a better job in insulating health care from fiscal shocks and disputes and the whims of future governments. This point leads to the following question — Does it make sense to run for president to advance unsustainable policies?
David Bernstein is the author of Defying Magnets: Centrist Policies in a Polarized World. This policy primer is available at Kindle and Amazon at the link below.