Plan For America Q+A: Health Care
Entire contents copyright 2020 by Terry E. Nager , CFP®
1. What is the guiding principle for the universal health care under the Plan For America (PFA)?
The guiding principle for providing universal health care under the PFA is: “NO ONE (meaning the taxpayers) WOULD HAVE TO PAY FOR SOMEONE ELSE’S HEALTH CARE!”
2. What type of health insurance coverage would be available under the Plan For America (PFA)?
- Comprehensive, high-quality health care insurance would be available to every U.S. citizen.
- The coverage under the “standard plan” would include, among other features, dental, orthodontic, vision, prescription drugs, hearing aids, long-term care (nursing home) and virtually any health care need.
- A $1,200 annual health savings account is included as an essential part of the “standard plan.”
- Children can remain on their parent’s plan up to age 26.
3. What is the “standard plan” and how would it work?
The “standard plan” is a high-quality, comprehensive health insurance policy that would include coverage for dental, orthodontic, vision, prescription drugs, hearing aids, extended care (nursing home), and virtually any health care need:
- It would include a health savings account in the amount of $100 per month or $1,200 annually.
- It would include a guaranteed insurability option for life and disability insurance.
- The maximum annual cost (aside from the premium) would be $1,200 for the combination of the co-pays + the deductible — so that the health savings account would cover the total of the co-pays + the deductible each year. Therefore, the annual premium would be the only out-of-pocket cost.
- Each insurance company that offered policies through the FAST would have to offer the “standard plan” but could do so with its own premium charge and with its own combination of co-pays+ deductible as long as it did not exceed the $1,200 each year.
- In addition to the “standard plan,” the participating insurance companies could offer different variations in other policies.
The maximum insurance coverage under the “standard plan” would be $1,000,000; however, additional riders would be available to increase the coverage. This additional coverage would be available at normal rates without regard to pre-existing conditions or underwriting guidelines if purchased at the time of initial enrollment in the FAST. Otherwise, normal underwriting requirements would have to be met to avoid “adverse selection.”
4. How are pre-existing health problems handled under Plan For America?
When the participant first enrolls in the For America Security Trust (FAST}, he/she would have the opportunity to purchase health insurance at the “standard plan” rate regardless of pre-existing health conditions, age, or occupation.
If an existing FAST plan policyholder wanted to switch to another insurance company, he/she would have to qualify in accord with the new insurance company’s underwriting guidelines and give evidence of insurability in order to avoid what is called “adverse selection.”
- Adverse selection occurs when people with health problems want to buy insurance only after they find out that they have significant health problems, which is very negative for insurance company profitability.
5. What is the lifetime benefit under the “standard plan?”
The maximum lifetime insurance benefit under the “standard plan” is $1,000,000.
Additional insurance riders would be available to increase the maximum ($2,000,000, $3,000,000 or more). If additional coverage was purchased at the initial enrollment, there would be no underwriting requirements. If, however, more coverage was purchased AFTER the initial enrollment, underwriting requirements would be mandatory to avoid “adverse selection.”
6. What would happen if the maximum $1,000,000 payout was reached and the insured had not elected to increase his/her coverage?
The medical costs over $1,000,000 would be paid by the insured personally if he/she has the means to do so.
If the insured did not have the means to pay the medical costs, then the For America Security Trust (FAST) would grant the participant an interest-free loan to cover the medical cost with no ultimate cap on the amount.
If the participant was in the retirement/payout phase, his/her payouts would be reduced to the guaranteed amount and any amount over the guarantee would be used to repay the FAST.
- If the participant died before the loan was repaid, his/her spouse and/or dependent children would continue to receive the guaranteed minimum until the loan was repaid.
- If the spouse then died and the children were no longer dependent, the full amount of the monthly payment would go to the FAST until the loan was paid in full.
- If the loan amount exceeded the participant’s balance in his/her FAST account, the guaranteed insurability purchase option for life insurance (that is part of the “standard plan”) would be triggered and would increase the amount of life insurance each year so that the FAST balance+ the life insurance would= the total loan.
- The reasoning behind the loan balance being equal to the FAST balance+ the life insurance is that, in a worst-case scenario, the FAST would recoup all of its money in 25 years (4% annual guarantee on 100% of the balance would pay off in 25 years).
- The life insurance premium rates for the guaranteed purchase options (for the purposes of guaranteeing the interest-free loans) are uniform regardless of age or sex; therefore, the life insurance would be affordable and would most likely be paid for via interest-free loans.
- Once the loan was fully repaid, the full amount of the monthly cash flows would go to the heirs.
If the participant was in the accumulation phase, then (as in the retirement phase) the life insurance purchase option would be triggered with no maximum as soon as the loan amount exceeded the balance in the participant’s FAST account. Furthermore, the participant may also want life insurance for family protection and that could also be purchased. (The formula for life insurance purchase is in the section called Social Safety Net, Question 7-S).
- During the accumulation phase, any earnings on the participant’s FAST account in excess of the guaranteed amount would be paid to the FAST as a loan repayment.
7. How are the health insurance premiums collected under the For America Security Trust (FAST) and how are they treated for tax purposes?
Under the FAST, plan the health insurance premiums (as well as life insurance and disability insurance premiums) would be paid by the policy owner via payroll reduction. Separate arrangements would be made for those who are not employed to either make payments or receive interest-free loans if they qualify.
All insurance premiums paid into the FAST would be 100% tax deductible, both state and federal, with no means testing, no alternative minimum tax exposure, and no other present or future tax schemes to lessen this benefit.
8. What about policies other than the “standard plan?”
Competition and innovation should drive the insurers and the health care providers to market different plans that would serve varying markets. For example, some plans may broaden the definition of health care to cover alternative health care methods in addition to traditional medical care such as: acupuncture, chiropractic, holistic, nutrition, Christian Science, etc.
- The competition would stimulate innovation to drive costs down and efficiency up.
- Quality care would be ensured because multiple health care plans would be available as would many health care providers — all of them competing on quality and price.
- There would probably be a market for a higher cost premier type plan, but the tax deductibility would have to be limited to two times the “standard plan” so as not to be just a tax-avoidance gimmick.
9. How would the health savings account work?
The features of the heath savings account would include:
- The health savings account would have a $100 per month premium that would be tax deductible.
- Under the “standard plan,” the $1,200 annual amount would be used to pay for the deductible and the co-pay requirements for health care services received during the course of the calendar year. The maximum amount of the deductible+ the co-pays would be $1,200 in any calendar year.
- If at the end of the year a portion of the $1,200 was not spent on health care, whatever is left over can be withdrawn tax free.
- This will provide incentive to not overuse or abuse health care because each participant will be spending part or all of his/her own $1,200 tax-free dollars each year.
- Therefore, the amount spent on each health care service will probably be questioned. This should bring overall health care costs down but would, at the same time, provide assurance to the insured that affordability would not preclude him/her from getting whatever care was required.
10. What is the income qualification schedule to be eligible for the interest-free health care loans from the For America Security Trust (FAST)?
Each American citizen over the age of 26 (or under age 26 if not covered by a health insurance policy through a parent or guardian) would be eligible for an interest-free FAST loan to pay for his/her annual health insurance premiums in accord with the following schedule:
Annual Health Care Insurance Loan Schedule
11. What if a For America Security Trust (FAST) participant wanted to opt out of the health insurance part of Plan For America (PFA)?
The primary and most important point is the fact that participation in PFA is voluntary, not mandatory. However, if an individual participant wanted to opt out of the health insurance part of PFA, then he/she should have the right to do so.
It is important that the burden of the participant’s health care expenses not be shifted to the taxpayer or anyone else via emergency room care.
To opt out, a participant would have to meet two requirements:
- First, the individual would have to place $100,000 in an investment or interest-bearing account under the control of the FAST to serve as a first line of defense against health care costs.
- Second, the opting out participant would be required to purchase a guaranteed insurability option to purchase the “standard plan” at the standard rate.
If the opting out participant had a health care expense that exceeded the $100,000 and could not cover it out of personal assets, then it would be paid with an interest-free loan from the FAST against his/her FAST account.
- The repayment of the loan would be in accord with the FAST policy for repayment of interest-free loans.
- Market returns in excess of the guarantees would go toward repayment of the loan.
If the opting out participant’s investment account dropped below the $100,000 level for a 30- day period, then the participant’s option to purchase the “standard plan” would be automatically triggered.
12. What if an insurance company that was providing insurance through the For America Security Trust (FAST) got into financial difficulty?
If an insurance company that was providing insurance through the FAST got into financial difficulty, then that company could end up going bankrupt and its stockholders lose everything.
In the event of bankruptcy, the insurance policies would be taken over by competitors that offer insurance products through the FAST at their existing premium rates on a guaranteed basis with no penalty for pre-existing conditions.
The primary point is that no policyholder could lose his/her coverage and that the taxpayers would not have to pay for anyone else’s health care.
13. Who should pay for the health care for non-U.S. citizen workers and their dependent families living in the USA?
Non-citizen workers and their dependent families, whether they be legal or not, need to be covered by health insurance because no one (meaning the taxpayers) should have to pay for any else’s health care.
As it works now:
- From the standpoint of fairness, businesses and individuals have hired non-citizen workers primarily because they are willing to work for lower wages.
- When these workers and their families have health care needs, they use the emergency rooms of hospitals. The taxpayers, or other health care customers, wind up absorbing the cost through increased charges for paying patients.
- All U.S. citizens are subsidizing these individuals and businesses that get to hire this low-cost labor and have the rest of the people pay for it.
To remedy this situation:
- Employers should be held liable for the health care costs of their workers and dependent families if they are uninsured.
- If this requirement were in place, then employers would require proof of health insurance as a condition of hiring.
- The employers would be forced to pay higher wages because U.S. citizens would not be subsidizing their workers any longer.
- If the immigrants were paid higher wages, then it would be reasonable for employers to require health insurance as a condition for employment.
- This would apply to private individuals hiring a housekeeper as well as a large corporation.
14. What if an individual U.S. citizen joined the For America Security Trust (FAST) at age 26, was never gainfully employed, had no assets and lived to age 86?
This individual would be covered by health insurance.
- He would have the guaranteed purchase option on disability insurance, but since he has no income to protect, it would not be activated.
- His guaranteed purchase option on the life insurance would be triggered because of the interest-free loan to pay the premium.
- The amount of the life insurance would increase as the loan balance for the health insurance increases.
- At his death (age 86) he would have 60 years of premiums at approximately $11,200 per year for a loan total of $672,000.
- The $672,000 of life insurance proceeds would be paid to the individual’s FAST account.
- The guaranteed 4% payout from the FAST will ensure that the loan will be repaid in 25 years.
- Most likely, market returns will be greater than the guaranteed rate and the loan would be repaid much sooner than 25 years.
- After the loan is fully repaid, the annual cash flow would be paid to the individual’s heirs.
- The FAST would only be missing out on the opportunity cost or time value of the money; but, with the 2% annual FAST charge (at a minimum would be $672,000 X 2%= $13,440 per year) in perpetuity, it would more than compensate the FAST for the loss on the time value of the money.
15. How will PFA help to contain rising healthcare costs?
PFA will help contain health care costs by:
- The tax-deductible $1,200 annual health savings account contribution (to be used for deductibles and copays) will be refundable tax-free to the extent that it is unused at the end of the year. This will help to reduce frivolous spending of heath care dollars, but it will not limit spending for true healthcare needs.
- PFA will establish a one million lifetime insurance benefit cap for each American (unless additional insurance was purchased). If the $1 million cap is surpassed then all expenses would be paid from the income or assets of the insured until his/her assets have been depleted. Healthcare expenses thereafter would be paid by interest-free loans from the FAST. As these loans are issued there will be an equivalent amount of life insurance issued on a uni-sex, uni-age, guaranteed-issue basis that will cover the ultimate repayment of the loan. This will strongly incentivize participants to closely watch how their health insurance dollars are being spent.
- Each health care provider serving insureds covered by PFA’s insurance providers will be required to publish a menu of their services and the charges for each of those services. This will enable the insureds to become informed consumers of healthcare and to better husband the $1 million lifetime benefit from their insurance policy.
- All insurance policies from PFA providers will be available nationwide — both the policies and the benefits. The competition will help to keep prices in line with actual costs.
16. How will PFA handle healthcare inflation?
PFA will handle health care inflation by utilizing two different approaches:
- The cost containment tactics outlined in the four steps in the previous question (healthcare #15) will have the effect of reducing some of the inflationary pressures or maybe actually bringing healthcare costs down.
- The ultimate approach to the inflation problem would be to index the three key economic factors of the PFA healthcare provision.
Index the lifetime $1,000,000 insurance cap
- Index the premium payments along with the Health Savings Account (HSA) $11,200
- Index the income brackets which are the qualification for interest-free loans
Indexing is the ultimate protection for the PFA participant, but it is hoped that the four step cost containment measures will significantly reduce the need for a lot of indexing.