With the Senate's version of a Healthcare Bill now released, there will be much debate over the merits, or lack thereof, of the plan (depending which side of the aisle you sit). I want to look at a different idea -- a "middle path" that might actually garner bi-partisan support.
Since retiring from Goldman Sachs in 2005, I have had a gamut of experiences in purchasing my own healthcare insurance. At GS, I had employer healthcare, and it served me well through diagnosis of Type I diabetes, through the birth of my kids, etc. But I will never forget the afternoon of my exit interview, when HR began explaining COBRA. It was an eye-opener because, probably like most people who have grown up with employer-sponsored healthcare, I had never given it a thought.
I went through 18 months of COBRA, rolled onto a "continuation plan", and lived in three different states in the ensuing years, so I have pretty good experience in buying insurance. Just before ACA kicked off, I was paying nearly 25,000 a year for a family plan that had a 250,000 lifetime cap on benefits.
Realizing this wasn't the most palatable plan in the world, I sought out new coverage. This is where I ran into the "pre-existing conditions" buzz-saw. (In my case, being a Type I diabetic.) I realized I couldn't even get an alternative insurance plan...I had to stay on my continuation plan.
Thus, the ACA has been incredibly valuable for me. First off, I couldn't be discriminated against for having a pre-existing condition in the individual market. Secondly, it eliminated the lifetime cap on benefits. So, I have been through the Exchange a few times and think it works fairly well--and have been, yes, very happy with using it.
But I can see why it is a problem, because the pool is basically people like me--those who do not rely on a corporate plan and most likely have pre-existing conditions, thus the pool itself is somewhat adversely selected. This, then, got me thinking about fixes.
In short, I think the answer is to really make the Exchanges the focal point of liquidity for healthcare insurance; we need to nudge people into the pool.
Since WWII, our nation has relied on a system of "corporate paternalism". We have historically relied on our employer to provide retirement and healthcare benefits. And while on retirement in the last 40 years we have moved from Defined Benefit to Defined Contribution (even offering opportunity to use an IRA in lieu of a 401k plan), healthcare has still largely been in the hands of the employer.
I think one basic tenet of employee benefits is that employers should only provide benefits if the employee values them by more than it costs the employer (otherwise, the employer should just pay cash). So it creates a win/win situation.
In healthcare, there are two dynamics that make this proposition work: opaque pricing (due to bulk purchase) and pre-tax payments. The Exchanges should help clear up opaque pricing, but we still have this issue of pre-tax advantages.
If we eliminate employer-based healthcare insurance tax benefits with the exception of vouchers to the Exchange, then more people would enter the Exchange pool, and a win/win situation would exist. The employer can provide the employee a benefit which costs them less than the benefit derived.
The employee can then go purchase whatever plan they like--if they want a Gold Plan, they might have to pay more out of pocket, if they want a Bronze Plan, maybe they can sock some money away in a HSA. With a significantly larger pool, costs should come down compared with those of an adversely selected pool.
This also has a few significant side benefits:
1) It creates true portability of insurance--if I change jobs, I know what the costs of my plan are and I can keep it. This is crucial, because Millennials today are expected to switch jobs a dozen or more times in their career. (Another reason that corporate paternalism may be outdated).
2) Insurance companies will carve out substantial costs by not having a sales staff that tries to sign up Goldman Sachs, IBM, Apple, etc., to be their provider every year. These savings can be reflected in their pricing on the Exchanges, where all insurance companies can compete head to head. The Exchange brings the clients to the insurer.
3) If overall costs get lowered on the exchange, then the value of subsidies will also come down, and
4) This eases hassle for businesses, so it may aid in business formation. No longer does a company's HR need to intermediate a dispute between an employee and their insurer, spend time trying to come up with a one-size-fits-all policy for their workforce, and so forth.
Now, there is still this issue of 30% of the (mostly rural) counties that only have one provider. Hopefully pushing everyone into the pool helps that. But states could also mandate if you are in one county in our state, you are in all counties. Or maybe a broader cross-state-lines pool could be created for such counties. (Note -- this is also why essential health benefits are kind of, well, essential...)
I think this "middle path" offers something that could possibly gain bi-partisan support. For Democrats, it strengthens a program they got rolling; for Republicans, it offers choice via vouchers, lowers costs, aids in business formation, and cynically, you could also argue it isn't single payer--which is surely the predicted rebound from a failed ACA replacement (and one the Insurance Companies would not like).
While those at the wings of either party may not like it, this is what I envision as a workable centrist framework.
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At the time of publication, Oberg had no position in any of the securities mentioned.