Health Care Reform Revisited
Currently, we have proposals for the Biden plan and the Sanders plan. The Biden plan is incremental, building on existing forms of public and private coverage towards a future of universal coverage with multiple forms and models of coverage. The Sanders plan replaces private insurance with public coverage, modeled after Medicare and Medicaid. The GOP has put forward no meaningful plan to date.
My personal favorite was the Garamendi plan, which offered universal coverage paid by taxes offered through multiple competing plans (public or private) from which a consumer could choose their favorite and pay the incremental cost difference above the lower cost plans. It had important aspects of competition and organized delivery systems missing from the single payer plans like the Sanders plan. Its counterpart in Congress was the bi-partisan Wyden/Bennett plan.
The Biden plan makes the most fiscal sense[1] since it tries to extend coverage for the uninsured (10% of Americans), rather than pay new taxes to create a brand new system for the 90% of Americans with existing public and private coverage. The Biden plan would increase premium assistance and reduce cost sharing for those individuals and families purchasing through the Exchanges; it would also give people purchasing in the Exchanges access to a public option (Medicare) and would allow individuals over 60 to enroll in Medicare. For example, people with incomes below 150% of FPL would pay no longer pay premiums in the Exchanges, and people with incomes above 400% of FPL would now be eligible for premium assistance and pay no more than 8.5% of incomes for their coverage. The “reference” plan for calculating premium assistance would increase from silver to gold – i.e. from 70% of health costs to 80%. These will increase enrollment, affordability and access to care in the Exchange plans and depending on state responses will help more of the poor uninsured become Medicaid eligible. These provisions are part of the Biden stimulus package which has passed the House and Senate.
First, what’s missing from the Biden plan, and how can it be improved? The Biden plan lacks a clear strategy to reduce excessive health costs. It also lacks a strong strategy to improve private coverage. It does not cover the undocumented. Finally it depends on states to execute.
In the US, excessive health costs are a function of high prices, and those high prices are at their highest in private insurance. The Biden plan gives some consumers access to the “public option” (i.e. Medicare), which may have lower premiums and lower provider reimbursements than private insurance. It takes on over-pricing in the prescription drug markets and would end surprise billing from out of network providers. That’s about it for controlling insurance premiums and provider fees.
Some employer plans offer scanty coverage. The ACA requires mid sized and large employers to pay for 60% of the lowest cost bronze plan (60% of health costs); in other words, the floor (the bare minimum) for employers is paying 36% of the costs of health coverage for their employees. On average, employers pay 75% of the premiums for gold coverage (covers 80% of health costs) for their employees and dependents. Biden’s plan does not do much to improve substandard coverage offered by employers although it may allow some employees facing excessive premiums in the employment-based plans to enroll in Exchange plans and the public option.
Biden should increase the floor for employment based coverage from 60% of health costs to 80% (gold coverage). He should increase the minimum employer share of premiums from 60% to 80% for employees and 70% for dependents. He should require all small businesses to contribute towards their employees’ coverage, potentially through the Exchanges[2]. He should require all employers to contribute towards the coverage of their gig workforces, ideally through the Exchanges.[3]
There are eleven million undocumented living and working in the US. While they pay local, state and federal taxes, they are ineligible for full Medicaid or Medicare coverage. They often work for employers who don’t offer coverage. They account for 60% of California’s uninsured. The Biden health proposals do nothing to extend their coverage.[4] However the Biden immigration plans do give them an opportunity to apply for legal permanent residency and US citizenship over an eight-year period. This will give them better opportunities over time to qualify for private coverage on the job, for Medicare after retirement, and for Medicaid and the Exchanges during periods of unemployment or very low wages.
Some states have done all they can to delay and obstruct implementation of the Affordable Care Act. Chief among their obstructions has been a refusal to implement the Medicaid expansion for working poor Americans. Southern states with lots of uninsured poor like Texas, Florida, Georgia, South Carolina, Mississippi and Alabama have been among the chief obstructionists; there is unquestionably a racist element at work here. The Medicaid expansion offers a 90/10 match for the expansion, and most states have responded by rapidly implementing the expansion. In a number of GOP-led states, the state’s voters have taken matters into their own hands and passed ballot initiatives to implement the Medicaid expansion. The Biden economic stimulus plan offers states an increased match of 5% for their entire Medicaid program as an additional incentive to cover their uninsured. Most state GOP Governors and legislative leaders remain unalterably opposed.[5] It may well require further ballot initiatives, plus the Biden stimulus, plus some ballot box defeats of GOP Southern Governors to finally cover the uninsured working poor throughout the nation.
The Sanders plan would cover every American through a public program, known as Medicare for All. It replaces all existing public and private coverage (about 90% of Americans) with the new Medicare for All program. It finances it with increased payroll and income taxes on all businesses and individuals.[6] It controls costs by setting provider rates at the federal level. It expands the services covered, and it eliminates consumers’ copays, deductibles, co-insurance and premiums.
While it is called Medicare for All, it is a lot closer to Medicaid in that it covers more services than Medicare and has fewer or no consumer out of pocket responsibilities as compared to Medicare. Overall, it does not cost much more than the current system, but it does require a lot of new taxes to replace employer, employee and individual payments in the current system and transition from privately financed coverage to tax-financed coverage.
Medicare is a fee for service, any willing provider system with strong controls on provider reimbursement rates and historically weak controls on excessive utilization. As such, it is the polar opposite from the well integrated, managed care systems like Kaiser Health Plan or Northwell Health Systems in New York or the Geisinger Health System in Pennsylvania. This is not to say that HMO’s are sterling, but rather to suggest that their delivery systems and payment models make far more sense from the perspectives of cost effectiveness and health care efficacy.
Medicare for All would cover all citizens, all legal residents, and it covers the undocumented. It covers most long-term care other than nursing home services. It would be a uniform program in effect in all 50 states. It would leave no role for state and local governments, and it would eliminate all public and private health plans.
Its weaknesses are both political and programmatic. It requires Americans to give up their existing coverage for a new system that is paid and regulated by the federal government, and it requires large new taxes to replace existing private spending. These are very tough political sells. It lacks the dynamism and flexibility to test and then make improvements that some amount of market incentives and some level of competition afford. Most importantly from my perspective, it is not an organized delivery system of care, but rather the delivery of medical care is siloed and disconnected, and it lacks accountability when it performs poorly.
The Garamendi plan or the Wyden-Bennett plan[7] offers universal coverage through multiple competing plans. The consumer chooses their plan and pays for the incremental cost difference from the standard or reference plan. It is funded by taxes like the Sanders plan. It does not eliminate private insurance, and there are elements of competition in that consumers choose their plan and pay for the extra costs of a more expensive delivery system. One assumes there is a plan that looks like the Kaiser Health Plan and another plan that looks like a Blue Shield PPO plan. One assumes that different hospitals and medical groups choose to participate in each plan so that one competing plan might include the UC network; another competing plan would include the Dignity Health network, and a third plan would offer the Cedars Sinai network; the plans and providers then compete to lower costs and improve quality and outcomes for their patients. There is no assurance that providers sort themselves out so neatly and so competitively when in fact they do not do so in existing PPO plans.
Like the Sanders plan, it requires new taxes to fund it. Like the Sanders plan, it eliminates a role for employers in choosing the plans to offer to their employees — to my mind this is not a big loss. Unlike any of the other plans proposed, it merges the health components of auto insurance and Worker’s Comp insurance into unified 24 hour coverage.
It is a bit like Medicare and a bit like the Exchanges in that it offers a choice of plans and government plays a role in selecting and regulating the plans for their performance and their responsiveness to their customers. Unlike Medicare there is no public option. Unlike the Exchanges, there are no tiers of coverage. Unlike the Sanders plan, consumers pay out pocket some of the costs for their care, and consumers pay the incremental cost differences above the standard or reference plan.
A state like California cannot afford the costs of moving to a single payer plan like the one being promoted by Senator Sanders.[8] It is way too expensive, and we lack the federal statutory flexibility to fold in Medicare or private employer plans. We could however simplify and improve our health coverage if state lawmakers and the Governor had the will and desire to do so.[9]
Prepared by: Lucien Wulsin
Dated: 3/6/21
[1] https://www.crfb.org/papers/understanding-joe-bidens-2020-health-care-plan
[2] The employer mandate in the ACA only applies to employers of more than 50 full time equivalent employees.
[3] Employer’s arrangements for the gig workforce typically mean no health coverage, no UI coverage, no vacation pay, no holidays, no sick time or other paid time off.
[4] The undocumented with very low incomes can qualify for emergency Medicaid, which pays for emergency care and deliveries. California offers full scope MediCal to the undocumented poor under the age of 26, but without a federal match.
[5] https://www.vox.com/22315225/covid-19-third-stimulus-medicaid-expansion-funding
[6] https://www.crfb.org/blogs/how-much-would-sen-bernie-sanderss-single-payer-plan-cost
[7] https://www.cbpp.org/research/an-examination-of-the-wyden-bennett-health-reform-plan and https://www.cbo.gov/publication/24777
[8] https://www.sacbee.com/news/politics-government/capitol-alert/article151960182.html
[9] https://healthcare.assembly.ca.gov/sites/healthcare.assembly.ca.gov/files/Report%20Final%203_13_18.pdf