Personal Health Care Safety Net Medicaid Fix
Our Medicaid Fix would expand patient choice and give each Medicaid enrollee real money instead of false promises, in the form of a personal, federal, and state safety nets and help for people with preexisting conditions.
Republicans fight a losing public relations battle when proposing to cut federal health care spending for low-income individuals and patients with preexisting conditions. Instead of framing the health care debate as “rich vs. poor,” they should frame it as “health care spending vs. other spending.” This would give the GOP—the new champions of patients with low income and preexisting conditions—political leverage to overhaul health care policy while forcing Congress to make budget cuts libertarians and conservatives have long demanded.
The Personal Health Care Safety Net Medicaid Fix would win the messaging war, lead to reduced federal spending, eventually devolve Medicaid control to states, and activate free-market forces to overhaul health care provider markets and health insurance markets.
Real Money, not False Promises
Medicaid cost federal and state taxpayers approximately $545 billion for 73 million enrollees in 2015, or about $7,465 per enrollee, excluding administrative costs. Patients receive no Medicaid funds directly, and they are prevented from choosing how much to spend on health insurance versus health care. Patients must choose providers from the few who accept Medicaid, and they cannot roll forward unused funds or save for future emergencies.
Our Medicaid Fix would cost $34 billion less than Medicaid in 2015. These savings constitute most of the “Federal Safety Net” funds, outlined below.
Our Medicaid Fix would cost federal and state taxpayers $511 billion for 73 million enrollees in 2018, or about $7,000 per enrollee. Patients would receive $7,000 each as a refundable tax credit in a Health Savings Account (HSA). They could choose any insurance plan they want, obtain care from all providers accepting their insurance, and pay out-of-network providers directly (if necessary).
Unlike false Medicaid promises, the $7,000 credit would be real money for the poor, stored in real accounts in the private sector, not in a fake “trust fund” that Congress could raid at will, as it does the Social Security fund. This would not be “privatizing” Medicaid but keeping it out of politicians’ greedy hands. The funds in the accounts would be guaranteed by the government (taxpayers), of course.
Patients could roll forward unused HSA funds for use in later years building an individual safety net for emergencies.
Over time, this will dramatically reduce the program’s cost, because people who remain healthy during the first year will likely be able to afford their full deductible during year two and beyond. Only those patients who start the program with serious illnesses and those patients who will soon qualify for Medicare would fail to save some of the $7,000 credit in an HSA. Everyone else would have savings in their HSAs to draw from, making the annual $42.6 billion Federal Safety Net fund go further each year.
Personal Safety Net
Most Medicaid patients could easily buy health insurance for less than $7,000, even at current outrageous Obamacare prices. (The competition and consumer choice created by our Medicaid Fix would reduce the cost of insurance. We use these overpriced Obamacare plans for sake of argument.)
The average annual cost of ACA bronze plan premiums in 2016 was $3,096 for a 30-year-old, $3,480 for a 40-year-old, $4,872 for a 50-year-old, and $7,392 for a 60 year-old.
Patients could pay premiums from the $7,000 in their HSA, leaving $3,931 for a 30-year-old, $3,520 for a 40-year-old, $2,128 for a 50-year-old, and ($392) for a 60-year-old. Most patients could use these leftover funds to pay for any health care expenses. Unspent funds would accrue in patients’ HSAs each year, gradually building an individual safety net for each patient.
Federal Safety Net
Patients (such as the above 60-year-old, and people with expensive medical conditions) whose combined cost of insurance premiums and health care expenses deplete their HSA funds would apply for assistance from a $42.6 billion fund. The fund would comprise the $34 billion annual savings between our Medicaid Fix and Medicaid in 2015, plus $8.6 billion contributed by a low, mandatory contribution of $10 per month per enrollee.
The $42.6 billion federal safety net would increase or decrease in fixed proportion to the previous year’s Medicaid population.
State Safety Net
Patients whose health insurance premiums and health care expenses deplete their HSA funds and exceed funds available in the federal safety net could apply for additional assistance from their state.
Individuals with preexisting conditions who fail to use the $7,000 HSA credit to obtain health insurance during the Personal Health Care Safety Net Medicaid Fix two-year open enrollment period (described below) could apply to their state for additional assistance. States would be free to establish state taxpayer-subsidized high-risk pools to help cover these individuals.
For the first two years, every individual eligible for Medicaid would be free to buy health insurance without disclosing preexisting conditions. They could use the $7,000 HSA credit to buy insurance, and the responsibility of doing so would fall to each patient.
During a two-year open enrollment period commencing with the Personal Health Care Safety Net Medicaid Fix, insurers would be unable to deny patients coverage or charge them extra because of preexisting conditions. Every Medicaid patient who uses the $7,000 HSA credit to buy insurance would gain protection under federal law from having to disclose preexisting conditions in the event these patients choose to shop for a different insurance provider.
The open enrollment period accommodating people with preexisting conditions would not raise the cost of insurance, because the $545 billion baseline posited for this program represents the total cost of all Medicaid services. Therefore, it shouldn’t cost the health insurance or health care systems any additional money to cover these patients’ costs. In fact, because many people on Medicaid use ER services, which is inefficient and costs more, the total costs should go down.
Devolution to States
States would broker the $7,000 refundable credit, depositing it into HSAs belonging to Medicaid recipients. States would be free to increase the HSA credit for Medicaid patients using state funds. States could freely revise their Medicaid programs to realign incentives, promote reasonable cost-sharing, and require able-bodied enrollees to work.
As “laboratories of democracy,” states would have immense flexibility to tweak their programs, including requirements for enrollees to qualify for the state share of the $7,000 HSA credit. The federal share would be guaranteed to enrollees who make a $10 monthly contribution and with incomes below a percentage of the federal poverty line determined by each state.
Coupled with a provision allowing insurers to sell across state lines, the Personal Health Care Safety Net Medicaid Fix would create tremendous competition by empowering Medicaid patients to choose which insurers and health care providers are worthy of their $7,000. Additionally, repealing the ACA essential health benefits mandates would free insurers to sell inexpensive insurance, letting Medicaid patients spend more on actual health care. The overpriced Obamacare plans referenced in this document would give way to better-value plans. This would increase savings patients could potentially roll over into the next year’s HSA. This would also increase incentives for health care providers to treat patients using innovative health care models creating greater value for patients.
Adding 73 million people to the private insurance market would reduce health insurance costs for everyone, not just Medicaid recipients, because it would amount to a giant infusion of cash into the private insurance market that does not currently exist.
Obamacare Subsidy Costs: http://reason.com/blog/2016/12/16/obamacares-subsidies-to-cost-taxpayers-a
Number of people receiving Obamacare subsidies: http://www.modernhealthcare.com/article/20160311/NEWS/160319974