By: Michael Sivy
July 19, 2012
Why Obamacare should be redesigned, but not repealed
Last week's vote by the House of Representatives to repeal President Obama's health care plan was the 33rd such attempt - and just as unlikely to have any real effect as the previous 32 votes. In fact, repealing the entire law and replacing it with something completely different will be quite difficult politically. Nonetheless, over the long term, financial pressures are likely to force substantial alterations in the law as it currently stands. If those changes are made intelligently, they could lower costs and increase consumer choice, while preserving universal coverage.
Experts argue over every aspect of the Affordable Care Act, including its financial implications. But as even some of Obamacare's greatest supporters admit, the goal was to craft a plan for universal health care coverage that could pass Congress and be signed into law. If there were flaws and awkward compromises, they could be fixed later. In my view, there are in fact two big flaws - Obamacare does not sufficiently control costs and its standards are too restrictive when it comes to determining what types of health care coverage are allowed. Both those flaws could be addressed by recognizing that the standards for catastrophic health coverage - protection against serious illnesses that are hideously expensive to treat - should be different from those for everyday medical expenses. Over the long term, I believe, financial realities and consumer preferences will encourage changes in just such a direction.
On paper, Obamacare has always been billed as a deficit reducer. But if you look solely at the part of the law concerned with health insurance, it adds more than $100 billion annually to federal spending, and that amount grows over time, according to the Congressional Budget Office. To prevent this from increasing the deficit, the cost is supposed to be more than offset by additional taxes and also by large cuts in Medicare spending. These proposed changes to Medicare are already meeting strong resistance from doctors and other health care providers.
Another part of the true cost of Obamacare is paid for by raising the income ceiling for Medicaid eligibility, and part of the cost of doing so would end up being funded by state governments. But the recent Supreme Court decision that upheld the constitutionality of the most important parts of Obamacare also included a provision that would make it easier for states to opt out of this Medicaid expansion, and some have talked about doing so. The CBO is preparing new projections, due out later this month, which will take this Supreme Court ruling into account. These new figures are expected to show higher long-term costs.
The bottom line is that there are multiple constituencies - especially in today's financial climate of soaring government debt - who will press to reduce the costs of Obamacare and the policies meant to pay for it. At the same time, there is strong popular support for preserving certain parts of Obamacare. While it's true that the number of people who oppose the law have always outnumbered those who favor it by around five percentage points, a sizable minority of around 40% have consistently supported it. Even more important, some specific provisions have always been generally popular, such as those that allow young people to stay on their parents' insurance up to age 26 and those that prevent insurers from limiting or denying coverage.
Over the long term, these pressures should - and probably will - promote the redesign of Obamacare along the following lines. People who currently don't have health insurance and have difficulty affording it will probably still be covered in more or less the same way that the current law envisions. That may be through the expansion of Medicaid or with insurance that is subsidized in one way or another. But for people who get health insurance through their employers or who buy it themselves, there will be enormous opportunity for innovation.
The key is recognizing that the parts of Obamacare that are most popular with middle-class Americans all really pertain to catastrophic coverage. Even people who have long had first-rate health insurance worry that if they became seriously ill they could run up against lifetime limits on their coverage. Or they could become too sick to work and lose the insurance provided by their employers. Or the insurance company could find some way to terminate their policy. And if they subsequently need to buy insurance, they could be denied or limited because of pre-existing conditions. These concerns could all be addressed with health care coverage composed of two parts. One would be a high-deductible policy that preserved all the provisions and protections of the current health care law. The other part would pay for medical expenses up to that deductible - and that's where there should be much more flexibility.
You can see this in concrete terms by considering one of the fastest growing options today - coverage that includes a health savings accounts (HSA). These plans consist of a high-deductible policy coupled with an account, similar to an IRA, that can be used only to pay for medical expenses. Because a high-deductible policy is cheaper than typical health insurance, the money saved can be used to fund the HSA (you also can usually contribute some additional pretax income). The disadvantage of such a plan is that in years when your health care expenses reach the high deductible, you end up spending more than you would have with traditional insurance. On the plus side, however, you are free to choose the doctors and other health care providers you want, and whatever money you don't spend can be rolled forward for use in future years. In addition, such plans help to reduce the cost of health care overall since administrative expenses are much lower for someone who is paying in cash - or through a disbursement from an HSA - than for claims that have to be processed by an insurance company.
Where HSAs are currently available, they have proved highly popular. The number of Americans with such plans has tripled since 2007 and grown 18% to 13.5 million over the past year. Yet current Obamacare rules greatly restrict the eligibility of plans that include HSAs - and this is only one example of the ways in which requirements that may be appropriate for catastrophic coverage unnecessarily restrict the options for plans that cover everyday medical expenses. Some people, for financial or other reasons, may prefer traditional health insurance. But there is no reason not to encourage as much flexibility and diversity as possible for non-catastrophic coverage, especially where doing so would reduce unnecessary administrative costs and increase consumer choice.