Medicare Part C For All — A Proposed Hatch-Warren Bill – Forbes
Whatever the Freedom Caucus thinks, there is a national consensus that everyone deserves a uniform, basic health insurance policy. Uniform means that everyone’s kidneys are covered for the same problems regardless of whether their kidneys in great or terrible shape.
Unlike the market for wheat, where private markets work extremely well, insurance markets, particularly health insurance markets, break down because of differences in information of buyers and sellers. Buyers of health insurance know if they are sick. Sellers don’t. To make a profit, sellers try to cherry pick the healthy and turn away the sick. Or they set premiums under the assumption that all their insureds will be sick. This makes health insurance too expensive for the healthy who opt to stay uninsured.
The solution to this well known adverse selection problem is to pool the sick and the healthy together. This is why we have ended with the population in one of four types of pools. These are the pools for workers in large firms (employer-provided healthcare), the pool for the disabled and elderly (Medicare), the pool for the indigent (Medicaid), and the pool for everyone else (Obamacare).
Unfortunately, each of these systems has failed or is failing. Insurers are deserting Obamacare. Medicaid traps participants into poverty by defining its pool based on income. Earn a dollar too much and “It’s gone!” Medicare, at least traditional Medicare (Parts A, B, and D), has, over the years, exploded in costs. The same is true for Medicaid. The result has been price controls, which are leading more and more docs to turn away traditional Medicare and Medicaid participants. And employer-based healthcare is increasingly turning into catastrophic coverage, leaving participants with unaffordable out-of-pocket payments.
The answer is not replacing Obamacare with a far less generous Trumpcare system that sanctifies cherry picking. It’s not handing Medicaid over to the states and looking the other way. It’s not maintaining price controls for traditional Medicare. And it’s not letting employers move to health insurance in name only.
Nor is the answer some other set of patchworks. It’s time to fix the healthcare system from the ground up.
Remarkably, the path to such fundamental reform is staring us in the face. It’s Medicare Part C For All.
Medicare Part C is the Republican part of a program established by Democrats. Hence, both parties can claim ownership of Medicare Part C For All. That’s critical because no meaningful and lasting healthcare reform can arise without bipartisan support.
Medicare Part C For All entails eliminating Obamacare, employer-based healthcare, Medicaid, and traditional Medicare and enrolling the entire population in Medicare Part C.
Under Medicare Part C, participants annually choose their insurance company and the government pays the insurer for covering the participant for the year. The size of the payment, which includes a profit margin, is based on the participant’s pre-existing conditions. This individual experience rating is designed to eliminate cherry picking by insurance companies. Yes, signing up healthy participants means lower expected costs, but it also means a lower premium payment from the government. This reduced payment fully offsets the incentive to cherry pick. In addition to having no profit incentive to cherry pick, insurers would be legally prohibited from turning away participants.
Under Medicare Part C For All, all insurers would need to provide an identical package of benefits, drug coverage, and assisted living/nursing home care.
Requiring all insurers to offer the identical basic health insurance plan will turn basic health insurance into a commodity like wheat. It will produce intense competition among insurance providers who will have one objective — providing the best care at lowest cost.
With everyone enrolled in Medicare Part C, the government will finally have full control of its total healthcare spending. It can decide what to spend on basic healthcare for the population and then adjust what’s covered under the basic plan such that the sum of the payments to insurers not exceed its budget — say, 10% of GDP.
Moreover, since insurers will have to foot the bill for excessive usage of their healthcare systems, they will have the proper incentives to limit such usage. But if they under-provide coverage they will lose customers. In economics terms, insurers will internalize incentives to neither under nor over provide care.
The transition to Medicare Part C For All is easy. Traditional Medicare (Parts A, B, and D) participants can be grandfathered. Employers wishing to remain in the health insurance business could do so. But they would need to offer the same basic plan as any other Medicare Part C For All insurer and permit anyone, including non-employees, to sign up.
How would we pay for this new system? We’d replace the Medicare FICA tax with an income-based progressive insurance premium. Everyone with income would pay their fair share of the costs of Medicare For All Part C. And since it would cost nothing extra to sign up, everyone would do so.
Is this yet another entitlement program? Actually it’s a reduction from 4 to 1 healthcare entitlement programs. It replaces the entitlement to Medicaid. It replaces the entitlement to traditional Medicare. It replaces the entitlement to Obamacare. And it replaces the entitlement to tax breaks on employer-paid health insurance premiums.
Anyone who knows anything about health insurance knows that getting the population insured requires the government to pool. That’s the basic entitlement — the entitlement to a government that pools us together and makes the health insurance market work. If the Freedom Caucus members don’t like the word entitlement, I suggest they avoid using it. But their vision of U.S. healthcare — healthy Joe’s gall bladder is covered, sick Jane’s gall bladder is not because she “chose” a policy that doesn’t cover gall bladders — is not carrying the day even among a majority of Republicans.
How do we achieve passage of Medicare Part C For All? My answer is for Senators Orrin Hatch and Elizabeth Warren to jointly sponsor the bill and get the President to sign on. There is precedent for such a bipartisan healthcare initiative. In 1996, Senators Hatch and Kennedy joined forces to sponsor the SCHIP program, which provides health insurance to children of the working poor.
If Senators Hatch and Warren aren’t game, Senators John Thune and Tim Kaine could pick up the torch. They co-sponsored The Inform Act requiring proper government fiscal accounting, although their bill has yet to be passed.
Whether it is Hatch and Warren, Thune and Kaine, or some other bi-partisan pair of Senators, the first pair to move will reap the huge reward of finally properly solving our nation’s never ending health insurance debacle.
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