Lowering Costs and Expanding Access to Health Care through Consumer-Directed Health Plans

Comments for the Record

United States House of Representatives

Committee on Ways and Means

Health Subcommittee

Lowering Costs and Expanding Access to

Health Care through Consumer-Directed Health Plans

Wednesday, June 6, 2018, 11:00 AM

By Michael G. Bindner

Center for Fiscal Equity

Chairman Roskam and Ranking Member Levin, thank you for the opportunity to submit these comments for the record to the House Ways and Means Health Subcommittee.  They mirror our submission to the committee of  May 17, 2016.

Proposals along the lines proposed have long been a part of our standard package of health care reforms.  We have long advocated a conversion to catastrophic insurance with a medical savings account to pay for appointments and drugs, although we have always suggested a third element – a Medical Line of Credit to bridge the gap between the current MSA balance at the catastrophic deductible.  The MLC would also pay for services, including acupuncture and reproductive health that may not be covered or coverable under catastrophic insurance.  

Under our standard tax reform proposal, catastrophic policies would be purchased by all employers (and certain self-employed) as an offset to the Net Business Receipts Tax/Subtraction VAT.  The Net Business Receipts Tax (NBRT) includes tax expenditures for family support,  health care and the private delivery of governmental services. It will fund entitlement spending and replace income tax filing for most people (including people who file without paying), the corporate income tax, business tax filing through individual income taxes and the employer contribution to OASI, all payroll taxes for hospital insurance, disability insurance, unemployment insurance and survivors under age 60.

While this raises the tax rate, the lack of any tax subsidy would doom private insurance and deny most families medical care.  Likewise, the Health Savings Account would be provided by employers, but would be a deduction rather than a credit.  Medical Lines of Credit would be funded entirely by employees with no tax advantage – as under our plan most employees would not pay any income taxes.

Personal experience with cardiac care (luckily a succession of false alarms) showed that, while this approach makes economic sense, it does not jibe with how doctors operate.  There is no price schedule in the waiting or exam rooms to compare costs for proposed procedures or tests. Health care is not a normal good.  While it responds to market pressures, some care cannot be limited by them. 

I also came to the conclusion with the passage of health care reform – and the electoral rejection of the health care reform above which was not far from what Senator McCain proposed in his 2008 run (and which was not even mentioned as the Republican alternative in the Obamacare debate) – that Americans like their comprehensive insurance.  Most importantly, while the Medical Line of Credit is essential for complete health care, its inclusion essentially short circuits any decision to shop for care.

If the McCain approach cannot pass, will the Affordable Care Act survive the test of time (it has certainly survived all attempts to repeal it)?  Possibly.  The key concept, that people in marginal jobs deserve the same tax subsidies that corporate employees get is sound.  Those parts that fulfill that need, which originated in the Heritage Foundation (which even now clamors for repeal) are also worthy. 

What is less defensible are the higher non-wage income taxes used to fund it, although no bill which just repeals these will survive a Budget Act point of order in the Senate (regardless of House Rules) nor would the political optics look good.  Repeal would hurt too many Americans, so expansion of the tax (along with a rate cut) with some form of consumption or payroll tax– such as the one proposed by Senator Sanders in his single payer plan (or by Mrs. Clinton during her husband’s health care reform effort).  In our proposal, the consumption tax used would be the NBRT/Subtraction VAT.

The main danger to the Affordable Care Act is ease of entry and exit.  If it is too easy to get in, then people will wait until they are sick to sign up.  After they are well, any plan will stop coverage if you stop sending in your monthly premium check.  If enough people do that, rates go up and the cycle goes down.  This eventually leads to a collapse in the system that can be fixed in one of two ways – give everyone cheap and mandatory health care or place health insurers into bankruptcy, like General Motors and Chrysler, and reorganize them into a single-payer system (without any congressional action).  Had the leadership laid out this scenario, it might have stopped the Affordable Care Act – and insurance companies would have most assuredly stopped contributions to the GOP.

The low-cost system with catastrophic care would operate as above (and would hopefully include the Medical Lines of Credit).  Single-payer care would be funded by the NBRT/Subtraction VAT.  Such a tax is superior to the payroll tax proposed by Senator Sanders because it would hit profit.  The upper-income payroll taxes for non-wage income would repealed and incorporated into the NBRT.  

Under Single-Payer, we propose an additional option.  Firms that provide direct health care, such as automobile manufacturers, would not pay for third party coverage at all.  The cost of the coverage provided would be an offset to the NBRT.

We believe that our current insurance system adds no value to health care. Theoretically, insurance pools everyone’s costs and divides them up with everyone paying a monthly share, regardless of the risk they pose.

The profit motive has given us differential premiums based on risk and age. Indeed, the age based premiums in the last attempted health reform were so unaffordable to older Americans in individual plans that the bill could not pass the Senate. Single payer plans, funded through the NBRT, would not have this feature and insurance companies doing claim processing for the government would be paid an adequate profit with little risk.

Short of that, an NBRT subsidized Public Option would allow sicker, poorer and older people to enroll for lower rates, allowing some measure of exclusion to private insurers and therefore lower costs. Of course, the profit motive will ultimately make the exclusion pool grow until private insurance would no longer be justified, leading-again to Single Payer if the race to cut customers leads to no one left in private insurance who is actually sick.

The NBRT can provide an incentive for cost savings if we allow employers to offer services privately to both employees and retirees in exchange for a substantial tax benefit, either by providing insurance or hiring health care workers directly and building their own facilities. Employers who fund catastrophic care or operate nursing care facilities would get an even higher benefit, with the proviso that any care so provided be superior to the care available through Medicaid. Making employers responsible for most costs and for all cost savings allows them to use some market power to get lower rates, but no so much that the free market is destroyed.

This proposal is probably the most promising way to arrest health care costs from their current upward spiral – as employers who would be financially responsible for this care through taxes would have a real incentive to limit spending in a way that individual taxpayers simply do not have the means or incentive to exercise.

While not all employers would participate, those who do would dramatically alter the market. In addition, a kind of beneficiary exchange could be established so that participating employers might trade credits for the funding of former employees who retired elsewhere, so that no one must pay unduly for the medical costs of workers who spent the majority of their careers in the service of other employers.

Thank you for the opportunity to address the committee.  We are, of course, available for direct testimony or to answer questions by members and staff.