Health Insurance Coverage in America

Finance: Health Insurance Coverage in America: Current and Future Role of Federal Programs, October 20, 2021

With a new Administration in the White House, the context for reform has changed. Whether what the witnesses will tell you has changed will be determined at the hearing. I am quite sure that none will provide exactly the same options as below.

What we all agree on is that the system is fragmented. Unless Congress abolishes the Veterans Health Administration (Tricare), the Federal Employees Health Benefit Plan and the Postal Service plan, it will stay fragmented.  Even Medicare for All will not stand alone, given the political realities. Unless coverage is extended to undocumented workers, there will be leakages in the system. I will focus on future options and leave further description of the gory details to the invited witnesses.

Adding coverage of undocumented workers fills the major gap in coverage which produces cost shifting. Higher co-pays under the Affordable Care Act Silver Plan also cause bills to be unpaid. Families who cannot afford higher options (largely because subsidies are inadequate) cannot afford medical bills at all. The ending of mandates widened the gaps in the system.

State contributions to Medicaid, plus the supposed drain of pension costs for their employees, are a continuing source of concern.

The former can be remedied by splitting Medicaid into two pots, one for the elderly and disabled and one for the unemployed and the working poor. The first pot can then be transferred to CMMS as Medicare Part E.  As detailed in the first attachment, Medicare for All essentially turns all of Medicare into what is now Medicaid. Part E would be a good step in that direction.

As an aside, the push to advance fund pension costs for states governments and USPS is not driven by necessity. It is driven by the financial sector’s desire to sell retirement funds to employees, thus earning higher commissions than the current system. The fact that one part of the financial sector insists on full funding while another sells the likely result of this myth has given us the current retirement income crisis most people face. 

The majority of workers have incomes too low to save much, regardless of how easy (or automatic) enrollment is made. Until the minimum wage is increased, the refundable child tax credit is passed (and doubled again - and even again), there is no room for consideration of subsidies for increased saving.

The second pot, insuring the poor, has two options. Option A is to enroll the unemployed and those in ESL, remedial and higher educational, rehabilitative and job programs into the health plan of the service provider and then raise the reimbursement amounts for any programs delivered through the private sector to include these costs. ESL training would be available regardless of immigration status.

Option B is the Public Option rejected when the Affordable Care Act was debated.  Those who opposed it left Congress anyway - which should be a lesson to “moderate” Senators. The President has proposed trying to pass it again. Along with Medicare Part E, this is the best option for now for an increased federal role.. 

As described in the first attachment, for passage to occur we would have to give something to get something. In this case, higher broad based taxes and ending pre-existing condition reforms would be that price. Those who are denied coverage would be automatically enrolled in the Public Option, which would be more heavily subsidized than currently proposed. The Public Option would also include anyone left in Medicaid not transferred to Medicare Part E. Under this plan, all subsidies would be federal and would be much more generous.

The desire for greater profit, which is inherent in our economic system (people get upset when I simply call it Capitalism), will lead employers and insurance companies alike to exclude an ever growing share of the workforce until the Public Option has become what is essentially Medicare for All.

Pay it now, or pay it later. Either way, there will be a transition as the finances are worked out.

This need not take long if health care reform is combined with tax reform. Payroll tax funding is a non-starter. Transferring costs to higher income taxpayers ala the Affordable Care Act is not viable either. The combination of the two is essentially some form of value added tax. 

Our tax reform plan provides a menu of such taxes, including a straight up goods and services tax, an asset value added tax (which is a transaction based form of the ACA tax structure, dividend, interest and capital gains taxes) and a subtraction VAT. These are described more fully in the second attachment.

The residual income surtax proposed would be dedicated to paying down the National Debt. This should be a major selling point for those who pay higher income taxes (but not high enough) and who also own the vast majority of the debt held in mutual funds and directly held bonds. The music must stop eventually, probably sooner than later. Starting now is best.

A goods and services tax means everyone pays, including wealthier retirees attempting to dodge taxation through tax free savings accounts, life insurance policies - which can be borrowed from or used to transfer intergenerational wealth, trusts and, for those who are new to wealth, borrowing from their financial assets.

A GST, or Invoice VAT, is broad based and border adjustable. It is good for workers and would be part of any comprehensive tax reform that includes taking most households - indeed, almost all households - off the income tax rolls.

An asset VAT will raise money, but the pool of money raised will decrease given the proposed zero rating for ESOP sales, as well as the loss in trading volume such a tax would bring on. Higher income surtaxes would also decrease the money available for speculation by higher income receivers (I will not call them earners - their high compensation often results in cutting everyone else’s pay).

Subtraction VAT funding would be used to the extent that private insurance survives. As is currently the case, there would be a tax exclusion - or even a credit - for providing health insurance to employees. As described below, employee-owned firms could provide direct services rather than third party care. As this sector expands, the need for mandated insurance would simply end (as would outside financing for employee borrowing).

The last option, although similar to the current funding system for “first world” employees, would also be the eventual long term solution to funding gaps.

Attachment: Single Payer

Attachment: Tax Reform

Attachment - Single-Payer

June 12, 2019

There is no logic in rewarding people with good genes and punishing those who were not so lucky (which, I suspect, is most of us). Nor is there logic in giving health insurance companies a subsidy in finding the healthy and denying coverage for the sick, except the logic of the bottom line. Another term for this is piracy. Insurance companies, on their own, resist community rating and voters resist mandates – especially the young and the lucky. As recent reforms are inadequate (aside from the fact of higher deductibles and the exclusion of undocumented workers), some form of single-payer is inevitable. There are three methods to get to single-payer.

The first to set up a public option and end protections for pre-existing conditions and mandates. The public option would then cover all families who are rejected for either pre-existing conditions or the inability to pay. In essence, this is an expansion of Medicaid to everyone with a pre-existing condition. As such, it would be funded through increased taxation, which will be addressed below. A variation is the expansion of the Uniformed Public Health Service to treat such individuals and their families. 

The public option is inherently unstable over the long term. 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. This eventually becomes Medicare for All, but with easier passage and sudden adoption as private health plans are either banned or become bankrupt. 

The second option is Medicare for All, which I described in an attachment to yesterday’s testimony and  previously in hearings held May 8, 2019 (Finance) and May 8, 2018 (Ways and Means). Medicare for All is essentially Medicaid for All without the smell of welfare and with providers reimbursed at Medicare levels, with the difference funded by tax revenue. 

Medicare for All is a really good slogan, at least to mobilize the base. One would think it would attract the support of even the Tea Partiers who held up signs saying ”Don’t let the government touch my Medicare!” Alas, it has not. This has been a conversation on the left and it has not gotten beyond shouting slogans either. We need to decide what we want and whether it really is Medicare for All. If we want to go to any doctor we wish, pay nothing and have no premiums, then that is not Medicare. 

There are essentially two Medicares, a high option and a low one. One option has Part A at no cost (funded by the Hospital Insurance Payroll Tax and part of Obamacare’s high unearned income tax as well as the general fund), Medicare Part B, with a 20% copay and a $135 per month premium and Medicare Part D, which has both premiums and copays and is run through private providers. Parts A and B also are contracted out to insurance companies for case management. Much of this is now managed care, as is Medicare Advantage (Part C).

Obamacare has premiums with income-based supports and copays. It may have a high option, like the Federal Employee Health Benefits Program (which also covers Congress) on which it is modeled, a standard option that puts you into an HMO. The HMO drug copays for Obamacare are higher than for Medicare Part C, but the office visit prices are exactly the same.

What does it mean, then, to want Medicare for All? If it means we want everyone who can afford it to get Medicare Advantage Coverage, we already have that. It is Obamacare.  The reality is that Senator Sanders wants to reduce Medicare copays and premiums to Medicaid levels and then slowly reduce eligibility levels until everyone is covered. Of course, this will still likely give us HMO coverage for everyone except the very rich, unless he adds a high-option PPO or reimbursable plan. 

Either Medicare for All or a real single payer would require a very large payroll tax (and would eliminate the HI tax) or an employer paid subtraction value added tax (so it would not appear on receipts nor would it be zero rated at the border, since there would be no evading it), which we discuss below, because the Health Care Reform debate is ultimately a tax reform debate. Too much money is at stake for it to be otherwise, although we may just as well to call Obamacare Medicare for All.

The third option is an exclusion for employers, especially employee-owned and cooperative firms, who provide medical care directly to their employees without third party insurance, with the employer making HMO-like arrangements with local hospitals and medical practices for inpatient and specialist care.

Employer-based taxes, such as a subtraction VAT or payroll tax, will provide an incentive to avoid these taxes by providing such care. 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 or Medicare for All. Making employers responsible for most costs and for all cost savings allows them to use some market power to get lower rates. 

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. The employee-ownership must ultimately expand to most of the economy as an alternative to capitalism, which is also unstable as income concentration becomes obvious to all.

The key to any single-payer option is securing a funding stream. While payroll taxes are the standard suggestion, there are problems with progressivity if such taxes are capped and because profit remains untaxed, which requires the difference be subsidized through higher income taxes. For this reason, funding should come through some form of value-added tax. 

Timelines are also concerns. Medicare for All be done gradually by expanding the pool of beneficiaries, regardless of condition. Relying on a Public Option will first serve the poorest and the sickest, but with the expectation that private insurance will enlarge the pool of those not covered until the remainder can safely be incorporated into a single-payer system through legislation or bankruptcy.