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