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Monday, January 9, 2017

5 Ways to Make Health Insurance Great Again

Make insurance attractive so that Americans want to buy it.

Now that Congress is drafting an Obamacare repeal bill that President-elect Donald Trump has promised to sign, Americans may once again be given a broader choice of health insurance policies to purchase.

The two major problems with the Patient Protection and Affordable Care Act are that, contrary to its name, it does not protect patients and it is not affordable. This needs to be remedied in the new legislation.

Insurance protects people against large, unpredictable costs. Instead, Obamacare-compliant policies entitle the insured to a free health check-up every year — at a predictable cost — but require them to pay thousands of dollars in deductibles before they can access benefits for unexpected expenses, everything from falling off a bike to getting cancer. For the lowest-priced bronze plan, deductibles in 2017 will average $6,000 per person and $12,000 per family, according to a recent survey by HealthPocket.

The new system needs to be more flexible and consumer friendly. Here are five elements of new healthcare legislation for lawmakers to consider.

1. Allow all plans on the exchange: Obamacare mandates a one-size-fits all, overly-generous plan, with required free preventive care, mandatory mental health and drug abuse coverage, free contraceptives, and no lifetime maximum. Combined with the requirement that people can sign up anytime, health insurance becomes quite expensive, with the young subsidizing the old.

The answer is refundable tax credits for everyone, not just the poor.

Health insurance companies should be allowed to offer multiple health insurance choices, including catastrophic health plans for those who want to pay for routine costs out of pocket and insure only against major medical events. People should be able to buy insurance that does not cover birth control, mental health coverage, or kids covered until age 26, to give a few examples.

2. End guaranteed issue: Under Obamacare, insurance companies have to take anyone in any open enrollment period, so people can wait until they are sick to sign up. This is similar to being able to buy auto insurance after a car crash or home insurance after a fire. Naturally, it raises premiums.  People should get a discount if they sign up when they are young and healthy and keep continuous coverage. 

3. Give all Americans refundable tax credits for health insurance purchase: 

Democrats are saying that Obamacare repeal will “Make America Sick Again” because some will not be able to afford health insurance. The answer is refundable tax credits for everyone, not just the poor. Currently, if people do not qualify for health insurance subsidies on the exchange and their employers do not offer insurance, premiums come from after-tax dollars. So someone in the 25% federal tax bracket with a family premium of $20,000 — the cost estimated by the IRS in 2015 — would have to earn an additional $26,000 before tax to pay for health insurance, and even more if he owes state income tax. This step would modify the employer advantage to providing health insurance.

4. Allow plans to compete across state lines:. Breaking down barriers to national competition in insurance (which, by act of Congress, is still regulated by states) would enhance competition and give consumers more choices, just as consumers are allowed to buy goods and services from companies in other states.

Prospective purchasers should be told the state of origin so that they can seek information about the vigor of each state’s regulation.

5. Accommodate pre-existing conditions:  Health insurance companies should not be permitted to raise premiums for pre-existing conditions if individuals have such continuous coverage. About 2 million to 4 million people a year have uninsurable conditions— about 1% to 2% of the U.S. population of 313 million. Under the ACA, these individuals are insured with everyone else, raising general insurance costs.

A broader choice of health insurance plans would reduce prices by encouraging insurance companies to compete for clients.

In order to enable companies to offer health insurance with low-cost premiums to the general public, those with severe illness could be given the option of special health insurance programs through the state, known as risk pools. The federal government should be prepared to help states set up risk pools if they request such assistance. This would provide more choice for those who really need extra help with difficult to insure conditions. 

Americans buy many types of insurance without a mandate, because they think that this insurance is worthwhile. For instance, they buy life insurance, auto insurance above the required state limits, and travel insurance. Health insurance can be made attractive so that people want to buy it.

A broader choice of health insurance plans would reduce prices by encouraging insurance companies to compete for clients. Now people hear “Call Geico to get a 15-minute quote and cut your auto insurance premiums.” Soon they could hear “Call Kaiser (or Aetna, Blue Cross-Blue Shield, or another provider) for a 15-minute quote and cut your health insurance premiums.” Congress can and should lead the way.

Republished from the Manhattan Institute.

  • Diana Furchtgott-Roth, former chief economist of the U.S. Department of Labor, is director of Economics21 and senior fellow at the Manhattan Institute.