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John C. Goodman / Dec. 4, 2013

The New Healthcare Contract With America

Affordable Care Act regulations have forced health insurers to cancel the policies of an estimated five million Americans. By the end of the year, the final number of people who receive cancellation notices could reach seven to 10 million. These victims of ObamaCare are being forced into the new health-insurance exchanges. But the exchanges don't work. The federal exchange is such a disaster that the administration announced a "tech surge" to get it right -- as if the bureaucracy were launching a foreign war.

Editor’s Note: co-authored by John R. Graham, Senior Fellow at The Independent Institute.

Affordable Care Act regulations have forced health insurers to cancel the policies of an estimated five million Americans. By the end of the year, the final number of people who receive cancellation notices could reach seven to 10 million.

These victims of ObamaCare are being forced into the new health-insurance exchanges. But the exchanges don’t work. The federal exchange is such a disaster that the administration announced a “tech surge” to get it right – as if the bureaucracy were launching a foreign war.

The president’s characteristic waffling isn’t helping. On Nov. 14, he threw the entire sign-up campaign into chaos with an announcement that the administration would ignore the rules that forced insurers to cancel certain 2013 policies. A few minutes at the presidential podium overturned three years of regulatory rule making and business planning. As recently as Oct. 30, President Obama was still browbeating the insurance industry, attacking them for selling “bad apple” policies.

Notwithstanding the unfolding chaos of ObamaCare, most opponents have not systematically identified the inherent flaws of the healthcare overhaul law or offered a practical, comprehensive market-based solution.

The Independent Institute, drawing on the ideas outlined in its landmark book, Priceless: Curing the Healthcare Crisis by John C. Goodman (Senior Fellow, The Independent Institute; President, NCPA), is partnering with the NCPA, which developed the first Contract in 2012, to develop and promote The New Healthcare Contract with America, which identifies the key problems and corresponding solutions that will empower patients, create real competition among healthcare providers, and minimize the distorting role of government in the medical marketplace.

Six Reasons Why ObamaCare Is Failing:

  1. ObamaCare is not paid for
  2. ObamaCare promises what it cannot deliver
  3. ObamaCare subsidies and mandates will destabilize entire sectors of the economy
  4. ObamaCare creates perverse incentives that threaten the quality of care
  5. A weakly enforced mandate will undermine the health insurance marketplace
  6. A strongly enforced mandate will strain almost every family budget

Six Elements of a Free-Market Solution:

1. Choice. People should be able to choose a health plan that fits individual and family needs, rather than a plan designed by bureaucrats in Washington. This means no mandate. Men shouldn’t have to buy maternity coverage; women shouldn’t have to buy coverage for prostate cancer tests; teetotalers shouldn’t have to buy substance abuse insurance, etc. And no one should have to buy coverage for preventive procedures that health researchers have known for years are not cost effective.

Had we accepted the principle of choice in designing health reform, we would not have the prospect of up to 10 million individual policy holders losing insurance they were promised they could keep, and millions more in fear of losing their employer plan.

2. Fairness. Fairness means that if government subsidizes health insurance through refundable tax credits, the credit should be the same for everyone at the same income level. For example, suppose we offer every adult an annual tax credit worth $2,500 and every child a credit worth $1,500. People would get this subsidy so long as they obtain credible private health insurance, no matter where they obtain it – at work, in the marketplace, or in an exchange.

With a uniform tax credit, 90 percent of the problems the ObamaCare exchanges are now having would go away in a flash. Signing up for insurance would be easy. Insurance companies and brokers would be able to sign people up outside of the exchanges without asking privacy-invading questions about their income and assets.

3. Universality. There will always be some people who will turn down the offer of a tax credit. But instead of having the Treasury keep those unclaimed credits, the money should be sent to safety net institutions in the communities where the uninsured live. Uninsured patients will probably be asked to pay their medical bills. But if they cannot, the safety net institutions will have a source of cash to pay for “uncompensated care.”

Note: the tax credit dollar amounts stated above are the Congressional Budget Office estimates of the cost of enrolling new people in Medicaid. So an additional way of ensuring universal coverage would be to allow people to use their tax credit to buy into Medicaid, even though it will generally not be as good as private insurance.

4. Portability. In most states today it is illegal for employers to buy for their employees what they most want and need – insurance that travels with them from job to job and in and out of the labor market. Employers can buy group insurance with pre-tax dollars. But they can’t buy individually owned insurance. That means that people lose their insurance when they leave their employer, and that is the primary reason why pre-existing conditions are a problem in this country. This policy needs to be reversed.

Employers should be encouraged to provide portable insurance for their employees in the same way that 401(k) plans and employer-paid life insurance is portable. NFL football players and United Mine workers already have portable insurance, with premiums paid by their employers. It’s time to extend this opportunity to everyone.

5. Patient Power. Health Savings Accounts (HSAs) and Health Reimbursement Arrangements (HRAs) are very effective ways to eliminate waste and control costs. That’s why 30 million people now have these accounts. Still, we are not taking full advantage of the opportunities here.

Instead of the rigid restrictions of the current law, HSAs need to be completely flexible – wrapping around any third-party insurance plan. Then let the market determine the appropriate division between third-party insurance and individual self-insurance via a designated savings account. The private sector also needs the ability to create special accounts for the chronically ill. A model for this is the highly successful Cash and Counseling program, under which the Medicaid disabled manage their own healthcare dollars.

6. Real Insurance. The prime motive behind health reform was to give everyone access to care. Yet the way things are panning out, millions of people are losing insurance with very reasonable access to providers and are being forced into an exchange where the typical health plan avoids the best doctors and the best hospitals. In some areas, these plans are dubbed “Medicaid Plus.” In Massachusetts, it appears that patients with subsidized private insurance have worse access to care than people on Medicaid!

How could things be different? Let people insure against the costs of getting a pre-existing condition. Under this approach, no insurer would be allowed to dump its most costly enrollees onto another insurer without paying the full cost of the transfer. So if an expensive-to-treat patient moves from Plan A to Plan B, the former has to compensate the latter for any above-average expected costs.

How much would an alternative to ObamaCare cost? If we take all of the current subsidies for employer-provided insurance and add all of the subsidies ObamaCare is providing, there is more than enough money for this alternative approach.

Since the release of Priceless, the Independent Institute has led the charge to restore control of our health to consumers and their doctors. Dr. Goodman is a leading spokesperson on these issues, appearing frequently on Fox News" “Special Report with Brett Baier,” Fox Business Channel"s “Stossel,” CNBC, CBN, The Blaze, Opinion Journal TV, and C-SPAN, and has published regularly in the Wall Street Journal, Weekly Standard, Forbes, and National Review, among many others.

Senior Fellows Goodman and Graham are committed to achieving true healthcare reform in the next legislative battles, which requires freeing caregivers and patients by allowing them to interact in innovative ways to help individuals meet their unique medical needs. The time to repeal and replace is now, with the problems with this massive government overreach clearly exposed.

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