Seven years ago at VFR I addressed a question Lawrence Auster – may God rest his soul, the dear man – had posed about fixing health care in the United States. Obamacare was then only a rumor. Now it seems to be already on its last legs, and the Trump Administration is preparing to kill it somehow or other, and replace it with something better. The White House strategists are reported to be reading us Reactionaries. So I thought I’d trot this out again.
Scott Brown himself is one of the Republicans calling for new health care bill written along bi-partisan lines; and I think that’s been his position all along. He wants something done about making insurance available to everyone without having the government take it over. But how is such a thing possible?
I answered as follows (except insofar as I have amended it on account of writing better than I once did, or [changed text]):
Vouchers. The government takes over health care funding without taking over health insurance or health care. The government would not intervene in the health care industry [at all], except that it would act as a clearing house for payments in much the same way that the Federal Reserve acts as a clearing house for checks. Here’s how it would work.
- Impose a new federal health insurance payroll tax equal to total health insurance premiums of all kinds (including [private insurance, Workers Comp premiums, Medicaid funding,] Medicare premiums and Medicare payroll taxes, which the new health insurance payroll tax would replace) collected from or for people of your age cohort in your county of residence, divided by the total number of insureds in your county of residence. So the payroll tax per capita per cohort is roughly equivalent to the cost of insurance per capita per cohort, in your area. Health insurance companies already charge by the county and cohort, so this is doable. The data have already been collected by insurers, all that is needed is for the government to collect it from the insurers and collate it.
- [Because the new payroll tax would replace, and be no greater than, all the healthcare insurance premiums collected by all insurers in your county (including the feds), the delta to your take home pay should be nil.]
- Issue health insurance vouchers to all citizens equal to the per capita [health care expenditures] for their age cohort in their county [plus a skoosh to keep the insurers interested in remaining engaged with the insurance business].
- Vouchers [would be accepted only] by insurers; [you would use your voucher by applying] for health insurance. The insurer would send the feds a bill [for your coverage]; the feds would send the insurer the voucher amount. The voucher amount less the premium, if any, would go to the insured as a rebate. If the premium were greater than the voucher, the insured would pay the difference.
- Solve the portability problem by a regulation that health-insurance policies must be guaranteed issue, except for costs already incurred.
- The argument against this has been that younger healthier people would forgo premium payments until they actually got sick, destroying insurance companies. But with their premiums already being collected via a tax they cannot avoid, this temptation to the healthy would be eliminated; since they were paying the cost of the insurance anyway via the payroll tax, they might as well sign up for the coverage.
- The motivation to do so would be provided by the proviso that they could not obtain insurance for costs already incurred; thus if they got hit by a car while uninsured, they would be able to obtain insurance coverage of costs for their ongoing care in the future, but not for [costs due to the car accident].
- Everyone who is not mentally incompetent would sign up, pronto. [They would have paid for the coverage, and might as well use it. No “individual mandate;” no one is forced to do anything.]
- Health insurers and health care providers could still compete on prices and benefits. The competition would be a lot stiffer than it is now, because the guaranteed issue provision would mean that we could switch insurers as easily as we now switch banks.
- If competition drove premiums below the voucher amount, the insured could pocket the rebate, or invest it tax-free in a Health Savings Account (HSA).
- Likewise, if the insured bought a high-deductible, thus less expensive policy, which cost less than the voucher amount, he could pocket the rebate or invest it tax-free in an HSA.
- Make the health insurance payroll tax a non-taxable item, the way employer-paid group health insurance premiums already are. For most workers, the health insurance payroll tax would be something like the sum of the Medicare tax they now pay and the health insurance premium they and their employer now pay. They won’t notice much of a difference.
- Receipt of rebates by insureds would be taxable to them as income (increasing their motivation to use HSA’s, which would increase the rate of capital formation).
- Taxpayers who opted for Cadillac plans, the cost of which exceeded their voucher amount, would have to make up the difference from their own pockets – a negative rebate, as it were.
- Negative rebates need not be tax-deductible, although the trend in federal tax policy with respect to employer benefits under ERISA has been to provide ways that employees can pay all their medical expenses with before-tax dollars. The idea is that health care expenditures should not be taxed at all, so as to increase the net motivation of taxpayers to take good care of themselves.
- The health care, pharmaceutical and insurance industries would remain unchanged, and in private hands. The only thing that would change is that insurers would collect most of their premiums from their customers via the federal premium collection agency.
- Regulation of insurers could remain in state hands, although federalizing insurer regulation would create a national market, which has a lot to be said for it: increased competition, consolidation of inefficient carriers, increased efficiencies and lower overhead, etc. Plus insurers operating in many states could slash their budget for regulatory compliance.
- Employers might still provide health insurance as a benefit. If effect, they would be providing vouchers of their own. But my guess is that with the payroll tax in place, and the insurability and portability problems solved, most employers would elect to drop their group health insurance plans and allocate the savings to increases in gross employee compensation.
- What about the indigent? Won’t premiums, and thus the payroll tax, go up when they are covered, even though they are not employed? No; in practice, all those people are covered already, and the cost of their care is already paid for by the premiums and taxes already paid by the employed.
- What about Medicare beneficiaries? Ditto. This reform would enable us to get the federal government out of the health insurance industry
This model could be extended to all health, education and welfare benefits.
For what it’s worth.