A Patient-Centered Plan for Near-Universal Coverage and
Permanent Fiscal Solvency
Avik Roy, Senior Fellow, Manhattan Institute
In 2010, President Obama signed into law the Patient Protection and Affordable Care Act, also known as the “Affordable Care Act,” the “ACA,” or “Obamacare.” The ACA will reduce the number of Americans without health insurance— an important goal—but it will do so by increasing the cost of U.S. health coverage. Increasing the cost of health coverage, in turn, will worsen two of the nation’s most important policy problems.
The first of those problems is the increasing unaffordability of private health insurance, a problem that is straining the budgets of middle-income Americans, and hampering social mobility. The second problem is the nation’s grave long-term fiscal instability, a problem primarily driven by government spending on health insurance and health care.
Indeed, the ACA will especially drive up the cost of private health insurance that individuals purchase directly. The law will dramatically expand Medicaid, a program with the poorest health outcomes of any health insurance system in the industrialized world. And the ACA, despite spending over $2 trillion over the next decade, will leave 23 million lawful U.S. residents without health insurance, according to estimates from the Congressional Budget Office (CBO).
In other words, the U.S. health care system remains in need of substantial reform, in ways that address the ACA’s deficiencies as well as the system’s preexisting flaws.
The ACA’s supporters wrongly contend that the health law requires only minor tinkering in order to succeed. But the ACA’s critics, in seeking to repeal Obamacare, would not necessarily address the underlying problems that predate the ACA. Furthermore, while it is possible to “repeal and replace” the ACA with a better health care system, it is desirable to develop policy proposals that do not require the disruption implied by repeal in order to put U.S. health spending on a sustainable path.
With these considerations in mind, the proposal contained herein—dubbed the Universal Exchange Plan (“the Plan”)—seeks to substantially repair both sets of health-policy problems: those caused by the ACA and those that predate it. It is the latter set of problems that have denied affordable, high-quality health care to millions of Americans, while presenting the government with crushing health care bills.
The Universal Exchange Plan’s reforms are perfectly compatible with the “repeal and replace” approach, but they do not require the full and formal repeal of the ACA in order to be enacted.
The Universal Exchange Plan would introduce major changes to the broad set of federal health care entitlements: Obamacare, Medicare, and Medicaid. While the Plan is compatible with the “repeal and replace” approach favored by Republicans, it does not require the formal repeal of the Affordable Care Act. Indeed, the Plan uses a reformed version of the ACA’s health insurance exchanges as the basis for far-reaching entitlement reform.
The Plan would repeal many of the ACA’s cost-increasing insurance mandates, including the individual mandate. But it would preserve the ACA’s guarantee that every American can purchase coverage regardless of preexisting conditions. And it would utilize the concept of using federal premium support subsidies, on a means-tested basis, to defray the cost of private health coverage.
It would gradually migrate most Medicaid recipients, along with future retirees, onto these reformed exchanges. This change would dramatically increase the quality of health coverage offered to Americans at or below the poverty line, and preserve the guarantee of health coverage for low- and middle-income seniors, while ensuring the fiscal sustainability of both federal health care commitments. The Plan proposes minor changes to the treatment of employer-sponsored health coverage, while giving workers additional tools to lower their health care bills. It would curb the pricing power of hospitals, cap malpractice damages, and accelerate medical innovation.
Taken together, these changes could usher in a new era of consumer-driven, patient-centered health care.
According to our estimates, the Universal Exchange Plan would, by 2025, increase the number of U.S. residents with health coverage by 12.1million, relative to the Affordable Care Act. Over time, we project that the Plan would outperform the ACA by an even wider margin.
The Plan would also expand economic opportunity for those struggling with high medical bills. It would improve the quality of health care delivered to the poor, and put America’s finances on a permanently stable course.
LEARNING FROM THE BEST INTERNATIONAL HEALTH SYSTEMS
The plan has its roots in real-world examples of market-oriented, cost-effective health reform. Notably, two wealthy nations—Switzerland and Singapore—spend a fraction of what the United States spends on health care subsidies; yet they have achieved universal coverage with high levels of access and quality.
In 2011, the Singaporean government spent $851 per capita on health care: less than a quarter of what the U.S. spent, adjusted for purchasing power parity. Singapore has achieved its savings using a universal system of consumer-driven health care. The government funds catastrophic coverage for every Singaporean, and reroutes a portion of workers’ payroll taxes into health savings accounts that can be used for routine expenses.
Switzerland offers its citizens premium support subsidies, on a sliding scale, for the purpose of buying private health insurance; there are no “public option” government insurers. Low-income individuals are fully subsidized; middle-income individuals are modestly subsidized; and upper-income individuals are unsubsidized. The sliding scale addresses a key challenge posed by welfare programs: mitigating the disincentive for welfare recipients to seek additional work, for fear of losing their benefits.
The Universal Exchange Plan’s Key Reforms
Repeals ACA individual mandate, employer mandate, & all tax hikes except ‘Cadillac Tax’
Emancipates exchanges from costly federal regulation • Combats hospital monopolies
Migrates most Medicaid enrollees and future retirees onto reformed exchanges
Projected Fiscal and Coverage Outcomes
30-year deficit reduction of $8 trillion • 30-year revenue reduction of $2.5 trillion
Makes Medicare Trust Fund permanently solvent • Reduces private-sector premiums
For Medicaid population, improves provider access by 98%; medical productivity by 159%
By 2025, increases coverage by 12.1 million above ACA levels
The Swiss system shares some of the unattractive features of the ACA, including the individual mandate. But because Switzerland focuses its public resources solely on lower-income individuals, the federation’s universal coverage system is far more efficient than America’s. In 2012, Switzerland public entities spent approximately $1,879 per capita on health care: 45 percent of U.S. public spending. Put another way, if U.S. government health spending was proportional to Switzerland’s, the U.S. would be able to eliminate its budget deficit.
Of course, the U.S. is neither Switzerland nor Singapore. Each country has its own political system, its own culture, and its own demography. Those differences, however, are not large enough to erase the gains that would accrue here by adapting the most relevant features of the Swiss and Singaporean health care systems to that of the United States.
UNIVERSAL EXCHANGES: A NEW OPTION
The Universal Exchange Plan, contemplated in this monograph, has five goals: (1) to expand coverage well above ACA levels, but without an individual mandate; (2) to improve the quality of coverage and care for low-income Americans; (3) to make all U.S. health care entitlement programs permanently solvent; (4) to reduce the federal deficit without raising taxes; and (5) to reduce the cost of health insurance.
The Plan would achieve each of these goals in a manner that is minimally disruptive to those who favor their current arrangements. As noted above, it would employ a revised version of the ACA’s subsidized insurance exchanges as a mechanism for reforming entitlements, expanding coverage, and improving health care quality.
The Plan has five core elements:
Exchange reform. The Plan repeals the ACA’s individual mandate requiring most Americans to purchase government-certified health coverage. The Plan restores the primacy of state-based exchanges and state-based insurance regulation. It expands the flexibility of insurers to design exchange-based policies that are more attractive to consumers, because they are of higher quality at a lower cost. The Plan expands access to health savings accounts. Because these reforms lower the cost of insurance for younger and healthier individuals, they have the potential to expand coverage, despite the lack of an individual mandate.
Employer-sponsored insurance reform. The Plan repeals the ACA’s employer mandate, thereby offering employers a wider range of options for subsidizing workers’ coverage. The Plan preserves the ACA’s “Cadillac tax” on high-cost health plans, but it repeals other taxes, and reforms other regulations that artificially drive up the cost of employer- based insurance.
Medicaid reform. The Plan migrates the Medicaid acute-care population onto the reformed state-based exchanges, with 100 percent federal funding and state oversight. (Medicaid acute care is a form of conventional insurance for hospital and doctor services.) In exchange, the Plan returns to the states, over time, full financial responsibility for the Medicaid long-term care population. (Long-term care funds nursing home stays and home health visits for the elderly and disabled.) This clean division of responsibilities will improve coverage for the poor; reduce waste, fraud and abuse; and provide fiscal certainty to state governments.
Medicare reform. The Plan gradually raises the Medicare eligibility age by four months each year. The end result is to preserve Medicare for current retirees, and to maintain future retirees—in the early years of their retirement—on their exchange-based or employer-sponsored health plans. (Today, the government does not allow the newly retired to remain on their old plans; instead, it forces them to enroll in Medicare or forfeit their Social Security benefits.) In total, these changes would make the Medicare Trust Fund permanently solvent.
Other reforms. The Plan tackles the growing problem of hospital monopolies that take advantage of their market power to charge unsustainably high prices. The Plan reforms malpractice litigation in federal programs. And it accelerates the pace of medical innovation through reform of the Food and Drug Administration.
ASSESSING THE PLAN’S FISCAL EFFECTS
We estimated the fiscal effects of the universal Exchange Plan by utilizing several methodologies, including a model developed by the Health Systems Innovation Network, and drew on data projections from the Congressional Budget Office and the Centers for Medicare and Medicaid Services. We assumed that the Plan is implemented in 2016 and estimated federal budget outcomes for three decades, from 2016 through 2045.
As with projections generated by the CBO, estimates of the Universal Exchange Plan’s performance beyond the first decade harbor considerable uncertainty. However, given the gradual nature of the Plan’s reforms, assessing its long-term impact on the health care system is critical to evaluating its merits.
Relative to the ACA, we estimate that the proposal will do the following:
- Over the first ten years, the Plan will reduce federal spending by $283 billion and federal revenues by $254 billion, for a net deficit reduction of $29 billion.
- Over the first ten years, the Plan will reduce state tax revenues by $331 billion, offset by a larger reduction in net state Medicaid spending due to the transfer of acute-care Medicaid enrollees onto the federally funded exchanges.
- Over the first 30 years, the Plan will reduce federal spending by approximately $10.5 trillion and federal revenues by approximately $2.5 trillion, for a net deficit reduction of approximately $8 trillion.
- The Plan will render the Medicare Trust Fund permanently solvent, if the entirety of the proposal’s Medicare savings were applied to the trust fund instead of toward deficit reduction.
We do not model the effects of this proposal on Treasury bond prices: the benchmark for the federal government’s borrowing costs. However, it would be reasonable to assume that the proposal’s substantial fiscal consolidation would lead to lower interest rates, and thereby less federal spending on interest payments.
Lower interest rates—in combination with a reduced tax burden, lower hiring costs, and lower health insurance premiums—should lead to higher economic growth, and thereby additional tax revenue and deficit reduction. We did not model these effects, instead assuming that the Plan has no impact on the CBO’s 2014 long-term GDP projections.
COVERING MORE PEOPLE, MORE AFFORDABLY, AT HIGHER QUALITY
Policymakers and researchers focus intensely on the number and proportion of U.S. residents with health insurance coverage. There is, however, far less focus on the quality of the coverage that Americans receive. As noted above, enrollees in Medicaid—and, to a lesser extent, Medicare—suffer from poorer access to physician care, and thereby poorer health outcomes, compared with individuals with employer-sponsored private coverage.
A central tenet of the Universal Exchange Plan is that offering exchange-based coverage to the population currently eligible for Medicaid will improve the degree to which low-income Americans can gain access to physician care, and thereby improved health outcomes.
In order to gauge the impact of the Plan on these individuals, we employed two indices developed by Stephen Parente and colleagues at the University of Minnesota: the Patient to Provider Access Index (PAI), measuring the breadth of choice of doctors and hospitals in a given plan; and the Medical Productivity Index (MPI), measuring health outcomes for different coverage arrangements.
Over the entire non-elderly adult population, relative to current law, we estimate that the Universal Exchange Plan will increase average provider access—as measured by PAI—by 4 percent. Those individuals who migrate from the traditional Medicaid acute-care program onto the reformed ACA exchanges are estimated to experience a substantial improvement in PAI: 98 percent.
Over the entire non-elderly adult population, relative to current law, the Universal Exchange Plan is estimated to increase average health outcomes— as measured by MPI—by 21 percent.
As with PAI, those individuals who migrate from the traditional Medicaid acute-care program onto the reformed ACA exchanges are estimated to experience a much more dramatic improvement in PAI: 159 percent.
The HSI microsimulation model indicates that the Universal Exchange Plan’s reforms to the ACA exchanges would reduce the average cost of commercial insurance premiums by 17 percent for single policies and 4 percent for family policies. Despite the lack of an individual mandate, HSI models the Universal Exchange Plan as increasing health insurance coverage. If the Plan were adopted in 2016, 12.1 million more individuals would gain health insurance coverage by 2025 relative to current law.
A FAR-REACHING HEALTH-REFORM PROPOSAL
The Universal Exchange Plan contemplates a broad range of far-reaching reforms to the U.S. health care system.
We have estimated the fiscal effects of the Plan over three decades, but considerable uncertainty surrounds all long-term projections. The Congressional Budget Office assumes that, from 2016 to 2035, U.S. economic output will grow at an average nominal rate of 4.2 percent per year, and that inflation over the same period will approximate 2.5 percent per year. If long-term inflation is higher, and/or long-term economic growth is slower, the U.S. fiscal picture will worsen considerably, affecting the reach of our proposed reforms.
No proposal to reform the U.S. health care system is immune from trade-offs, and the Universal Exchange Plan is no different. What it tries to do is to stitch together ideas from all sides to fix flaws in the system, new and old. It would increase the progressivity of health care–related federal outlays and tax expenditures. It would spend less subsidizing insurance for high-income employed and retired individuals, but spend more on insurance for the poor and the uninsured. However, it would do so not by employing a single-payer, government-run system, but rather by migrating low-income Americans and younger retirees into private, consumer-driven insurance plans.
Many people have justly criticized the ACA for its complexity and length. Legislative language for the Universal Exchange Plan, while not nearly as complex, will not fit onto two pages. The Plan seeks to expand coverage and reduce costs while minimizing disruption to the currently insured, an approach that requires addressing the existing complexities of a health care system that consumes $3 trillion a year.
Those who believe that there is no legitimate role for the federal government in funding health coverage for the uninsured may not find it satisfactory that the Plan preserves that role. Also left unsatisfied may be those who believe that the existence of private insurers is morally illegitimate.
In contrast to some other areas of public policy, however, it is possible for both progressives and conservatives to achieve important objectives under the Universal Exchange Plan.
The Plan brings us closer to true universal coverage. It permanently stabilizes the fiscal condition of the United States, by reducing the federal deficit by approximately $8 trillion over its first three decades and, over the long term, by encouraging U.S. gross domestic product to grow at a faster rate than federal health care spending.
Most important, it sows the seeds for a consumer-driven health care revolution, one that could substantially improve the quality of health care that every American receives, and restore America’s place as the world’s most dynamic economy.
ABOUT THE AUTHOR
AVIK ROY is a senior fellow at the Manhattan Institute and the Opinion Editor at Forbes. In 2012, Roy served as a health care policy adviser to Mitt Romney. NBC’s Chuck Todd, on Meet the Press, described Roy as one “of the most thoughtful guys who has been debating” health care reform.
Roy is also principal author of The Apothecary, the influential Forbes blog on health care policy and entitlement reform. MSNBC’s Chris Hayes calls The Apothecary “one of the best takes from conservatives on that set of issues.” Ezra Klein, in the Washington Post, called The Apothecary one of the few
“blogs I disagree with that I check daily.”
In addition, Roy writes regularly for National Review Online on politics and policy. His work has appeared in The Atlantic, USA Today, National Affairs, and The American Spectator, among other publications. He is a frequent guest on television news programs, including appearances on Fox News, Fox Business, NBC, MSNBC, CNBC, Bloomberg, PBS, and HBO.
He is the author of How Medicaid Fails the Poor, published by Encounter Books in 2013, and a member of the Advisory Board of the National Institute for Health Care Management.
At the Manhattan Institute, Roy’s research interests include the Affordable Care Act, universal coverage, entitlement reform, international health systems, and FDA policy.
Roy is the founder of Roy Healthcare Research, a consulting firm in New York. Previously, he served as an analyst and portfolio manager at Bain Capital, J.P. Morgan, and other firms.
He was born and raised near Detroit, Michigan, and graduated from high school in San Antonio, Texas. USA Today named him to its All-USA High School Academic First Team, honoring the top 20 high school seniors in the country.
Roy was educated at the Massachusetts Institute of Technology, where he studied molecular biology, and the Yale University School of Medicine.
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