Wednesday, March 12, 2014

My Big Idea: Healthcare Reform

As the PPACA groans and lurches forward towards collapse, many of it's supporters defend the bill with a simple, valid (albeit ignorant) question:  Well, what would you offer in return?

Well, ignoring the long list of counter proposals offered before and after the passage of PPACA that already exist, I decided to think about this a bit myself and try and pull together some of the best of the existing counter proposals as well as a few big ideas of my own (which very well might also have been proposed before... there are a lot of counter proposals out there!)

My goal was to tackle the two big problems that PPACA was -- in theory -- designed to fix, but that in practice have proven unworkable or made things worse.  Those two problems are:  Affordability and coverage for those with per-existing conditions.  

In general the balance has to be struck in creating such a plan that meets those two goals while not increasing cost to insurers and not opening the system to fraud. I think my 6 point proposal pretty well covers all of those bases.  The critical piece of my plan that I separates in from the critically flawed PPACA is that it functions on incentives rather than mandates and tax penalties.

Here are the bare bones of my proposal:

1) End the employer based insurance model. Make insurance a commodity that people shop for on their own. Employers can choose to give employees a flat pre-tax bonus for paying for insurance (this is mainly to accommodate those who live pay check to paycheck and can't really wait for an annual recoup of costs on their taxes)

2) Open up interstate commerce for health insurance. This will have limited effect, admittedly, since each state will still regulate coverage levels in their own state, but if states enter into coalitions to set minimum insurance levels in common it will allow insurers to market insurance plans to larger pools of customers.

3) The Big Idea #1: Allow insurers to prorate payouts based on the percentage of the previous year that a customer was insured. Allow the insurer to enforce this for 3 months. The full cost of expenses incurred in these three months would apply to the plan's OOPM, however.

4) The Big Idea #2: If a customer cancels their plan in the first two years they will be required to pay back all of the money paid out by the insurer on their behalf minus 85% of the premium paid. So if a person incurs $10,000 in medical expenses and pays $10,000 in premiums then the cancellation fee would be $1,500.

5) The Big Idea #3: Applicants who spent two or more years without insurance prior to application must spend at least 1 year on a healthcare plan purchased from the state high risk pool. This plan can be a catastrophic coverage plan.

6) The Big Idea #4: Allow an unlimited roll-over of Healthcare Savings plans (HSP) in perpetuity, with balances of such plans being transferable upon death to another person at a 20% tax rate if transferred to that person's HSP, or at a 50% tax rate if withdrawn as cash. The tax penalty can be reduced at a rate of 5% annually for every year the deceased paid into a high risk insurance plan.

The practical upshot of these 6 reforms is to make insurance mobile, more competitive, and to incentivize healthy middle and upper-middle class customers to invest in their state's high risk pools for tax reasons all while giving the uninsured a pathway to full coverage and providing systemic protections to insurers against people who look to game the system.

I could just as easily add a seventh point that would include tort reform, but I think any such reform should stand on its own merits rather than be lumped in with a more universal reform.