The Republicans’ Healthcare Answer — The Purple Health Plan

WASHINGTON, DC - JANUARY 18: U.S. Health and Human Services Secretary Nominee Rep. Tom Price (R-GA) testifies during his confirmation hearing January 17, 2017 on Capitol Hill in Washington, DC. Price, a leading critic of the Affordable Care Act, is expected to face questions about his healthcare stock purchases before introducing legislation that would benefit the companies. (Photo by Alex Wong/Getty Images)

The Republicans are in one hell of a jam. They have taken a blood oath to repeal Obamacare, yet have no viable replacement. Tossing 23 million Obamacare-insured Americans under the bus could be political suicide.

Yes, Tom Price, the presumptive Secretary of Health and Human Services, has a plan. But it doesn’t pass muster. The plan provides refundable tax credits ranging from $1,500 to $3,000 depending on your age. Try buying a plan with decent coverage for such measly sums. Moreover, if you have a pre-existing condition and your coverage has lapsed for too long, insurers can turn you away or jack up your premium by 50 percent for three years.

Having lousy health insurance is little better than simply being uninsured. But many healthy people will buy the cheapest available policy so they can flip to a decent, if more expensive policy when they get sick.

This will recreate the problem with Obamacare – too few healthy people buying the decent policies that provide reasonable coverage. Since those buying the decent policies are sicker than average, the insurance companies have to charge very high premiums to cover their costs. This makes such policies unaffordable for many low-income Americans who are currently sick or will get sick.

The result is lots of healthy people with crappy policies gaming the system and lots of sick people with crappy policies because they can’t afford decent policies. Tom Price can claim everyone or most everyone has bought a piece of paper with the words “health insurance policy” printed on the top, but he’s literally papering over the problem.

WASHINGTON, DC - JANUARY 18: U.S. Health and Human Services Secretary Nominee Rep. Tom Price (R-GA) testifies during his confirmation hearing January 17, 2017 on Capitol Hill in Washington, DC. Price, a leading critic of the Affordable Care Act, is expected to face questions about his healthcare stock purchases before introducing legislation that would benefit the companies. (Photo by Alex Wong/Getty Images)

U.S. Health and Human Services Secretary Nominee Rep. Tom Price (R-GA) testifies during his confirmation hearing January 17, 2017 on Capitol Hill in Washington, DC. Price, a leading critic of the Affordable Care Act, is expected to face questions about his healthcare stock purchases before introducing legislation that would benefit the companies. (Photo by Alex Wong/Getty Images)

The Republicans are in one hell of a jam. They have taken a blood oath to repeal Obamacare, yet have no viable replacement. Tossing 23 million Obamacare-insured Americans under the bus could be political suicide.

Yes, Tom Price, the presumptive Secretary of Health and Human Services, has a plan. But it doesn’t pass muster. The plan provides refundable tax credits ranging from $1,500 to $3,000 depending on your age. Try buying a plan with decent coverage for such measly sums. Moreover, if you have a pre-existing condition and your coverage has lapsed for too long, insurers can turn you away or jack up your premium by 50 percent for three years.

Having lousy health insurance is little better than simply being uninsured. But many healthy people will buy the cheapest available policy so they can flip to a decent, if more expensive policy when they get sick.

This will recreate the problem with Obamacare – too few healthy people buying the decent policies that provide reasonable coverage. Since those buying the decent policies are sicker than average, the insurance companies have to charge very high premiums to cover their costs. This makes such policies unaffordable for many low-income Americans who are currently sick or will get sick.

The result is lots of healthy people with crappy policies gaming the system and lots of sick people with crappy policies because they can’t afford decent policies. Tom Price can claim everyone or most everyone has bought a piece of paper with the words “health insurance policy” printed on the top, but he’s literally papering over the problem.

rice is a doctor. He’s not an economist, let alone a health economist. It shows. Economists know enough not to do brain surgery. Doctors should learn health economics and the economics of information before they try to fix health insurance.

There is only one way to fix healthcare for real and for good — put everyone in the same pool with the same policy. My proposed plan does just this.

I call it The Purple Healthcare Plan, since both red Republicans and blue Democrats should find it highly appealing. The plan eliminates Medicare, Medicaid, Obamacare and tax subsidies to employer-provided healthcare. As you can see at www.thepurplehealthcareplan.org, the plan has been vetted and endorsed by a long list of top economists, included five Nobel Laureates.

Here are the plan’s 10 features:

First, all Americans (including Vets) receive a voucher each year to purchase a uniform basic health insurance plan from the private insurer of their choice. The voucher pays in full for the policy. Uncle Sam, in turn, pays the insurance company the full amount stated on the voucher.

Second, the amount on each person’s voucher will equal his or her expected cost under the basic plan. Hence, the amounts on the vouchers will vary. Those with pre-existing conditions will receive larger vouchers commensurate with their higher expected costs. But each voucher, no matter its size, will buy the same basic health insurance policy with exactly the same coverages. Stated differently, sick Joe’s liver will be covered to the same degree as healthy Jane’s.

Third, the private insurer chosen is responsible, over the course of the year, for all healthcare costs that are covered under the basic plan. The one exception is the uniform co-pay and uniform deductible specified by Uncle Sam as part of the basic plan.

Fourth, Americans receive new vouchers each year based on their current health status (again, measured in terms of objective health indicators) and can switch insurance providers annually.

Fifth, all health insurers need to offer the uniform basic plan in exchange for the voucher as well as offer supplemental coverage at a uniform price to anyone who takes basic-plan coverage (there is no denial of coverage with respect to supplemental policies).

Giving the sick larger vouchers commensurate with their larger expected treatment costs will keep insurance companies from subtly encouraging the sick to go elsewhere. In other words, larger vouchers will directly compensate the insurer for insuring Americans with higher expected medical costs and make insurers just as eager to enroll the sick as the healthy.

Sixth, the size of each person’s voucher will be determined based on electronic medical records that document the person’s objective health indicators. The voucher will incorporate a reasonable profit margin for health insurers.

Software is already in use in Medicare Part C to price out each person’s voucher. So there is nothing pie in the sky about implementing this proposal.

Yes, moving quickly to a uniform system of electronic medical records will be a hurdle, but it’s one that’s far overdue. At this point, someone can have a test last week at hospital A and land in hospital B only to have the test repeated because no one at hospital B can access the results from the test at hospital A. This is one of the many reasons our healthcare system is wastes money like crazy.

Seventh, each year a panel of doctors will set the coverages of the uniform basic plan such that the sum total of the vouchers equals, but never exceeds, 7 percent of GDP. The figure 7 percent of GDP reflects today’s costs of Medicare, Medicaid, CHIP, Obamacare and the tax subsidy to employer-based healthcare.

Eighth, insurance companies will contract with doctors and hospitals to provide the basic plan to all their clients.

Ninth, health insurers can offer participants incentives to improve their health.

Tenth, Congress will pass legislation limiting malpractice claims in order to mitigate the practice of defensive medicine.

Here’s the beauty of this plan. It turns basic health insurance into a commodity, like wheat. Since all insurers will compete to provide the same basic insurance plan, there will be intense competition to provide the best quality of care and in order to re-sign the participant at the end of the year. This will squeeze out the excessive costs being paid insurance companies for running their businesses so inefficiently. It will also limit what top insurance company managers can afford to pay themselves.

Even more important, the plan provides basic health insurance to everyone in the country without driving the country broke. But is the 7 percent of GDP cap realistic given that the population is aging and that medical costs rise with age? I have four responses. First, roughly 16 percent of today’s U.S. population is now 65 and older. By mid-century, that figure will be 22 percent. Hence, the U.S. will be older, but not that much older.

Second, the intense competition of insurance providers to supply the basis plan should drive quality up and prices down. If the government says that services of type X needs to be used for situation Y, insurers will seek the least expensive means to provide these services without sacrificing quality. Sacrificing quality will limit the number of repeat customers and, thus, their profits.

Third, our economy will, hopefully, start growing at a robust rate. Seven percent of a larger economy means more healthcare can be provided in absolute terms.

Fourth, if the public feels we should spend more on the basic plan, I would propose raising the 7 percent figure, provided we simultaneously raise taxes or reduce other spending to keep from passing the bill to our children and that any changes to taxes and spending don’t disproportionately hurt our kids.

Finally, the plan is progressive. Although everyone gets the same basic health insurance plan, the value of this plan is much greater to those with pre-existing conditions. Since the poor are less healthy on average than the rich, the poor will receive, on average, larger vouchers than the rich. For many of the poor, the size of their vouchers will be dramatically higher.

This may sound like single-payer healthcare. It’s not. It’s a single-insurer healthcare system with totally private provision of healthcare services. Yes, the federal government uses tax dollars to pay for everyone’s basic health insurance policy, but unlike, say, the British National Health Service, the government does not own the hospitals, hire the doctors, buy the drugs, etc. Hence, this is multi-private provider, single payer. But, in fact, our tax dollars will be used to cover the costs of the vouchers. So the system is best described as multi-private provider and multi-private payer.

The Republicans have had a long time to go beyond demonizing Obamacare and come up with a fundamental healthcare reform that won’t reproduce Obamacare’s problems in a different form. They’ve failed to do so. Apparently they don’t get that the market for health insurance is entirely different from the market for wheat. Sellers of wheat can see what they are selling. Sellers of health insurance policies can’t see how sick someone is before they sign them up. This type of information problem leads insurance markets, in general, and health insurance markets, in particular, to break down. This is why the government is so heavily involved in the health insurance market compared to the market for wheat.

The beauty of the Purple Health Plan is that it eliminates this asymmetric information problem by revealing to the sellers, via the size of the vouchers, their customers’ health statuses summarized in terms of the bottom line – what their customers will cost to insure. This information revelation will transform the health insurance industry into something it’s never been, but desperately needs to be – a market for a uniform commodity just like the market for wheat.

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[Source:-Forbes]