Paul Ryan and House Republicans pulled their bill for “Repeal and Replace” of ObamaCare on Friday when they were unable to secure enough votes for passage. Not surprisingly, no Democrats supported the bill but there was also strong opposition from Republican members of the Freedom Caucus. There were 2 issues that lay at the heart of the opposition from the Freedom Caucus. First, the bill did not repeal the Affordable Care Act but only amended the Act. Second, nothing in the proposed bill would reduce insurance premiums. In my opinion, these two flaws in the bill warranted opposition and the Republicans should count themselves fortunate to have failed to pass a bill with these flaws that they would then own.
However, this cannot be over. Republicans do need to repeal ObamaCare and replace it with something that works. Failing to do so perpetuates the Affordable Care Act and the unaffordable health insurance premiums that it has produced. Rising and unaffordable insurance premiums consequent to continuation of the Affordable Care Act will also be laid at the feet of Republicans by the electorate in 2018 as Republicans promised to solve this problem and then failed to do so in spite of having a Republican President, a Republican House, and a Republican Senate.
So maybe now Republicans will be open to entertaining new ideas on how to fix our broken healthcare system. I have been proposing the following since 2007. My proposal requires no tax credits or tax subsidies and should consequently appeal to the Freedom Caucus. It is a free market, pro-business solution that restores the doctor-patient relationship and should therefore appeal to all Republicans. It is affordable for employees at any income level and should consequently appeal to moderate Democrats. In short, this proposal should unite both political parties and finally deliver the promise of high quality, affordable healthcare for all Americans free from interference by government or the health insurers.
Eight Steps to Transforming Our Healthcare System
- Repeal the Affordable Care Act
This is essential as the taxes and health insurance mandates embedded in the Affordable Care Act are largely responsible for driving the rise in insurance premium rates.
- Amend Section 419 of the IRS Code
Section 419 of the IRS Code provides for taxation of funds retained in an employer owned health benefits account beyond what is needed to pay for 13 months of healthcare expenses. Amending Section 419 to eliminate this taxation would level the playing field between employers who self-fund healthcare and the healthcare insurers. Funds in the health insurers’ reserves are untaxed and funds retained in an employer-owned health benefit account such as a Health Reimbursement Arrangement (HRA) should be given the same treatment. This is a tax neutral issue as employers deduct the full cost of health insurance premiums paid on behalf of their employees. There is consequently no tax revenue lost if an employer places the same amount into an HRA and happens to retain some of those funds at the end of a year. This would also serve to place the employer’s HRA on equal footing with the employee’s HSA. The funds retained in an employee’s HSA are untaxed. Why are we selectively choosing to tax the funds retained in an employer’s HRA? The effect of this tax is to make self-funding a less attractive option for the employer and consequently reduce this avenue of competition for the health insurers. This lack of competition is not beneficial to the consumer. Removing this tax would encourage employers to sponsor healthcare for their employees by self-funding if insurance rates become so high as to mitigate the risk of self-funding. Consequently, removing this tax will help to control the rise in health insurance premiums.
- Stop Managing the Delivery of Healthcare and Start Managing the Finance of Healthcare
The health insurance industry introduced our current model for the management of healthcare delivery in 1980. At that time, healthcare costs per capita in the U.S. were $1,180 per year. Under this model healthcare costs per capita have exceeded $10,000 per year. Clearly this model has failed to contain cost. The reason is that the management of healthcare delivery is far to labor-intensive to ever be cost-effective. From 1980 to present, the population of the U.S. increased 125%. The number of physicians in the U.S. increased 125%. However, the number of healthcare administrators in the U.S. increased over 3,000%. We are consequently spending more now on the management of healthcare delivery than we spend on the actual delivery of healthcare. I am therefore proposing a new paradigm for healthcare–one that replaces the management of healthcare delivery with the management of healthcare finance. This new paradigm will allow employers who self-fund to create the funds to exceed the need rather than forcing our healthcare need to fit within a pre-determined set of funds. This will essentially allow these employers to create a healthcare endowment for their company and eliminate the employer contribution toward healthcare after an initial funding period of 10-15 years. Best of all, this can be done without employers contributing more into their HRA than they currently spend on healthcare premiums today.
These 3 steps are needed to allow the new paradigm for the management of healthcare finance to come into existence. The next 5 steps are necessary for the operation of self-funded plans under the new paradigm. These steps will be discussed in part two of this post.