This is the second in a serious of virtual debates I’m writing for Forbes on the issues. The first was on taxes. Today’s is on healthcare.
I’m not just the first economist to run for President. I’ve also been a long-time student of our healthcare system and problems. Indeed, in 2007 I wrote a book, published by MIT Press, called The Healthcare Fix. As you’ll see, my healthcare proposals differs markedly from Clinton and Trump’s. I’ll make clear where they fall short. They can respond in this space as desired.
We are now spending 5.2 percent of GDP on Medicare, Medicare, CHIP (Child Health Insurance Program) and Obamacare. This figure is projected (by the Congressional Budget Office) to rise to 9.1 percent by mid-century and to 13.3 percent of GDP by the end of the century. To put these figures in perspective, total federal revenues are 17.5 percent of GDP and projected to reach 18.1 percent of GDP in 2025 and remain at that level through 2100. Consequently, we will have only 4.8 percent of GDP (18.1 percent minus 13.3 per-cent) available, in terms of tax revenue, for all other spending. But all that other spending is projected to cost 16.4 percent of GDP!
The fiscal gap is our country’s true debt, since it measures the present value difference between all projected spending and taxes, i.e., it puts everything on the books. According to Congressional Budget Office projections, our current fiscal gap is $199 trillion fiscal gap. This is roughly 10 years of GDP!. Its source can, in good measure, be traced to the projected growth in federal healthcare spending relative to GDP. Indeed, if we could keep federal spending on healthcare at its current share of GDP, the fiscal gap would fall by three-fifths!
Hence, unless we are prepared to impose dramatically higher taxes on ourselves and our children, we need to get and keep control of federal healthcare spending. But we need to do so in a way that satisfies the following six principals.
Basic health insurance coverage should be provided to all Americans free of charge.
All Americans should be free to purchase supplemental coverage from their basic health insurance provider.
Basic health insurance should be privately provided with people free to choose their doctors and hospitals among those included in their insurer’s network.
Federal healthcare costs must be capped and affordable on a long-term basis.
The basic health insurance system should provide incentives to prevent overuse of healthcare services. It should also incentivize healthy living.
Medical malpractice reform is needed to limit the costs of defensive medicine.
My healthcare plan satisfies all these conditions. I call it the Purple Healthcare Plan again, both Republicans and 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.thepurplehealthplan.org, the plan has been vetted and endorsed by a long list of top economists, included five Nobel Laureates as well as a large number of non-economists from all walks of life.
I always give credit where credit is due. My plan, as I described in my book, represents a close variant on an early healthcare reform proposal by John Goodman, one of our country’s top economists who blogs for Forbes on healthcare and who directs The Goodman Institute.
Here are the plan’s 11 basic features:
Kotlikoff’s Health Reform
First, all Americans receive a voucher each year to purchase a uniform basic health insurance plan from the private insurer provider of their choice. The voucher pays in full for the policy, and the federal government pays the insurance provider the full amount of the voucher.
Second, 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 co-pay and deductible specified in the basic plan.
Third, Americans can switch insurance providers of the basic plan annually.
Fourth, 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).
Fifth, the vouchers will vary in size, but they will all purchase exactly the same basic health insurance policy with ex-actly the same set of coverages. Those with higher expected healthcare costs will receive larger vouchers. The purpose of making the vouchers individual-specific is not to provide difference health insurance to different people. The purpose is to keep insurance providers from having an incentive to subtly encourage 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 per-son’s objective health indicators. The voucher will incorporate a reasonable profit margin for health insurers.
Seventh, each year a panel of doctors will set the coverages of the uniform basic plan such that the sum total of the vouch-ers equals, but never exceeds, 7 percent of GDP. The figure 7 percent of GDP reflects the 2015 ratio to GDP of the costs of Medicare, Medicaid, CHIP, Obamacare and the tax subsidy to employer-based healthcare.
Eight, insurance companies will contract with doctors and hospitals to provide the basic plan to all their clients.
Ninth, each year every American will receive a new voucher and be free to choose the doctors and hospitals included in their chosen insurance company’s network.
Tenth, health providers can offer participants incentives to improve their health.
Eleventh, 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. 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. In so doing, it makes, as indicated, a massive contribution – 60 percent – to reducing the fiscal gap.
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 per-cent. 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 should begin to grow at a robust rate thanks to the combinations of reforms I’ve outlined. Seven per-cent of a larger economy means more healthcare can be provided in absolute terms. Stated differently, I expect the economy to grow more rapidly than healthcare costs.
Fourth, if the public feels we should spend more on the basic plan, I would propose raising the 7 percent figure, pro-vided we simultaneously raise taxes or reduce other spending to keep the fiscal gap at zero and that any changes to taxes and spending are not differentially targeted at the young and middle-aged.
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 isn’t. It’s a single-insurer healthcare system with a 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.
In short, the Purple Health Insurance Plan is a much more efficient and affordable version of our current healthcare system in which the federal government pays, either directly or indirectly, for one of every two dollars of healthcare expenditures. One final benefit from the Purple Health Plan: it will provide our veterans the same choice of healthcare insurers and their associated healthcare providers as everyone else in the country.
Clinton’s Healthcare Reform
On her campaign site, Clinton claims she will ignore Republicans who will block her every move, wave a magic wand and
a) Defend and expand the Affordable Care Act, b) let people over 55 years old buy into Medicare, c) bring down out-of-pocket costs like copays and deductibles, d) reduce the cost of prescription drugs, e) expand Medicaid, f) provide healthcare to all immigrants, g) expand rural healthcare access, h) defend access to reproductive health care, h) double fund community health centers, and i) triple funding for the National Health Service Corps.
This is a hodgepodge of suggestions, some good, some bad. It is not comprehensive healthcare reform. This is not a plan to keep healthcare from bankrupting our country. This is not a plan that ensures everyone has not just a basic health plan, but the exact same basic health plan. This is not a plan that will make private provision by insurance companies hyper competitive, drive down their profit margin, and make healthcare provision super efficient. This is not a plan to provide the same basic health plan to all regardless of work status, age, or income. This is not a plan that is progressive. This is not a plan to materially eliminate the fiscal gap and keep our children from paying astronomical tax bills. This is not a plan to eliminate the fantastically high marginal tax brackets facing the poor, which reflect, in large part, Medicaid and Obamacare. This is a plan to maintain four dysfunctional healthcare systems, each with explosive costs and each a bureaucratic mess — Medicaid, Medicare, Obamacare,and employer-based healthcare. This is a politician saying things to get elected. This is not a plan that will keep insurance companies from cheery picking the healthy and leaving the poor to fend for themselves.
Trump is also on another planet when it comes to healthcare reform. Here’s his plan.
a)He would completely repeal Obamacare, b) let people be uninsured if they want to be uninsured, c) allow insurance sale across state lines, d) allow individuals to fully deduct health insurance premium payments from their tax returns under the current tax system, d) review Medicaid to ensure that those who want healthcare coverage can have it, e) let individuals use tax-free Health Savings Accounts (HSAs), f) require price transparency from healthcare providers, g) let people shop for healthcare, h) block-grant Medicaid to the states, g) remove barriers to entry of foreign-made drugs.
This is another potpourri of ideas, some good some bad. It is not comprehensive healthcare reform. It will put us back to pre-Obamacare when 50 million Americans were uninsured, 8 million of which were children. There is nothing here to cure the basic problem with the private health insurance market — cherry picking by insurers (what economists call adverse selection). This is not a plan to deal with the explosion in federal healthcare costs apart from simply not covering millions of people. This is not a plan to eliminate the poverty trap that Medicaid represents for tens of millions of poor families who lose Medicaid if they earn too much. This is a plan to let tens of millions of Americans go without health insurance, get terribly sick, have to spend almost every penny they have before they qualify for Medicaid, and then make sure they don’t earn too much money to stay on Medicaid. This is a plan to provide more federal tax breaks when the country is already dead broke. This is a plan to give the states a fixed amount of money and tell them, “It’s your problem. Insure whoever you want.” This will produce a race to the bottom as well as people moving, when they become sick, from a state with a worse Medicaid system to a somewhat better one. This is not a plan to materially help eliminate the fiscal gap. This, like Clinton’s health sound bites, is no plan at all.