Is there hope for bipartisan alignment on healthcare insurance?

Bambi Francisco Roizen · October 25, 2019 · Short URL: https://vator.tv/n/4eff

Republican strategist Lanhee Chen has some constructive ideas

There's a lot of warning signs that the US healthcare system is in disrepair.

In the public sector, the democratic socialist's answer to healthcare -- "Medicare for All" -- has become an increasingly popular proposition. In a VatorNew survey, 30 percent of those polled said they would like Medicare for All, while 32 percent said they'd support it together with a private option component. And one of the staunchest supporters of the universal plan is Sen. Elizabeth Warren, who just became the current Democratic 2020 front-runner.

In the private sector, JP Morgan, Amazon and Berkshire Hathaway joined forces last year to create their own organization called Haven to lower healthcare costs for its 1.2 million employees.

The question is: Do we want government to control healthcare with a universal, single-payer plan like Medicare for All? Or do we want the private sector to do so? As in most things, somewhere in the middle lies the answer. I recently spoke with Lanhee Chen, Republic strategist who served as a policy director under Mitt Romney, about his views on how we could get some bipartisan laws in place to help.  

(Note: Vator will be holding its latest healthcare salon, called The Future of Health Insurance, on Nov. 14. Join executives from CVS Aetna, Anthem, Bind Benefits and more. Get tickets here!)

Here it is (slightly edited)

BF: We already have a Public/Private offering with 67% of insurance offered by private companies and 34% covered by the government. Most people want to keep the private/public offerings yet people still aren't satisfied and that's why we're hearing a lot more about universal coverage as an option. What are two-to-three bipartisan changes we should consider to improve healthcare policy?

LC: We have 160 million people who get their insurance from their employers, so the first thing people on the center right and center left agree on is that we shouldn’t do anything to the current system. So when we talk about Medicare for All, we risk disrupting what’s working. For Conservatives, the goal is to create more optionality and choice in marketplaces. Through executive orders, the Trump Administration has done things to open up the marketplace. They’ve authorized certain plans to be offered called Short-Term, Limited Duration plans. The idea is to give someone a choice between a fully-loaded plan required by Obamacare and another plan that’s limited in scope with fewer benefits, limited in duration, but at a lower cost. Someone who’s young and healthy might opt for this. And Obamacare doesn’t have this. But this covers catastrophic accidents or other major health conditions. This is the divide. Republicans have wanted to open up the marketplace while Democrats have been saying, “Can we make Obamacare work better?”  Let’s figure out ways to make subsidies to insurance companies more permanent. The subsidies help to lower costs for insurance companies who then would be more open to offer coverage to unhealthy people. How you bridge this gap between both sides is the question. For example, can you create a stream of funding that’s stable and predictable while at the same time give Republicans what they want, which is optionality. But because we’re so polarized today, it’s tough to imagine two sides even agreeing to this package.

BF: Are there any proposals that come close to offering that?

LC: There are efforts to stabilize Obamacare and expand optionality. Additionally, Republicans want to give more control to the states. So a state-based reform package is something Republicans would gravitate to. One proposal offered up is by Lamar Alexander (R) and Patty Murray (D). It's called the Lower Health Care Costs Act. But there is no serious conversation about a bipartisan plan.

BF: What’s the benefit to expanding subsidies?

LC: To answer that, first understand that Obamacare created a series of assistance programs designed to lower premiums for those at the lower end of the income scale. Part of Obamacare was meant to provide additional aid to those with low income, but that pool of money for them has not been predictable. These are called cost sharing reductions. This is money to insurance companies to offset costs and bring premiums down. There’s also another pot of money - risk mitigation money - which are direct insurance subsidies to write off any added risk insurance companies take on. So given this, there is an argument for creating a steady stream of subsidy money for insurers to keep costs low.

BF: But do you agree with so many subsidies?

LC: If you have to have a big fix for stabilizing Obamacare, then we need affordability at the low end. That needs to be addressed. I would be in favor of creating more stability, but also more optionality. I would not support more subsidies without getting optionality so I'd support subsidies as part of a broader package. 

BF: The ACA exchanges seem like a good idea when you have multiple insurance companies offering different packages. That sounds like optionality. What’s good about them and what’s wrong with them?

LC: The challenge with the exchanges is how much is coverage costing? People don’t want to buy more coverage than they need. On the exchanges, there’s not much optionality around barebones plans. And a majority of people on these exchanges are getting a subsidy from (APTC) tax credits, which are given to people earning up to 400% of the federal poverty. There's a very small number, if any, small business owners on these exchanges. The concept of having a marketplace is a great idea. The question is: How regulated is it? The challenge with Obamacare, is that it is heavily regulated. So people are trying to buy these plans but all these plans include all these unnecessary benefits and hence, they're so expensive. So people forgo coverage because they don’t need it. So opening up competition to more limited plans would help. 

BF: Why haven't we relaxed coverage on these exchanges?

LC: Congress hasn’t. But the Trump Administration through executive order has authorized off-exchange plans which are those short-term limited duration plans.  

BF: Why not offer them on exchanges?

LC: Offering them on exchanges would result in “adverse selection." Healthy people gravitate to cheaper plans and so they'd gravitate to these barebones plans. This leaves sick people in the other plans. Obamacare restricts what insurance companies can charge, so this means insurance companies are stuck taking a lot of risk for people who are sick. Obamacare is designed to have sick people be underwritten by healthy people. When you stop having this flow of funds from healthy to sick, the sick will be expensive to cover. The concern of Democrats is that these short-term plans will take healthy people away from the exchanges, leaving insurance companies with the costs, and resulting in them not offering coverage at all. 

BF: What does the Trump administration want to do with those sick people?

LC: They’re in favor of state-based solutions for high-utilization plans. An example would be Alaska where the state takes a flow of federal funds and use it to subsidize sicker or poorer people. The idea is taking a pool of people who are sicker and figuring out how to pay those costs vs an indirect subsidy where healthy people pay for the sicker people.  

BF: You mention Alaska as an example of a role model insurance system. What role models do you see around the world? 

LC: The one I find most interesting is Singapore. It has a robust consumer-directed element where everyone gets an Health Savings Account (HSA) at birth, plus a backstop by government (subsidies). This kind of system is coupled with radical price and quality-of-care transparency. The US system is pretty opaque. Singapore believes the more information you give consumers, the more you empower them. Now Singapore has a few million people, so the question is can you scale that system to America? But there’s reasonableness around their philosophy about educating more consumers. Ultimately, this is what causes the problems in rising healthcare costs -- the lack of financial incentive by consumers to make decisions, like an MRI. You can't make an educated guess because you don't know what it costs. But consumers need to start knowing and asking more questions.

BF: What could go wrong with the Singapore model at scale?

LC: There's no doubt that there’s huge opportunity for the government and private sector around consumer informatics. We see this already with companies providing employees with transparency around doctors, and steering people to better modalities of care that are more cost-effective. We need to scale this more. We need to do it in a way that gives people more access to information. We don’t have that. We have Hospital compare put out by CMS, which ranks hospitals on how well they do in treating Medicare patients. It’s fine but not granular enough to know quality at the procedure level or outpatient level. And increasingly people are signing up to healthcare plans with higher deductibles and they have HSAs. That's a good thing. You actually see people’s behavior change who have these HSA plans vs those without them. We have to create a closer link between the patient and care specifically around quality and cost informatics. 

BF: What about those HSAs? Why not give them to people at birth? And are they more of a Republican or Democratic idea?

LC: It's more of a conservative idea. Democrats would say, it won’t help because we need to put money in those plans and not everyone is equipped to know how to manage their healthcare. As for whether we can give to everyone at birth, that'd be tough. In Singapore they have a public backstop and that would be considered a socialist plan and that wouldn't fly.

BF: Where are we with pre-existing conditions?

LC: It’s in the law. Nothing has changed with Obamacare. There is a court case that calls into question whether the law or parts of it are unconstitutional. If the court sides with the lower court that parts of it are unconstitutional, then pre-existing conditions would be in trouble.

BF: So prior to Obamacare we didn’t cover pre-existing conditions?

LC: There was coverage for some. If you were covered by a large insurer, you were covered. But if you left your employer and started your own business and you had a health condition, if you bought insurance at that point, the insurer could then say, we are not going insure you or we'll charge you more. The ACA exchanges provides protections for pre-existing conditions and insurance rules to make coverage affordable for older and sicker patients. 

BF: What about the poor? How should we address those below the poverty line? And should we expand or eliminate the 138% threshold?  

LC: This is a challenge. Obamacare’s answer was to give everyone Medicare. If you make less than 138% of federal poverty you get Medicaid. But in 2012, the Supreme Court said you can’t do that so this expansive Medicaid offering became an option. Now 40 states expanded Medicaid. But in Texas, they didn’t expand it. So the question becomes: How do you cover these people? Some say states should be able to make the determination. Democrats don’t like this because they don't want to give states the power to back away from expanding Medicaid. Another way to do this is to create a pool of money to directly subsidize these people. Then let states provide an extra subsidy. 

BF: Should there be a penalty if you don't have health insurance?

LC: President Trump signed tax reform that zeroed out the tax penalty for not having insurance so people no longer have that penalty. The question is: will we see a bunch of people drop coverage? We haven't seen that yet though it's early. But the evidence so far shows there hasn't been a flood of people dropping coverage. But we also see those who didn’t have coverage aren’t adopting coverage.

BF: But should we have a penalty?

LC: I would prefer there not to be a penalty and not an individual mandate, I’d prefer that plans are cost-effective enough to be attractive. 

BF: There appear to be 10M people eligible for premium credits and/or employer-sponsored insurance. You think that if we enroll them “automatically” we can add more healthy people to the program and lower overall costs. What is this proposal you're working on?

LC: One of the things I’ve explored is auto-enrollment, which does get more poor people covered and lowers costs because the more people in the system, the more you can spread the risk and then lower costs. The way it works is if you qualify for a subsidy at the lower end of the income scale, you can get coverage. The challenge with auto-enrollment is people need time to get out if they don’t want it. Secondly, you have to make sure you're not putting people in a plan they can't afford. It's hard to get them into a plan where the math works. I continue to work on it. 

BF: You wrote about allowing states under ACA to be more innovative. Why do states need the ACA to be more innovative? What can they do to be more innovative?

LC: The short answer is that there is an Obamacare provision - Section 1332 - which says states can come up with their own healthcare plans and can receive federal funding. This is also independent of Obamacare. Hence why I'm referring to innovation in the context of Obamacare. The problem is that it's highly regulated and tough to use. What the Trump Admin has done is loosen the rules to give states more flexibility. A state-based innovation model if the right model.

BF: Thanks, Lanhee! 

(Image source: Hoover Institute)

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Bambi Francisco Roizen

Founder Vator, Managing Partner - Vator Investment Club; Former Columnist/correspondent Dow Jones MarketWatch; Business anchor CBS affiliate KPIX

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