Three Ideas for Improving Health Care

This commentary is co-authored by Assistant Professor of Public Policy Donald H. Taylor, Jr. and Frank Hill, who was Chief of Staff to former Rep. Alex McMillan and former Senator Elizabeth Dole. It was first published in the NJ.com before the Baucus bill was passed out of committee.

We come from different ends of the political spectrum, but agree that our health care system is unsustainable due to costs. Doing nothing means that future deficits will explode, leaving our children to clean up the mess. The Senate Finance Committee (Baucus) bill is imperfect, but it is the most realistic vehicle for accomplishing the reform our nation’s health care system desperately needs. We offer three suggestions to improve the bill.

First, replace the proposed excise tax on high-value insurance policies with a more straightforward cap on the tax exclusion of employer-paid health insurance premiums at the national average (around $13,000 family; $5,000 individual). Regardless of the level of subsidy provided to the uninsured to purchase insurance, this is the most certain way to pay for subsidies in a manner that will actually hold down health care cost growth by discouraging over-insurance. Directly limiting the tax exclusion provides a signal for how much insurance costs to the patient. This would reduce federal spending by around $500 billion over the next 10 years, as compared to the $200 billion raised by the excise tax. The extra money could be used to improve affordability of insurance.

Second, adopt the Wyden amendment, which gives more people the ability to exercise choice in choosing health insurance. The Baucus bill sets up markets (called exchanges) through which uninsured persons and small businesses (up to 50 employees; 100 at state discretion) would purchase insurance. A variety of regulations would be placed on policies sold through exchanges, such as banning pre-existing conditions, guaranteeing renewability and limiting premium variation. The idea is that individuals exercising free choice and competition among insurance providers for their business will hold down premiums, slowing cost inflation. The problem is most Americans will not be able to shop in the exchanges as currently written. And about half of persons insured by their employer will have no choice, being offered only one plan, with another one-third being offered only two plans.

Deleting a Tax Subsidy from the EquationThe Wyden amendment would open up exchanges to persons who do not like their existing employer-provided policy. It would let them take two-thirds of the premium dollars already being paid by their employer and add their own money to buy a plan of their choosing. The Wyden Amendment has been scored as budget neutral by the Congressional Budget Office.

Third, Medicare is not sustainable as baby boomers begin retiring over the next decade. If you are covered by Medicare now, we propose no change. If you will turn 65 before Jan. 1, 2014, we propose no change. However, for the heart of the baby boom generation and later, we propose that the eligibility age of Medicare rise by two months per year starting in 2014, stopping at age 67 in 2025. This means that someone who will turn 65 on Jan. 1, 2014, will now be eligible for Medicare on March 1, 2014, and so on. This will reduce the federal deficit by $85 billion over 10 years, but the savings over the ensuing decades will be in the trillions. A more aggressive policy would continue to raise the eligibility age until it reaches 70 in 2043.

Regardless of how high the age is raised, we need to start doing this soon. This will not be painless, but we are confident the baby boom generation does not want to saddle their children and grandchildren with unending debt. If you do not like this idea, then what would you like the Medicare payroll tax to be? At its present rate, it is not high enough to finance the care of the baby boomers.

The Baucus bill will likely soon be voted out of committee and further changed before it is brought to the Senate floor. We hope that our cost-saving suggestions – and others like it – will be considered as this important reform effort moves forward.

Donald H. Taylor Jr. is an assistant professor of public policy. His blog www.donaldhtaylorjr.blogspot.com is available for discussion of this article and health care reform in general. This is part of a series of articles by Donald Taylor exploring aspects of the health care reform issue.