The US health care system suffers from three structural flaws. First, it artificially inflates health insurance premiums for the healthy in an attempt to lower premiums for the sick. This encourages healthy individuals to reduce their insurance coverage or even exit the market entirely, driving up costs for everyone. Mandates to purchase insurance and penalties for lack of insurance can serve as cosmetic solutions, but they cannot erase this fundamental problem. Second, by relying heavily on open-ended fee-for-service public insurance, the present system rewards costlier high-volume care rather than higher-quality care. Perhaps as a result of these incentives to do more, per capita health care spending in the United States is the highest in the world, while patient health outcomes rank much lower. Third, the poor are funneled into a Medicaid system with reimbursement levels well below those of private payers. This relegates the most vulnerable groups in America to a separate and unequal health care system with more limited access and worse outcomes. The current system professes to sacrifice some efficiency to protect the sick and the poor, but ultimately it fails to achieve either efficiency or equity.
We propose an approach to health insurance reform that promotes high-quality, fiscally sustainable health care for all. Our solution is a departure from both the current system and the Affordable Care Act reforms that begin in 2014. Our approach reorganizes US health insurance around four principles:
- First, we allow and encourage insurance companies to charge individualized premiums to consumers that reflect their true health care costs. This moves away from the current approach of offering coarse and relatively uniform premiums to the wide range of individuals seeking insurance (through the use of group insurance or state-level community-rating mandates). This reform provides a firm foundation for a health insurance market that no longer motivates healthy individuals to opt out. Insurance offerings would be made available in an open market—for example, through insurance exchanges—with premium transparency.
- Second, to ensure that offers of insurance are affordable, we propose government-financed premium supports. The poor, especially the sick poor, gain access to a basic insurance plan at no cost and to more generous plans at significantly reduced costs.
- Third, we propose eliminating the practical and legal barriers to multiyear (long-term) health insurance contracts. Such contracts protect all Americans from increases in insurance rates that could accompany major illness.
- Fourth, we propose to abolish the tax preference for employer-sponsored health insurance plans. This subsidy encourages excess utilization of both insurance and low-value health care services. It also costs the federal government nearly $300 billion in lost revenue—revenue that could be used to fund insurance for the sick and the poor. Finally, it forces an awkward bundling of health care and employment with adverse consequences for workers and firms alike.
Our plan achieves universal coverage by ensuring that all individuals have access to a no-cost “basic plan.” It protects the poor and sick by targeting government funds toward subsidies for these groups. Federal and state governments will be able to specify in a transparent fashion the level of spending they wish to incur now and in the future, ensuring fiscal viability. The use of private health insurers allows choice for consumers and exploits the incentives of private firms to encourage the efficient use and pricing of health care services.
In sum, our plan will allow the United States to eliminate the separate and unequal nature of the present health care system that limits the health care access of poor Medicaid beneficiaries because of low reimbursements. All of this is accomplished within a framework that allows the market to do what it does best—pricing risk and controlling cost growth—and the government to do what it does best—ensuring a distribution of health care resources that is just and fair. In addition, the federal and state governments are provided with more flexibility to specify the current and future levels of spending they wish to allocate to the provision of health care.
We believe this plan can unite the country—young and old, sick and healthy, Democrat and Republican—in support of a simplified health care system that improves the nation’s well-being.