Healthcare Policy – What Is the Best Path?

The ACA aimed to fix these issues. It was a sweeping law that not only provided insurance protection for individuals, but also addressed payment reform, rebuilding primary care and public health, and various other systemic problems.

Historically, once sweeping legislation passed, politicians wouldn’t interfere with implementation. This was the case with Social Security and Medicare. If flaws were identified, the parties worked together to fix these flaws. This did not happen with the ACA. The lack of a public option to compete with private insurance was important to cost containment. Additionally, the structure of the tax credits and method of determining income hurt the middle class. These issues could have easily been repaired.

Once the Republicans won the House of Representatives in 2010, the Obama administration had to bargain for funding for many parts of the law. The money allocated to public health, community health centers, and rebuilding primary care was significantly curtailed. The unwillingness of the parties to work together has eroded our health care, both in cost and quality of care.

We are all at fault in some way. Our country is half collectivists and half individualists. The collectivists understand that health care for all improves the good of our country. Capitalism and productivity require a healthy workforce. The individualists are the “bootstrappers” – people become stronger by fending for themselves and a free market is the best way to make this happen. This divide is probably the main reason we can’t come to an agreement on universal health care.

Candidate’s health policies

Republicans historically focus on reducing health care cost to the government versus universal coverage. This is a big part of their move to privatize programs such as Medicaid and Medicare. Democrats value coverage over concerns about cost. Their failure to realize that costs could skyrocket without the ACA being implemented effectively was a huge Achilles heel for the law.

While the Democrats have to sell their proposals on reducing costs and keeping coverage protections, the Republicans have to sell their proposals on reducing costs and not reducing coverage protections. How do the policies touted by Donald Trump and Joe Biden compare to these goals?

The Republicans and the Trump administration attempted to pass the American Health Care Act (AHCA) in 2017. There were two big issues that killed it – the plans for block grants for Medicaid and the lack of protections for pre-existing conditions.

Block grants for Medicaid sound good in theory. States would receive a set amount of funding to manage all of their Medicaid programs and they would have less federal oversight on how it would be used. Currently, states receive federal funding based on the number of eligible Medicaid recipients – as the number of people in need increases, so does the funding.

In the event of a recession, the funding with block grants does not change. States would be challenged at a time the number of constituents needing services greatly increases. This made a number of governors nervous, including in Republican-led states. You can imagine the relief for not moving to block grants when the pandemic hit!

Protecting pre-existing conditions is another hot-button item. For those who can remember health insurance in the 1990s until the ACA – if you were not on group insurance or Medicare and you had a health condition, your choices for health insurance were abysmal and expensive.

Every politician says they protect pre-existing conditions, but most are using a buzzword and have no clue what is needed to protect those with health issues. There are four requirements that must be met:

1. The insurance company must be required to sell insurance to anyone who applies.
2. There can be no underwriting for health or other proxies for health status.
3. The policies must not exclude essential benefits. For example, policies must not be able to exclude or put limits on cancer care or other high-cost items. A policy does not do any good if it doesn’t cover the problem you face.
4. Policies must be affordable and have a mechanism to support the premium payment for people who cannot afford the premiums.

Since the AHCA, the Republicans have presented various iterations of two proposals to protect pre-existing conditions:

1. High risk pools – requires underwriting and funding is at the mercy of politicians year-to-year.
2. Policies that have no underwriting and must be issued, but are not required to cover essential benefits.

None of the proposals fit the four criteria above to protect the 133 million people with pre-existing conditions.

What about the ACA? Premiums have escalated dramatically, so one could argue that it is no longer affordable. There are a number of reasons for the premium price increases:

• The rebuilding of primary care and community health did not happen due to funding cuts. Lack of good primary care forces people to higher cost specialists and emergency departments, which gets passed on to insurers.

• The creation of Accountable Care Organizations spurred the sale of independent practices to hospitals. Hospitals are allowed to charge significantly higher prices than independent practices for the same services. This too gets passed on to insurers.

• There was very little movement on payment reform.

• There was no public option to compete with high-cost insurers.

• The ACA provided for the formation of truly non-profit insurance carriers, but the Trump administration’s decision to illegally end payment of cost-sharing subsidies quickly put these non-profits out of business. After a prolonged court battle that ended at the Supreme Court, the Trump administration was required to pay the subsidies, but it was too late for these organizations.

• The lack of payment for cost-sharing subsidies dramatically increased prices on the silver plans, as the costs would be passed on through premium credits for those with income under 400% poverty level. However, this made the price unaffordable for those who didn’t qualify for tax credits.

Trump has shifted to addressing individual components of our health system to make progress on costs through the use of executive orders. Executive orders sound great, but there are limits to their utility.

• Funding needed to enforce an executive order must be appropriated by Congress. The president can attempt to shift funds from other sources, but faces legal challenges if appropriated money is not used for intended purposes.

• Once an executive order is written, rules must be written to implement the order. These rules take significant time and often face legal challenges.

Trump’s healthcare executive orders (Eos) include the following:

• EO 13813 – October 2017
  • o Expanded health reimbursement arrangements that will allow employers to provide a stipend to their employees to buy individual health insurance. Insurers are still trying to figure out how to do this as the rules are very convoluted.
  • o Allow association health plans – these were ruled illegal by federal courts.
  • o Expand short-term insurance to a total of three years. This has happened. These plans have medical underwriting and do not provide essential benefits. Many people mistake them for “real” insurance, only to incur unexpected costs when certain health events aren’t covered.

• EO 12877 – June 2019
  • o This was intended to create price transparency at hospitals, but faces an uphill battle from both providers and insurers as very few want to share their data. Transparency has bipartisan support.

• EO 13879 – June 2019
  • o Intended to provide better care for renal disease. Rules for this are delayed because of heavy involvement by venture capital in the dialysis sector.

• EO 13937 – July 2020
  • o Provides discounts on insulin and epinephrine (Epi-Pen for allergic reactions) for community health centers. This is nearly worthless because it will benefit only those who get their care through community health centers.

• EO 13938 – July 2020
  • o Attempts to lower drug prices through importation. This is also a proposal from the Biden administration. In reality, importation will not work well for a number of reasons, but mainly because countries such as Canada do not have the drugs to send to us.

• EO 13939 – July 2020
  • o This eliminates kickbacks to pharmacy benefit managers in Medicare D programs. This will lower drug prices but raise premiums for the public for Medicare D. Pharmacy benefit managers have a large lobby, and this proposal will face legal challenge.

• EO 13941 – August 2020
  • o Improves rural health and telehealth access. This is a good policy and long overdue.

• EO 13951 – September 2020
  • o The most recent executive order is a vague directive for the Department of Health and Human Services to provide better health care and lower the cost. There were no details on how this would be accomplished. Many see this as a pre-election ploy.

Biden plans to fix the problems with the ACA that caused costs to skyrocket:

1. A long-overdue public option for insurance is on the table for individuals. If employer-based insurance is too costly, those who are employed can jump to the public plan. The public option will compete with private insurers and this will help lower the cost of insurance.

2. Instead of eliminating tax credits at 400% of the poverty level, tax credits will be given when premiums are greater than 8.5% of income. Instead of using a silver plan with high deductibles, the credit will be based on a more generous gold plan with lower deductibles. This will lower costs significantly for individuals.

3. He wants to crack down on surprise billing. There will be no more “accidental” or emergency out-of-network charges.

4. To reduce drug costs, he wants to allow Medicare to negotiate drug prices, eliminate tax breaks on drug advertising, cap drug prices based on inflation, and allow purchases from foreign countries. Trump has wanted these provisions also, but has been stymied by his own Republican Senate on these issues.

5. Biden also plans to increase funding for public health, community health, rural health, and telehealth. The pandemic has proven we cannot skimp in these areas.

Will these policies fix health care?

Our healthcare system is a big hairy beast. The problem with both administration’s policies is they address how we pay for health care and don’t go to the root of the problem – fixing the inefficiencies that are driving high costs.

Yes, their policies – if enacted – have the potential for reducing some costs. Trump’s plans would reduce the cost for healthy people and the government, but we would go back to having large numbers of uninsured and high costs for those with health issues. Biden’s plans would reduce costs but spread costs across everyone and the government’s share of the bill will rise.

The administrative cost of health care in this country is 25% to 30% of the total cost due to inefficient billing, a horrid medical record system, and a load of bureaucracy heaped upon providers by both the government and insurers. In other countries, overhead is 5% to 15% – by cutting overhead to 15%, we would save about $400 billion per year! Additionally, other countries’ focus on good primary care improves health at a lower cost.

By implementing simplified billing, a standardized health record system, and reducing roadblocks to good and efficient care, we could lower health care costs significantly. The politicians haven’t put this on the table. Until they do, we won’t see the savings we deserve. For now, we’ll have to make our healthcare vote based on what they’ve put forward, and push them towards practical fixes along the way.

Carolyn McClanahan is founder and director of financial planning at Life Planning Partners. She is a member of the National Association of Personal Financial Advisors (NAPFA), the Financial Planning Association and the American Academy of Family Physicians.

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