October 20, 2015
LA Times, October 20, 2015
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Last week, former Florida Gov. Jeb Bush put forward a healthcare proposal as part of his campaign for the Republican presidential nomination. The plan, which has many moving parts, is intended as a replacement for the Affordable Care Act. If you don’t anticipate getting sick, you might like it. Instead of healthcare exchanges and mandated insurance, Bush’s plan would provide tax credits for buying catastrophic coverage. This means the government would pick up a substantial share of the cost of a plan that has a large deductible, with the insurance only kicking in after a person had paid close to $7,000 out of his or her own pocket, or $13,000 for a couple.
At the same time, the Bush plan would eliminate the requirement that insurers disregard preexisting conditions. Under the ACA, a person with cancer or diabetes can sign up for insurance and pay the same premium as a healthy person of the same age. While the Bush plan does include some protections, it does not guarantee coverage at an affordable price. In this respect, the Bush plan is quite explicitly designed to shift costs from the more healthy to the less healthy.
The goal of the ACA is to get everyone into a common pool and share the costs, regardless of whether we have good fortune in terms of our health. It doesn’t do this perfectly, because there are still choices on coverage levels — consumers who choose gold plans are in a different pool from those who choose silver plans, and so forth — but this is its general direction. The Bush plan would take the country in the opposite direction, making it much easier for healthy people to avoid paying the cost of treating the ill.
In spite of this difference, there is an important area in which the two plans are similar.
Beginning in 2018, the ACA imposes a “Cadillac tax” on healthcare plans that cost more than $10,200 a year for a single individual. The intention of the tax is to discourage plans that cost a lot up front but don’t make patients contribute much at the point of service — through copays and the like. That’s also what Bush’s plan sets out to do by promoting catastrophic insurance with a high deductible.
There are two problems with the logic of this tax. First, the reason most expensive plans are expensive is not the generosity of the benefits; it is the health condition of the participants. Most of the plans that would be subject to the tax have a disproportionate share of older workers with higher medical expenses. So the tax won’t primarily punish executives with luxurious, cushy plans; it will punish older workers who are more likely to have health issues.
The other problem with the tax — and the Bush plan — is that it assumes people would seek out more cost-efficient care if they paid for it out of pocket. But new evidence — from a study that came out the same week as the Bush plan — indicates that when people have to pay at the point of service, they often ignore necessary care. They don’t just skip frivolous or purely optional treatments; they choose their wallets over their well-being.
Furthermore, they do not do the sort of comparison shopping that economists like to see. People might shop around for clothes or cars; they apparently don’t shop around for colonoscopies or mammograms.
So both the Bush plan and the Cadillac tax will transfer costs from the more healthy to the less healthy. Both also rely on a disproven view that patients will be cost-efficient purchasers of medical treatment. Whatever their differences on other issues, Bush and Obama apparently have some common ground on healthcare.