Improving the Healthcare Insurance System in America

Enhancing or Replacing Obamacare

Abstract

This white paper deals with improvements that can be made under a subsidized and regulated healthcare insurance system similar to the Affordable Care Act (Obamacare). It does not argue the merits or deficiencies of going back to a free insurance market or establishing a single payer system.

A healthcare scoring system is introduced that more effectively deals with many provisions of subsidy and regulation. These provisions include pricing premiums to risk, subsidizing high risk and low income people making it possible to guarantee issue, and providing information and incentives for people to improve their healthcare score and health. Other provisions like deductibility of insurance premiums, penalties, and a national health insurance exchange make the system fair for all.

It is believed that these proposed improvements can lower healthcare costs and provide healthcare insurance that is fair and equitable able for all.
White Paper

This white paper discusses methods for improving the healthcare insurance system in America. One could call the proposed healthcare insurance system improvements adjustments to the Affordable Care Act (ACA or better known as Obamacare) or its replacement. It depends on your political viewpoint.

The cost of healthcare in the United States has become a major concern. The reason being that the total cost of healthcare in the US for 2015 was $3.2 trillion dollars, which represents 17.8% of total Gross Domestic Product. For comparison purposes, the average cost of healthcare for 34 developed countries not including the US was 8.9%, almost one half what was spent in America.

The following table shows the spending percent paid by major groups in the US. 37% was paid by Medicare/Medicaid (a one payer system), 34% by private health insurance companies, 11% by out of pocket spending by individuals (deductibles, co-pay, no insurance), and 19% for other (dental, investment in facilities/equipment and other healthcare spending).

Spending

There are three basic ways of paying for healthcare with multiple variations of each. They are:

  • Free Market Healthcare Insurance
  • Subsidized and Regulated Healthcare Insurance Markets
  • Single Payer Healthcare

In the United States a combination of the above types of markets exists. Medicare/Medicaid (37% of spending) operates like a single payer healthcare system. Up until Obamacare for the most part the healthcare insurance system, excluding Medicare/Medicaid (34%), operated as a lightly regulated free market system. With Obamacare passing in 2010, the free market healthcare insurance market for the most part became subsidized and regulated. The other category (19%) for the most part still operates as a free market health care system.

This paper will not argue the merits of changing to a single payer system vs a free or subsidized/regulated health insurance system. It is believed that the political will to do so is lacking. It does not matter if one believes a single payer system is the best or should never be implemented if it would never happen due to politics.

The purpose of a subsidized and regulated healthcare insurance market like Obamacare was to include more people in healthcare insurance programs, make the system fair to all, and hopefully to reduce healthcare costs in America. These same goals are envisioned under this proposal to improve the healthcare insurance system in America.

After living with Obamacare for six years, the majority of Americans like many of the provisions of the law that regulated and subsidized the healthcare insurance markets. It is reasonable to assume that going totally back to a free but lightly regulated healthcare insurance market is not going to happen. Therefore, this paper will focus on adjustments and enhancements to Obamacare provisions.

 

Healthcare Score System

The way healthcare insurance premiums are determined might be quite different if they were more like credit scores. Credit history is maintained on every person and their score determines how much they can borrow and at what interest rate. People with high credit scores pay low rates of interest while those with poor scores pays higher rates.
Assume a healthcare score was established once a year for all people over 18 years of age. Until actually done one can only conjecture how they might look; however, a representation as displayed on the following graph might provide a good understanding.

Healthcare score.JPG

Assume that healthcare scores range from 0 for people with extremely good health to 100 for those with extremely bad health. The above chart depicts a normal distribution which is what might be expected with most people having middle range healthcare scores and the tails with either high or low healthcare scores having far fewer people. Healthcare scores would be assigned based on expected cost of care for each person’s health situation.
One advantage of having a health score is that premiums could now be set based on risk just like interest rates are. It is known that the vast majority of health care costs are the result of lifestyle decisions such as diet, exercise, stress, smoking, drugs, sleep, and many other activities.

Poor health is usually but not always the result of poor lifestyle decision. People who take care of themselves generally are healthier and with this method would pay lower premiums. Those that don’t are generally less healthy and as a result would pay higher premiums. People who have poor health scores that are not the result of their lifestyle are taken care of in high risk reinsurance pools discussed later.

When people know their health score they may have a strong incentive to improve their health and their score. Knowledge is power. As part of the system, suggestions for improvement are provided along with the score. If a substantial number of people start to take responsibility for their health, it is possible for overall health costs to decline in America.

There are some disadvantages. The first one is the cost to implement a health score system. It is believed that overall healthcare costs will decline due to information and incentives that can more than pay for the additional cost.

The second disadvantage is that people with poor health scores may want to duck the system. The solution to this disadvantage is to create subsidized high risk reinsurance pools.

 

High Risk Reinsurance Pool

In the chart above one could pick a healthcare score in which to begin subsidy with. For purposes of this analysis a credit score of 75 and above was chosen. Subsidies would begin at the healthcare score of 75 and amounts would increase with each increase in the healthcare score. Subsidies would be paid by the United States government directly to insurance companies.

These subsidies would guarantee that no one pays a higher premium based on their healthcare score of 75 or greater. Insurance companies would continue to issue insurance policies to these high risk people but they would be covered with subsidy payments for the additional risk.

 

No Preexisting Conditions with Guaranteed Issue

By having high healthcare risk covered or subsidized by the United States government insurance companies can now, and would be required to, issue policies to those with preexisting conditions without fear of large losses.

Because the high cost insurance risks are covered, the premiums for all other policies could be lowered. Cheaper health insurance for all.

 

Requirement for Healthcare Score

All people over 18 years of age would be required to obtain a healthcare score once a year. The healthcare score tests would be covered 100% by each person’s policy so there is no financial justification for not getting one. If a person has no healthcare policy, the United States government would cover the cost until a policy is obtained and the government will be reimbursed for the payment of the healthcare tests. There will be no exceptions. However, if a person did not comply with this mandate they could not buy healthcare insurance.

 

Catch-up Premiums for Non Enrollment

Suppose someone simply refuses to sign up for a health insurance policy. They have that right. However when people get sick, most will eventually want to sign up. At that time they must pay the premiums at a standardized rate based on prior year’s healthcare scores for years missed in order to obtain the health insurance policy. It is not really a penalty, it’s just catching up what they should have been paying all along.

 

Subsidy for Low Income People

Low income people generally cannot afford healthcare insurance premiums and in the past simply didn’t purchase it. Medicaid picks up some of the costs for some of the people. Other low income people could buy the rest at graduated reduced rates subsidized by the United States government making payments directly to insurance companies.

 

Premiums would be Deductible – Level the Playing Field

Employer sponsored health insurance programs are not considered taxable income to employees. Yet in the past people not under an employer health insurance plan had to pay their health insurance premiums with after tax dollars. This situation is totally unfair.
It is proposed that health insurance premiums paid by people not participating in an employer health insurance program would now be deducted from pretax income. Now the playing field would be leveled for all.

 

No Minimum Standard Policy

Unlike Obamacare, which sets fairly high standards for healthcare insurance policies it is proposed that insurance companies be free to offer what they would like. Although they may offer some substandard policies, those would be more affordable and therefore some people that would have forgone purchase of health insurance may now purchase coverage.
However, for purposes of subsidy payments for low income and high healthcare scored people, the United States government would preset a standard policy for each health score to be used as a basis for subsidy payments.

 

Young Adult Health Insurance Continuation

This proposed healthcare plan would carry over the provision that children up to the age of 26 could continue to be carried on the parents’ healthcare insurance policies.

Health Insurance Exchanges

State insurance exchanges where health insurance policies could be purchased would be replaced with one national insurance exchange. This prevents insurance companies from cherry picking which states to offer their policies to and from offering different policies to different states.

 

More about the Heath Care Score System

It is proposed that the health scoring system have three components. They are:

  • Standardized Test Scores
  • Medical History
  • Questionnaire

Standardized tests such as blood tests, blood pressure, urine specimens, etc. would be administered to each person over 18 years of age. These tests would be mandatory whether or not the person purchases insurance. A heavy fine would be levied if a person forgoes the test. These tests can be administered at either a doctor’s office or a laboratory.

The test is paid for out of the premiums of a person’s policy. If one does not have an insurance policy yet, it is paid by the United States government which would be reimbursed from the insurance policy once purchased. Individuals do not pay for the tests. They are paid for out of healthcare insurance premiums.

The medical history would be supplied by physicians. All physicians are required to enter medical history into the national healthcare scoring data base. If a new medical condition occurs or one has been cured that information is entered when known by the doctor. Entries are only made as the result of physician appointments. No special visits are required.

A person can complete a standardized health questionnaire on a voluntary basis. This is not mandatory, but would serve to help in providing a person better recommendations as to how to improve his health.

Only the standardized test scores and medical history will be used create a healthcare score. The questionnaire will not be used in scoring in order to collect more accurate information. Otherwise people may answer questions in such a way as to lower their healthcare score.

Computer programs with built in artificial Intelligence would be used to compute the healthcare scores. The crunching of big data has proven to be a highly reliable tool for scoring.

A person’s healthcare score would be sent to them each year. Along with the healthcare score a person would receive recommendations on how to improve their score by improving their health. It is hoped that the measurement thereof and recommendations would provide an incentive for people to improve their health.

Of course all insurance companies would have access to the healthcare scoring system in order to price policy premiums to their customers.

 

Summary

This paper’s goal is to improve the healthcare insurance system in the United States over the one currently used known as Obamacare. The proposed plan could be called an improvement or replacement of Obamacare depending on your political viewpoint.
Since many people like many of the provisions of Obamacare, it does not seem politically practical to go back to a free market healthcare insurance system from the past. Neither is it politically practical to go to a single payer system whether it be better or not. Therefore, what is presented in this paper is what is believed to be an optimized subsidized and regulated healthcare insurance system.

Using a healthcare scoring system many provisions of subsidy and regulation are easily dealt with. They include pricing premiums to risk, subsidizing high risk and low income people making it possible to guarantee issue, and providing information and incentives for people to improve their healthcare score and health. Other provisions like deductibility of insurance premiums, penalties, and a national health insurance exchange make the system fair for all.

Hopefully the proposed improvements will make the healthcare insurance system better, lower cost, and be fair to all.

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