The Purple Health Plan Would Be A Solid Step Forward

Innovation

With the exception of government price-setting for vouchers, the Purple Health Plan would be decidedly market-driven, with plans determining what providers to include and what prices to pay them. The kind of competition this will engender should mirror what we already see in Medicare Part C (Medicare Advantage plans) and Medicare Part D (prescription drug plans) where private insurers compete fiercely for patients but are required to take all comers at the same price. The only difference is that in Medicare Parts C and D, risk adjustment payments are made by the government behind the scenes whereas in the Purple Health Plan the risk adjustment is upfront and visible in the tax-financed voucher that each person would hand over to whatever health plan s/he selected.

The point is that such a market-driven system should generally preserve the same incentives for innovation as we now observe in pharmaceuticals, medical devices and medical services more generally. Given that tax subsidies for employer-provided coverage will be eliminated under the Purple Health Plan, private coverage will look a lot more like that in Switzerland–i.e., predominantly non-group coverage rather than a system dominated by employers. This change likely will stimulate more creativity in how care is organized and delivered compared to the current system.

In contrast, as I described in Part 1, we can expect a marked decline in innovation under the single payer model championed by Senator Sanders.

Unfunded Liabilities

Probably the greatest single argument in favor of the Purple Health Plan is that it reportedly would reduce our fiscal gap by roughly $130 trillion. I am not in a position to fact-check this claim but it is consistent with prior estimates I have seen indicating that roughly 55% of the nation’s overall fiscal gap of $248 trillion is accounted for by health spending, predominantly Medicare, Medicare and Obamacare subsidies.

What an enormous contrast with BernieCare which not only ignores our existing fiscal gap but would add $61 trillion to the total.

Bottom Line

As should be clear from my discussion of it, the Purple Health Plan is by no means a perfect plan. As I will explain in the next post, there are ways to improve upon it. But when compared either to the status quo or to BernieCare, there is little doubt it offers a far superior health reform alternative. In short, , resulting in much lower deadweight losses, less waste, rationing, less adverse impact on medical innovation and a $130 trillion reduction in the fiscal gap.

That said, it obviously is quite radical in nature insofar as it ultimately would entail replacing Medicare, Medicaid and most employer-provided coverage, ultimately producing a system that rests entirely on privately-provided health insurance coverage subsidized with tax-financed risk-adjusted vouchers. For that reason, there would have to be a generous transition period to reach such a system smoothly.

So from a political perspective, adoption of the Purple Health Plan might well have to be done in stages, folding in Medicare and Medicaid, for example, only after the system has been shown to work well with lower-risk/lower-cost populations. But in the interim, it serves as a very useful benchmark for judging interim health reform initiatives such as the Healthcare Choices proposal put out by the Health Policy Consensus Group last year. More about this idea in the final installment of this series.

READ CHRIS’ BOOK, The American Health Economy Illustrated (AEI Press, 2012), available at Amazon and other major retailers or as a pdf at AEI, an online version complete with downloadable,

Humana HUM -0.78% (NYSE: HUM), Cigna CI -0.25% (NYSE: CI ),in order of the number of uninsured exchange-eligible Americans for whom their plans are available.

Footnotes
[1] Elsewhere, Kotlikoff has said that the 10% cap “is 3 percentage points more of GDP than the federal government now spends on Medicare, Medicaid, the CHIP program, Obamacare subsidies, and tax breaks for employer-based healthcare.” But in FY2017, Federal Medicaid spending was $375 billion vs. $230 billion for states. Total GDP in 2017 was $19.7 trillion, implying 1.2% of GDP is accounted for by state Medicaid spending. But state Medicaid spending accounts for only 37% of all state and local health spending, implying that state/local tax-financed health spending constitutes a total of 3.1% of GDP. Given that voucher-financed care would essentially displace Medicaid and employer-sponsored coverage for state and local employees it would seem that total tax-financed spending would be approximately equal to today’s level. But even a 3 percentage point increase represents less than $600 billion a year–which pales in comparison to the $3.2 trillion in added annual spending expected under BernieCare.

Author: timercash

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