Unbiased Analysis of Today's Healthcare Issues

Best of Both Worlds

Written By: Jason Shafrin - Aug• 15•13

Leading health economists Jay Bhattacharya, Amitabh Chandra, Michael Chernew, Dana Goldman, Anupam Jena, Darius Lakdawalla, Anup Malani and Tomas Philipson claim the Affordable Care Act (a.k.a Obamacare) has its problem. Although it expands health insurance coverage to more individuals, it will cause tax rates to rise in order to cover the estimated $1 trillion of additional federal government spending over the first 10 years after the ACA’s enactment.

Is there a better way? These economists claim so. In an AEI report, they propose a new strategy which they call “The Best of Both Worlds.” In this report, they offer a proposal with four key tenets:

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.

Disclaimer: Like the author, Amitabh Chandra, Dana Goldman, Darius Lakdawalla and Tomas Philipson all work for Precision Health Economics, in addition to their other roles as academics.

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One Comment

  1. David says:

    What are the current “practical and legal barriers to multiyear (long-term) health insurance contracts”?

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