If you didn’t know it before, the COVID-19 pandemic has provided the starkest possible confirmation that fixing healthcare is the number one issue facing the nation. The American people agree. Unfortunately, leaders of both parties believe the deep gulfs between the Democrats’ offer of expansion of publicly managed coverage and the Republicans’ options for cost controls and freedom of choice are irreconcilable.
They are wrong.
A bipartisan combination of the two parties’ most popular initiatives can expand health care coverage, significantly reduce costs, and enable freedom of choice, without raising taxes. Along the way, we can revitalize competition between public and private plans. Our plan could be the early centerpiece of the next president’s health care initiatives.
One part of this combination is Vice President Biden’s public option, which expands coverage by enabling non-seniors to enroll in Medicare. The other is President Trump’s Executive Order 13813 that increases the flexibility and use of Health Reimbursement Arrangements (HRAs) by employees of small and medium sized enterprises’ (SMEs). The pre-tax, freedom of choice features of Trump’s Executive Order would be combined with Biden’s Medicare expansion by designating the public option as a “qualified health plan” that becomes one of the HRA users’ choices.
Providers in this HRA-Public Option combination are paid by Medicare and managed by private insurers, as is the case with millions of current policies. Medicare pays hospitals 35 to 65 percent less than private insurers for the same services. Although some contend that the Medicare’s low payments to providers are achieved by shifting costs to private insurers, Medicare’s massive scale — 61 million enrollees — delivers genuine efficiencies.
To avoid increasing Medicare’s $37 trillion of unfunded liabilities, the public option would be priced in conformance with the accounting principles of private insurers, which recognize all liabilities and their associated expenses, and certified by independent CPAs.
This innovation gives employees of SMEs the choice to spend pre-tax dollars that their employers deposit in HRAs to buy insurance from Obamacare exchanges or the private sector. It can reduce the premiums of millions of insured SME employees and the 3.4 million individuals who pay after-tax dollars for their insurance. The average premium would likely decrease that of Obamacare’s most popular Silver plan and of the SME employees by about $3,600 (pre-COVID data). Its reduced premiums could also help cover the millions of uninsured SME employees. It can also lower Medicare’s cost as these relatively healthier people enroll in Medicare’s pool: For example, the enrollment of only the 3.4 million self-insured in Medicare’s pool would lower its cost, if they all bought the Bronze plan, by $1.7 billion.
Some worry that the HRA rule will enable a public dumping ground for employers’ sickest enrollees and that employers with a sick labor force will offer it as the only choice. However, the guardrails of the HRA nondiscrimination rules restrain employers from dissecting their labor force so that only the sickest get steered into the HRA markets. Employers are unlikely to offer only this combination as an option. The history of public and private exchanges shows that insurance purchasers want choice and will shop around for the best plan for them.
Americans have been through it all since the days of HMOs in the 1980s. We are smart shoppers, that’s for certain.
The HRA-public option combination could also control costs by breaking the near monopoly in half of the largest population centers where one private insurer has more than 50% of the market. The potential loss of enrollees to the HRA-public option combinations will galvanize these private health insurers into competitive action. Private insurers will likely develop policies that public insurers may find politically infeasible, to reduce the $250 billion of waste in healthcare that could be saved without diminishing the quality of care. These innovations may include, for example, transporting members from high-cost locations for care to high-quality, low-cost ones. Private insurers should also be allowed to achieve economies of scale by selling their policies across state lines in the individual and small-group markets. In this competition, private insurers will be highly motivated to assure that the public option’s price is not artificially lowered with accounting gimmicks.
In this era of massive health care injury and economic suffering from the COVID pandemic and wide-spread dismay with continual partisan sniping, the next president should act, in a bipartisan way, to support the combination of HRAs and the public option that would not require additional taxes, lower prices for those insured by small and medium-sized businesses and the self-insured, likely expand coverage, and spur long dormant public-private insurer competition.
Regina E. Herzlinger is the McPherson Professor at Harvard Business School
Richard J. Boxer is Clinical Professor, David Geffen School of Medicine at UCLA. The calculations in this article are based upon their previous work in Health Affairs.