Voluntary Health Reform

VII. Key Issues: Regulation & Reform >> C. Health Reform >> Voluntary Health Reform (last updated 12.27.22)

Overview

There’s a continuum of alternative market-oriented approaches to expanding health insurance coverage while also introducing system reforms designed to improve value for money in health care. These approaches are listed in approximate order of their impact on the number of uninsured and degree of government involvement in perfecting health insurance or health services markets. While all approaches are intended to reduce the costs of health insurance, thereby expanding coverage, the latter six includes features designed to achieve universal health coverage.

General Principles

House Republicans (2016). House Republicans, Health Care Reform Task Force on 6.22.16 released a 37-page white paper that outlines broad principles and general approaches to replacing the ACA (e.g., fixed tax credits) without getting into concrete details about each component. More details here.
Capretta and Moffit (2012) ¹ offer some broad principles to guide the design of a market-oriented ACA replacement plan.

Specific Proposals

Individual Pay or Play

This plan was first proposed by John Goodman; this is a minimalist version of a broader reform envisaged by Goodman built on converting the tax exclusion into universal tax credits.

Health Status Insurance

This plan was first proposed by John Cochrane. It is designed to address to problems of pre-existing conditions and portability of coverage. It can be married to any of the other approaches.

Large Health Savings Accounts

This plan was first proposed by Michael Cannon. It greatly increases the limits on HSA contributions, permits such contributions to be used to purchase coverage as well as cover out-of-pocket expenses, and eliminates the requirement that HSA savings be tied to the purchase of mandatory catastrophic health coverage. It could be implemented with or without repeal of the Affordable Care Act. A version of this plan has been introduced as “Health Savings Account Expansion Act” (H.R. 5324, S. 2980) by Sen. Jeff Flake (R-AZ) and Rep. Dave Brat (R-VA). Michael Cannon has explained the concept in much greater detail here, here, here, here, and here.

Federally Dominated Healthcare: The Political Class’s Cash Cow. “We can provide care for ALL Americans at an affordable cost. The answer is to empower the individual, beginning with voluntary choices. For those employed shift their employer pretax health benefit to the employee’s health account. They would pay cash for most care and buy nationally available true catastrophic insurance for high priced items for which the employee would pay a small fraction, thereby shopping for value. Medicaid and Chip recipients could also direct their own care with a direct deposit from federal/state funds into a similar health account. This would be akin to the Indiana plan that was extremely successful with considerable cost savings but stopped on the federal level by those wanting full government control (Ref.11). Because of the evolving ratio of fewer workers to the elderly, increased longevity, and newer more expensive medical advances, to save Medicare workers need the option of having their payroll deductions deposited into a retirement health account safely invested to grow over time.” (Ken Fisher, MD, Authentic Medicine, 8.10.22)

Universal Tax Deductibility

Proposals.

Tax Deductibility for All Health Spending. Patient OPTION Act. First introduced 10.20.09 as H.R. 3889; re-introduced 4.20.10 as H.R. 5073; 3.20.12 as H.R. 4224; and finally in 8.1.13 as H.R. 2900 by Rep. Paul Broun, M.D. This bill would repeal the ACA entirely and replace it with a plan that would make all health spending (including premiums) tax deductible and expand allowable amounts for HSAs.
Tax Deductibility for Health Insurance Premiums. The Trump Health Plan would repeal the ACA entirely and replace it with a plan that would make all health insurance premiums tax deductible for everyone in the non-group market, block-grant Medicaid and allow for purchase of health insurance across state lines.

Analysis.

Cogan, Hubbard and Kessler (2005) estimate that full deductibility of all health spending would reduce U.S. health expenditures by 6.2% (Box 10).
The Center for Health and Economy scored the Trump Health Plan on 7.7.16. Relative to the ACA, the plan is projected to lead to 13 million fewer insured persons by 2026; it would lower premiums in the non-group market by 24 to 37% (depending on type of plan) decrease the federal deficit by $583 billion between 2017 and 2026.

Standard Tax Deductions

This plan was first proposed by the Bush administration in 2007. The approach also is included in the following plans:

American Health Care Reform Act. H.R. 3121 introduced 9.18.13 by Republican Study Committee Health Care Working Group Chairman Dr. Phil Roe (cosponsored by Republican Study Committee Chairman Steve Scalise, and 132 others). This plan would repeal the ACA entirely and replace it with a plan that provides universal standard tax deductions.
Anti-Obamacare Recovery Plan released by then-Senate-candidate Benjamin Sasse (R-Nebraska) in March 2014. This plan would repeal the ACA entirely and replace it with a plan that provides universal standard tax deductions.
AmericaNext white paper released by Louisiana Governor Bobby Jindal in April 2014. This plan would repeal the ACA entirely and replace it with a plan that would replace the existing tax exclusion for employer-provided health insurance into a standard deduction for all forms of health insurance, regardless of where they are purchased.

Tax Credits

A large number of proposals would partially or fully replace the current tax exclusion for employer-provided health benefits with some form of tax credits. The plans differ in whether the tax credits are fixed or vary by age, income, or health status; as well, plans differ in terms of whether such credits are advanceable and/or refundable.

Fixed Tax Credits

These plans generally provide for fixed tax credits in the nongroup market for individuals and small businesses (replacing the tax exclusion for employer health benefits for the latter groups and typically capping the exclusion for larger employers). This section is limited to proposals with fixed tax credits that do not vary by age, income, geography or other factor. Some plans would make such tax credits universal, i.e., replacing the tax exclusion entirely for all employers; some plans also couple this with reform of Medicaid and Medicare. Proposals include:

Adjusted Tax Credits

These plans generally provide for adjusted tax credits in the nongroup market for individuals and small businesses (replacing the tax exclusion for employer health benefits for the latter groups and typically capping the exclusion for larger employers). Some plans make these universal, i.e., replacing the tax exclusion entirely for all employers; some plans couple this with reform of Medicaid and Medicare. Proposals include:

Age-Adjusted Tax Credits

Age-Related Income-Adjusted Tax Credits

The Patient Choice, Affordability, Responsibility, and Empowerment Act.
History. This idea was first included in a proposed released in January 2014 by Senators Tom Coburn, Richard Burr and Orrin Hatch. The plan provided for refundable and advanceable age-related tax credits that would be reduced in value as income rose. An updated version of the Patient CARE Act was introduced 2.4.15 by Senators Burr and Hatch and Rep. Fred Upton.
Summary. The latest version (2.4.15) would repeal all of the ACA “except for the changes to Medicare” and replace it with income-related tax credits that also vary by age (3 groups: 18 to 34, 35 to 49, and 50 to 64) and that disappear for families with incomes above 300% of poverty.
Analysis. See Center for Health and Economy. The Patient Choice, Affordabilty, Responsibility, and Empowerment Act (2.27.15). This “scores” the most recent version of the Patient CARE Act in terms of budget impact, coverage etc. A score for the earlier version was released 1.30.14 along with supplemental analyses on 6.30.14.
1. Antos, Joe and James Capretta. A Senate GOP health reform proposal: the Burr-Coburn-Hatch plan. AEI (2.12.14).
2. Miller, Thomas. Why the Patient CARE Act proposal is ‘going to need a bigger boat’ AEI Outlook, March 2014. This provides a detailed review and critique of the proposal.
3. Roy, Avik. The Impressive New Obamacare Replace Plan From Republicans Burr, Hatch, And Upton. Forbes.com (2.5.15).

Age-Related Geography-Adjusted Tax Credits

Two proposals for universal tax credits include provisions to make such tax credits vary by age (child, adult) and geography:

Income-Related Tax Credits

These plans generally provide for income-adjusted tax credits in the nongroup market for individuals and small businesses (replacing the tax exclusion for employer health benefits for the latter groups and typically capping the exclusion for larger employers). Some plans make these universal, i.e., replacing the tax exclusion entirely for all employers; some plans couple this with reform of Medicaid and Medicare. Proposals include:

Income-/Health-Related Tax Credits

Best of Both Worlds (Academic Health Economists)
- History. This consensus plan–developed by 8 academic health economists from Chicago, Harvard, Stanford and USC–was released by AEI in August 2013.
- Summary. This plan is built around a model of individual health insurance subsidized with income-related tax credits. A central feature of the plan is income-related deductibles that disappear for families with incomes in excess of 10 times the poverty level.
- Full Text. Jay Bhattacharya, Amitabh Chandra, Michael Chernew, Dana Goldman, Anupam Jena, Darius Lakdawalla,Anup Malani and Tomas Philipson Best of Both Worlds: Uniting Universal Coverage and Personal Choice in Health Care AEI, August 2013.
- Analysis. The Center for Health and Economy scored this proposal on 2.19.15.

Flexible Benefits Tax Credit For Health Insurance

This plan was first proposed in March 2001 by Lynn Etheredge. This essay outlines a concept for a “flexible benefits” tax credit for expanding health insurance coverage and other purposes such as retirement savings plans (with potential withdrawals for higher education, first-home ownership, and catastrophic medical expenses). Two examples are presented. The advantages of a flexible benefits tax credit are considered in terms of efficient use of the budget surplus to help meet the varied (and changing) needs of American families, to eliminate major national gaps in health insurance and pension coverage, and to advance other objectives. If the budget surplus is used wisely, political decisionmakers could achieve health insurance coverage for most uninsured workers and children and assure a future with real economic security for American families.

Expanded Health Insurance Exchanges

Near-Universal Health Insurance Exchanges

Proposed in 2001 by Sara Singer, Alan Garber and Alain Enthoven. All U.S. residents except those on Medicare would be given a choice between retaining the tax exclusion for employer-provided health coverage or using a refundable tax credit to purchase coverage through a health insurance exchange. The tax exclusion would be capped at an increasingly restrictive level over time, eventually equaling the 105% of the prior-year premium for the median-cost plan in a geographic area.

Universal Health Insurance Exchanges

This idea was originally proposed by Avik Roy on 11.27.12 at both Forbes.com and National Review Online and subsequently in the print version of National Review on 12.3.12.
A more elaborate version was released 2.22.13 by Douglas Holtz-Eakin and Avik Roy. The plan proposed building on the ACA Exchanges while eliminating much of their unnecessary regulation (e.g., age-related community rating, individual and employer mandates) and gradually allowing Medicaid and Medicare enrollees to migrate to the Exchanges.
Transcending Obamacare. This idea also forms the core of Avik Roy’s updated plan released 8.13.14 by the Manhattan Institute in August 2014. The plan would repeal the individual and employer mandates and loosen some insurance reforms but otherwise retains the structure of the ACA Exchanges except that HSA-style plans would be much more greatly encouraged; as well, Medicaid and Medicare would be significantly reformed.
1. Miller, Tom. Assessing the Universal Exchange Plan: A transcendental bypass of Obamacare or just a nondisruptive face-lift? AEI, February 2015.

Guaranteed Renewability

Guaranteed Renewability Uniquely Prevents Adverse Selection in Individual Health Insurance. “New models of multi-period insurance show that it is possible for health insurance buyers in competitive insurance markets to be protected against changes in future premiums from health shocks associated with chronic conditions by the addition of ‘guaranteed renewability’ provisions. These models have assumed that a buyer’s risk level in every time period is observed by all insurers. They also require a premium sequence that is ‘front-loaded’ in the early period, which may be costly to buyers if capital markets are imperfect. In this paper we relax the common knowledge feature of the model by assuming that a person’s risk in any time period is known only by that person and the current insurer. It is plausible in this model that a premium sequence with higher later period premiums may be incentive compatible because low risks will have less desirable offerings from alternative insurers. However, we show that under general circumstances only the original premium schedule is incentive compatible, and attempts to alter front-loading will not be an equilibrium. We comment on alternative ways of dealing with front loading.” Pauly, Mark V, Howard Kunreuther, and Richard A Hirth. (Journal of Risk and Uncertainty 17(1), April 1996)