A combination of health insurance initiatives by the presumptive 2020 Democratic and Republican presidential nominees could expand health care coverage and significantly reduce costs, without raising taxes. Along the way, the combination could revitalize private plans.
One initiative, proposed by former Democratic Vice President Joseph Biden, requires a Public Option so non-seniors can enroll in Medicare. The other initiative is President Donald Trump’s rule that enables employees in small and medium sized enterprises (SMEs) to use pre-tax funds, which their employers deposit in Individual Coverage Health Reimbursement Arrangements (ICHRAs), to buy Section 1301 qualified health plans in the individual market. Using an Executive Order to designate the Public Option as a “qualified health plan” for purposes of Internal Revenue Code section 36B(c)(3)(A) would enable covered employees to purchase Public Option coverage with tax-free contributions from employer-funded ICHRAs.
How Would The HRA-Public Option Work?
Under this HRA-Public Option combination, the employee could buy a suitable ACA plan that would be administered by Medicare, with its substantial economies. Although the federal government would receive less tax revenue because the enrollee could deduct the cost of her insurance and associated Social Security and Medicare taxes, she would be newly insured, pay less for her health insurance than she otherwise would have, and have commensurately more disposable income.
As we illustrate below, this HRA-Public Option combination could reduce the premiums not only of the 20.1 million uninsured SME employees and family members (see exhibit 3; 27.9 million total uninsured times 72 percent in households with one or more full-time employees), but also those of the 3.4 million Americans in the individual market who pay entirely for their own insurance with after-tax dollars. Further, it could lower Medicare’s average medical care expenditures by newly including these enrollees, whose average medical expenses are lower than those of the elderly. (These numbers, of uninsured SME employees and unsubsidized individual market enrollees, change over time; in particular, COVID-19-related job losses have surely reduced the number of uninsured SME employees as laid-off workers have become newly eligible for coverage under the ACA or Medicaid. The numbers in this paragraph are used below as the most current information available with the understanding that savings amounts from our proposal would vary depending on economic conditions.)
Some contend that the Public Option’s low-cost premiums are falsely achieved by shifting Medicare’s costs to private insurers, but Medicare’s massive scale—61.2 million enrollees—delivers genuine efficiencies. Medicare pays hospitals 35 to 65 percent less than private insurers for the same services.
Despite these economies, Medicare is underfunded. The $37 trillion 2020 liability arising from the cumulative…
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