What to Do about Our Biggest Health Care Problems

Talk to just about any individual or any family dealing with an expensive-to-treat chronic illness and it won’t take you long to discover what needs fixing.

For millions of Americans (1) health care has become unaffordable and (2) the doctors and facilities they need are too often inaccessible.

But wait. Aren’t these the very problems Obamacare was supposed to solve? Indeed. Not only did Obamacare not solve them, in many ways it has made these problems worse.

But first things first.

We would have very few public policy problems if we followed this simple advice:

Goodman’s Rule for Rational Public Policy: Let the markets handle all the problems markets can solve; turn to government only to meet needs that competitive markets cannot or do not meet.

Interestingly, for the first four years of Obamacare, Goodman’s Rule was actually federal policy. The Affordable Care Act (Obamacare) was passed in 2010. But the exchanges which replaced private health insurance in the individual market did not start until 2014.

Federal Risk Pool Insurance

In those first four years, the federal government made risk pool coverage available to any uninsured person who had been denied coverage because of a pre-existing condition. Called pre-existing condition insurance plans, the insurance resembled a garden-variety Blue Cross plan, and the premium was the same premium a healthy person would pay for such insurance. By the time these plans ended, roughly 135,000 people had enrolled.

On the eve of Obamacare’s passage, virtually the entire argument for Obamacare—on TV, on radio, on social media, in the halls of Congress—was that people with pre-existing condition should be able to buy insurance for the same premium healthy people pay.

Not only did the federal risk pool insurance described above solve the problem without disrupting everyone else’s lives, we came to learn how truly small the problem was of people unable to buy insurance if they had pre-existing conditions. Only 4/100ths of 1% of the whole U.S. population faced this situation.

But of course, people with a predisposition to meddle will always do so, given the chance. Obamacare went on to affect (generally in a negative way) almost every other insurance arrangement in the country.

As I noted in a recent article, Obamacare these days is a boon to the healthy. Four out of every five people in the (Obamacare) exchanges are paying premiums of $10 a month or less. If you have an average income, the insurance is free. Furthermore, the only medical care healthy people need is preventive care, and under the Affordable Care Act those services are also free.

Don’t Be Sick Under Obamacare

If you are sick, however, things are very different. The annual out-of-pocket maximum for a family in the exchanges this year is $18,900 and that is the exposure in a typical exchange plan. That’s the amount you may have to pay in the form of deductibles and coinsurance—over and above any premium payment. Plus, if you have an above-average income and don’t get a subsidy, the average family premium last year was $13,824.

It should come as no surprise that a lot of families are looking for alternatives. One possibility is short-term, limited-duration insurance.

The basic product has been around for many years. A typical plan lasts for only 12 months and serves as a bridge for people transitioning from a family policy to school, or from school to work, or from job to job.

What makes this product especially interesting is that it is largely unregulated. Obamacare-mandated benefits don’t apply; and most state-mandated benefits don’t apply, either. That means these plans don’t have to cover maternity care or substance abuse. They can and do ask health questions. They exclude people with expensive chronic conditions.

Precisely because these plans avoid cost-increasing regulations and they only need to cover risks healthy people care about, they often sell for as little as one-half of the price of Obamacare insurance. They also typically have lower deductibles and broader provider networks.

Out of an unfounded fear that the short-term market would pull healthy people away from the (Obamacare) exchanges, President Obama used his regulatory authority to restrict them. In a move never approved by Congress, he limited short-term coverage to three months, with no renewal after that.

Renewable Short-term Insurance

One of the most important things Donald Trump did was to reverse that restriction. Under a Trump administration ruling, short-term insurance can now last up to 12 months and it can be renewed for up to three years.

The Trump executive order also sanctions a separate type of insurance, what I call “change-of-health-status insurance,” to bridge the gap between three-year periods.

Health-status insurance protects you against any deterioration in your health. It pays any extra cost that arises because of a change in your medical condition, leaving you free to pay the same premium a healthy person would pay.

By stringing together these two types of insurance, we now have the possibility of a market that healthy people can buy into and that is guaranteed to be renewable (regardless of health condition) indefinitely into the future. Potentially, this could become the closest thing we have ever had to genuine free market health insurance.

Unfortunately, the Biden administration is threatening (again by executive order) to cancel the Trump order and reimpose the Obamacare rules governing this market.

Note that the Trump approach is consistent with my regulatory rule. It lets markets do what they do best (with very little cost to the taxpayers), and keeps a safety net (the exchange) for problems that the market doesn’t solve. The Obama/Biden approach does the opposite.

Biden Goes After Indemnity Insurance

Another insurance option the Biden administration wants to restrict is called indemnity insurance. These policies pay a fixed amount of money per medical episode. For example, a plan might pay $100 per doctor’s visit up to five visits a year. For a hospital stay, the plan might pay $6,000 per day. The plan also allows patients to pay in-network rates to the providers.

Like short-term insurance, these plans are sold to healthy people (they don’t cover preexisting conditions), and they are not regulated by Obamacare.

Why would anyone want insurance like this? Because, when combined with a short-term plan, there are enormous savings vis-a vis an Obamacare exchange plan.

Take a family of three, with adults near age 50, living in Springhill, Florida (about an hour north of Tampa). A typical exchange plan with no subsidy would cost this family a $26,400-a-year premium. Plus, their out-of-pocket exposure (in terms of deductibles and coinsurance) is $18,900. And, that’s $18,900 every year!

By contrast, this family can buy a high-deductible, short-term plan and fill in the first-dollar expenses with an indemnity plan. The combined annual cost of both plans: $10,800.

Think about that. This family can avoid an outrageously expensive exchange plan with a risk of enormous out-of-pocket costs by buying two plans that cover roughly every medical expense they are likely to incur and save more than $15,600 a year in the process!

Plus, there is another benefit. Suppose someone in the family gets sick (cancer, e.g.), and they are denied the opportunity to renew their short-term policy. As a result, they will have to turn to an (Obamacare) exchange plan. But since the indemnity policy is guaranteed renewable, it can travel with them to the exchange. Also, you can buy indemnity plans that cover the entire country—which are ideal for people who travel a lot.

Even though the family is now forced to turn to the exchange, they can choose the cheapest plan (the one with the highest deductible) because their indemnity policy will cover most of their out-of-pocket costs.

In this case, the cost of the cheapest Obamacare plan is $16,494—roughly ten thousand dollars less than the cost of a conventional Obamacare plan.

Incidentally, the short-term and indemnity insurance markets are booming—growing by leaps and bounds. It’s not hard to understand why.

It is interesting that critics of less-regulated insurance call it “junk insurance” and see Obamacare as the remedy. I suspect that most people would be inclined to reverse that judgment.

Bottom line: Let people buy health insurance that meets their financial and medical needs. At the end of the day, if there are any remaining and socially important unmet needs, those should be the limited focus of government.