Republicans are too often portrayed by opponents as heartless and without serious ideas for healthcare reform or cutting poverty. A growing pile of evidence, however, suggests just the opposite. Plan after plan is emerging from the political right, reforms that would make healthcare more affordable (and fix much of the Affordable Care Act's gaps) and radically restructure our anti-poverty programs. Among these is a proposal from Republican candidate Ben Carson that, despite receiving unfairly negative attention, actually has some strong fundamentals.
“Plan after plan is emerging from the political right, reforms that would make healthcare more affordable and radically restructure our anti-poverty programs.”
The healthcare plan, as it's been pitched by Dr. Carson, is simple: Give people a health savings account from birth to allow (and encourage) saving money, pre-tax, for healthcare expenses. The government would contribute $2,000 every year to the HSA, allowing people to save over time for catastrophic expenses.
There are important obstacles here, but it's first worth understanding that the basic principles of this idea are sound. Giving people money to make their own spending decisions is a very attractive idea for economists, who tend to view individuals' decisions as more efficient than those others make for them. When it comes to healthcare in particular, ensuring that patients have "skin in the game" is also crucial to reducing healthcare spending.
The idea also shares similarities with an approach supported by many on the left — a basic minimum income.
But no idea is perfect, and admittedly, Dr. Carson's plan runs into some unique roadblocks.
For starters, his approach wouldn't be feasible as an insurance replacement. Medicare, Medicaid and/or catastrophic insurance plans would still be necessary to protect against truly catastrophic costs, especially for the top 1 percent, 5 percent or 10 percent of spenders that account for a grossly disproportionate share of total healthcare spending.
At least on the Medicaid front, however, Dr. Carson's approach might be particularly attractive. A study earlier this year from health economists at MIT, Harvard and Dartmouth found that the value of Medicaid to its beneficiaries ranges from 20 to 40 cents on the dollar. The implication, of course, is that giving beneficiaries money directly would be more valuable to them.
“When it comes to healthcare in particular, ensuring that patients have "skin in the game" is also crucial to reducing healthcare spending.”
And indeed, the present value of contributions – what a person today should be willing to accept as a lump-sum in lieu of government cash flows – is significant over a person's lifetime. The present value of contributions alone comes to over $100,000, assuming a conservative 4 percent discount rate. With – very conservative – 4 percent investment returns, a 3 percent annual growth rate in contributions, and a 78-year lifespan, the total nominal balance at the end of a person's life (assuming no drawdowns) comes to $2.3 million. (With a 50 percent annual drawdown, the balance ends up at a little over $20,000.)
HSA contributions will not, however, replace the roughly $1 trillion that we spend on Medicare and Medicaid in its entirety. As such, the means for financing such a plan are unclear.
Moreover, more specific changes to how we sell insurance and educate people on healthcare spending would be necessary before this sort of approach became feasible. Ensuring that pricing and quality information, along with decision-making tools, are widely available would be crucial.
So Dr. Carson's plan, while not feasible in its current form, presents sound basic ideas that could form the foundation of important changes to our healthcare system. Replacing current cost-sharing reduction subsidies available through the ACA's exchanges with an HSA contribution, for instance, would make for smart, creative policy that empowers patients and advances more market-based healthcare reform. Critics of the plan shouldn't throw the baby out with the bathwater, there are things to like about Dr. Carson's plan that could make the healthcare system better for everyone
This piece originally appeared in Washington Examiner