CMA Healthcare Financing Reform
1. What is the rationale for CMA to develop its own healthcare financing reform proposal?
The current trends in healthcare financing are alarming. Government programs are progressively being underfunded, leaving more and more of the burden of paying for healthcare on the private sector. Private-sector employers in turn are less willing to provide coverage to current employees on the one hand while trying to reduce their obligations to their retirees on the other. As the number of medically uninsured Americans grows larger, the faltering healthcare system is caught in a fiscal crossfire, particularly the safety net for emergency and trauma care. Unless these trends are reversed, fewer patients will be able to pay their bills, and more and more physician practices and hospitals will cease to exist.
As this situation worsens, a lack of consensus about how to address it is evident, both within the medical community and among a broader range of policymakers. CMA’s goal is to avoid partisan positioning as well as those polarized strategies that have repeatedly failed to garner sufficient support to achieve a consensus. In fact, our purpose is to work toward such a consensus as the only meaningful first step in addressing the problem of the uninsured. Should that first step be achieved, i.e., if the CMA plan is accepted in principle, more work would clearly be needed, but we would be well on the road to a solution.
That said the CMA plan contains elements that will likely be initially unacceptable to partisan constituencies. It may have “something to mildly offend everyone.” But, after thoughtful consideration, what we are proposing is practical, achievable, and bi-partisan.
2. What is the goal of this specific healthcare financing proposal?
CMA’s primary goal has been to develop a proposal that can attract wide support by providing meaningful coverage to the largest possible number of currently uninsured Americans without impacting state or federal budgets.
One key consensus point is that as we start to provide coverage to the uninsured, our top priority should be to eliminate the fear of catastrophic trauma or illness, i.e., no one should be bankrupted by healthcare costs. Doing this as an initial step in healthcare reform removes one of the more emotionally charged political arguments from the reform discussion, while providing an important level of coverage to many millions who currently have none.
We have also included USPHS-approved clinical prevention coverage, such as immunizations, well-child and prenatal care, and mammograms, in addition to catastrophic coverage only.
3. Why is mandated health insurance for individuals at or above 400% FPL necessary?
The HOD action earlier this year to support “mandates” in general as necessary to achieve near-universal coverage, and an individual mandate in particular, stems from the fact that (a) there has never been a near-universal, voluntary “anything” in this country, and (b) mandates can only be on the population thru tax-supported single payer, on the employer or on the individual. The voters have repeatedly rejected the first two options, leaving an individual mandate as the only viable vehicle to significantly improve coverage.
One might see this plan as providing strong fiscal incentives to individuals to acquire catastrophic coverage through special excise taxes or other means. This is a common strategy for achieving desired social outcomes, and while there will always be people who fail to comply with legal mandates (criminal laws against murder, tax evasion, and traffic violations do not produce 100% compliance), the negative consequences of non-compliance are by and large effective in producing the desired result.
4. How would a mandate be enforced?
The most commonly discussed mechanism to enforce a mandate is through the tax code. For example, a process could be established requiring an individual to attach “Form XYZ” verifying health insurance or pay a significant tax. (Future W-2 forms could even have a check box indicating that one has received minimal “qualifying” insurance at the workplace). If there is in fact a significant tax penalty for failure to self-insure, compliance would likely be very high.
5. And with regard to those with incomes between 200 and 400% of poverty, how would this proposal ensure the tax credit would be used to purchase minimum healthcare coverage? Can someone with income between 200 and 400% of poverty truly afford health insurance even with tax credits if a refund of all their state taxes will not result in enough to purchase healthcare?
The tax credit provided would be a refundable tax credit, which assures that even those with no tax liability would receive a “refund” from the government in the amount of the credit for the purchase of health insurance. A refundable cash credit provides cash back to tax payers who are eligible for a credit that exceeds their tax liability. A mechanism can be developed to assure that this cash refund, or tax credit, can only be paid after proof of purchase of healthcare coverage. Or the tax credit could be directly allocated to the healthcare broker on behalf of each taxpayer, in effect taking the taxpayer out of the middle.
The amount of tax credit will have to be calculated and adjusted over time to assure that the tax credit is adequate to purchase, at a minimum, a high-deductible healthcare plan. If enough funds are not raised through the tax on “excess” healthcare benefit coverage, a new funding stream may need to be found.
In addition, this requirement to purchase individual healthcare coverage will be paired with individual market reforms. Insurers in the individual healthcare market will be subject to guaranteed issuance without pre-existing condition clauses.
6. How does this plan address “crowd out”? What precludes an employer currently providing healthcare coverage to those at low income (i.e., between 200 and 400% FPL) from dropping its healthcare coverage knowing that its employees will be provided with tax credits for the purchase of healthcare coverage?
Currently, low-wage employers can provide no health insurance coverage, without penalty. Employers that currently offer healthcare coverage do so as an employee benefit. Most employers currently offer a much richer plan (e.g., first-dollar coverage) without any requirement to do so. We propose providing tax credits in an amount sufficient for an individual/family to purchase a plan covering catastrophic healthcare coverage coupled with limited preventive coverage. Because the new requirement would be for a plan with “lesser” coverage, we believe that employers will continue to offer “better” coverage to retain employees. This is clearly an element that will have to be addressed as we move forward.
7. If the purchase of healthcare were mandated, wouldn’t a minimum-benefit package need to be defined?
Yes. We believe a catastrophic healthcare plan must be coupled with basic preventive healthcare coverage. The preventive benefit package that would be coupled with the high-deductible plan should be based on the US Preventive Services Task Force Guide to Clinical Preventive Services recommended benefits (which are based on age and sex).
8. How does this plan ensure coverage for those with chronic disease needing ongoing healthcare management?
As discussed, this plan moves those currently uninsured into catastrophic coverage at minimum (nothing precludes having those individuals add some additional “front-end” benefits, at their own cost, if desired). Today, a chronically ill patient with no healthcare insurance continuously faces the potential of bankruptcy. With this plan, a patient’s healthcare expenses will be capped at perhaps $3,000 per year, which is far less than the uncapped ceiling faced by uninsured, chronically ill patients currently. This is clearly better than no coverage. And, the prevention benefits will aid in early identification of chronic disease.
Furthermore, as more people move into the catastrophic/preventive healthcare coverage market, market forces are likely to incentivize competitive plans that include provisions addressing some chronic care needs, such as for diabetes, asthma, and CHF.
9. How does the CMA plan differ from the AMA plan?
AMA would remove all healthcare exemptions from the federal tax code. We believe it is politically challenging to assume that a low-income janitor, for example, with an average healthcare benefit at work, should be assessed taxes (including 15.3% FICA) on the total value of his/her health insurance (even if they would receive a substantial tax credit to obtain coverage in exchange). Even less politically feasible would be to subject a working couple earning $100,000 with “average” healthcare benefits to full FICA + income taxation on the value of their health insurance — this could result in a $5,000 tax increase with no offsetting tax credit.
In addition, the AMA plan has no individual mandate, creating the possibility of a significant number of individuals choosing not to use their tax credit to help purchase coverage. Consider that 11 million low-income seniors became eligible this year for Medicare drug cards that offered substantial savings, including the first $1,200 in drug expenses for 2004–2005 fully covered. Even so, fewer than half of those 11 million have actually acquired a card. Voluntarism does not lead toward universality.
10. Can high-deductible plans really work? Can consumers afford even a $3,000 deductible? Wouldn’t physicians and other providers be stuck collecting the new, higher deductibles?
At present, those who will be required to purchase a high-deductible plan coupled with some preventive care, are uninsured. This new plan would cap any individual’s liability at an amount projected to be on the order of $3000, a major improvement over the current market in which personal liability is uncapped and can easily lead to bankruptcy. Furthermore, because the CMA proposal requires individual market reforms, other plans more generous than a high-catastrophic coverage may become financially feasible to the individual purchaser.
Yes, physicians and other providers will have to collect the co-payments up to the deductibles. Given that the entire healthcare system is unraveling and more and more Americans are becoming uninsured with no coverage, this may well be the new role providers must play in order save the already fragile healthcare market. Moreover, many providers already collect funds from patients, including from patients who annually risk bankruptcy in order to make their payments. Under this plan, these same patients would continue to pay medical expenses but will have their expenses capped at an amount that, while daunting to some, still forestalls bankruptcy.
11. If we tax benefits over 110% value of the median, won’t many employees choose less generous plans in order to avoid paying taxes on the richer plan and thus ultimately cause the financing pool to “dry up”?
Many people love ‘kid-in-the-candy-store’ healthcare — with first-dollar coverage guaranteeing free doctor visits, free Lipitor, etc. Tens of millions of Americans still have such plans and will likely continue to select them, even with a cap on their currently tax-free status. The more relevant question is: Why should the larger public subsidize this “excessive coverage” on the order of $50 billion per year when 45 million Americans, most of whom are working and paying taxes, have none? Some may downgrade their coverage. But many will not.
There may be a variety of challenges associated with this proposal, including a “race to the middle” for healthcare benefits. However, there currently exists no other viable proposal that provides meaningful coverage to the majority of those currently uninsured, with no impact on state or federal budgets.
12. Can this proposal be introduced at the state level?
Implementing this proposal at the state level is currently under study. The issue at hand is how funding can be raised from the state income tax system. A great advantage of implementing this kind of reform at the state level is that that any dollars could be paid out through the Healthy Families program and thus bring in federal matching dollars on a 2:1 or 3:1 basis.