Republican Plan of the Future: Medicare Part E + Gap Insurance

Andrew Sprung points out Kaiser’s piece on the development of “gap” insurance for the large ACA deductibles, especially in Bronze plans. This weeks health reform discussion has turned to the labor market changes (some good, some bad, but magnitude up from initial CBO) from the ACA. However, last week the most comprehensive Republican proposal to date, put forth by Burr, Coburn, Hatch will also increase marginal tax rates on labor income due to means tested benefits and a very large change in the tax treatment of employer sponsored health insurance. Back to this week, Republicans are scorching the Earth over which they last week hoped to plant the seeds of future policy.

Some day a reform minded Republican will propose something like what I did in my book:

  • federally guaranteed catastrophic coverage implemented via Medicare
  • gap insurance sold in state-based exchanges

Democrats get universal coverage, Republicans get catastrophic (and Dems realize lots of folks in exchanges have big deductibles now). If we are going to heighten focus on the impact of means tested programs on labor market outcomes, a universal benefit should have a lower marginal tax rate increase than either ACA or the Republican alternative. You could adopt Sens. Burr, Coburn and Hatch’s “come in now” or face underwriting for the gap insurance and be rid of the individual mandate that everyone hates. Republicans could counter that they’d rather go back to the Patients’ Choice Act flat tax credits, which will also reduce labor market distortion, and I agree that it would. However, think through the mechanims that Martin Feldstein, for example, proposed for universal catastrophic insurance implemented via a private mechanism, which is the what could be bought by the magnitude of tax credits proposed in the PCA. Whole lotta health policy in there, the details of which will be exceedingly difficult.

By contrast, Medicare part E would simple, and less labor market distortion. Now, it would almost certainly lead to an unwinding of the employer sponsored insurance market, especially if we follow our Republican friends (and I think we should) toward more aggressive changes in the tax treatment of employer sponsored insurance. But realize, we are in the mess we are in now in large part because the employer sponsored insurance link is breaking down as a predictable source of coverage, while providing others (like me) with excellent policies, while we have creeped up on a consensus that this old status quo is unacceptable.

I will go out on a limb. If Hillary Clinton becomes President, and we are muddling through health reform as we will be, a Republican will run for their Presidential nomination in 2020 on something like what I have suggested.

About Don Taylor
Professor of Public Policy at Duke University (with appointments in Business, Nursing, Community and Family Medicine, and the Duke Clinical Research Institute). I am one of the founding faculty of the Margolis Center for Health Policy, and currently serve as Chair of Duke's University Priorities Committee (UPC). My research focuses on improving care for persons who are dying, and I am co-PI of a CMMI award in Community Based Palliative Care. I teach both undergrads and grad students at Duke. On twitter @donaldhtaylorjr

One Response to Republican Plan of the Future: Medicare Part E + Gap Insurance

  1. Bob Hertz says:

    As you know, Don, I am in great agreement with this overall concept. In fact that was how I discovered your blog several years ago.

    What troubles me about the ACA exchanges is that they are offering semi-catastrophic insurance for what used to be low-deductible prices.

    To be specific, a 55 year old buying a bronze plan on the exchanges pays about $500 a month for a $6000 deductible. (that is a rough guess)

    That may leave them very little money to pay that big deductible if they get sick. This is a main reason why there are so many bad debts for hospitals and clinics.

    Now my solution is this:

    The guaranteed catastrophic insurance would be available for a per cent of income. Private insurers cannot operate this way, so let Medicare Part A expand to persons under 65, albeit with a high deductible.

    If the individual wants first dollar coverage, then that is when they can spend $500 a month.

    As always, comments welcome!

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