A ‘defined contribution’ model is a key building block for free market plans
As the furor settles following the momentous Supreme Court decision on the health law, millions of people are asking, what’s next?
What’s needed is a serious analysis of the problems in our health sector that need to be solved and a set of policy proposals that recognize the public’s deep antipathy toward Obamacare’s centralized government approach.
House Speaker John Boehner says the American people want a “common-sense, step-by-step approach to healthcare reform.” Republican Mitt Romney has emphasized his support for “a free market, federalist approach” that spurs competition, flexibility and consumer choice. This is the right vision to present to the American people during the 2012 election campaigns.
If Republicans control either Congress or the White House—or both—after the November elections, they will press the reset button on health reform and begin work on reform that takes issues one by one and engages the American people in conversations organized around market-based, patient-centered reform.
Dozens of Republicans in Congress already are working diligently on legislation, some offering overall reform plans and others targeting specific programs such as Medicare or Medicaid.
Defined contribution model
A key building block that underpins free-market plans is the “defined contribution” model for financing care and coverage—a concept that works for both public and private sector reform. Instead of promising a long list of health benefits, employees or beneficiaries would receive allocations to support the purchase of the health plan or other arrangement that suits their needs.
This moves away from the paternalistic model that puts distant bureaucrats in charge of decisions about our care and coverage. Defined contributions engage consumers as partners in getting the best value in spending for health coverage and healthcare. Consumers would demand more options and more flexibility in policies, physician networks and financing arrangements. They would demand that providers and insurers reveal the full cost of their offerings; this would put downward pressure on costs, and that in turn would put insurance within the reach of millions more people.
The defined contribution concept works for Medicare, Medicaid, and private health insurance, and could be extended in providing financial help for the uninsured to obtain coverage. Here’s how:
Medicare: There has been bi-partisan agreement from commissions advising Presidents Clinton, Bush, and Obama on the wisdom of a sliding-scale payment to give seniors choices of health coverage through competing private plans. Nearly 13 million seniors have voluntarily signed up for Medicare Advantage, which works on this model. And the Medicare prescription drug plan, where seniors choose from among private competing drug plans, shows the competition and choice model can be structured to save money, with Part D costs coming in at 43 percent below original estimates.
Medicaid: The states are desperate to get relief from Medicaid costs that threaten to envelop their budgets. Florida provides an example of demonstration plans that allow a segment of its Medicaid population to receive a risk-adjusted credit to get healthcare from competing plans. This allows people to escape from the Medicaid ghetto and obtain private coverage where they can actually find private physicians to see them. Early evidence shows that costs are lower and the health of beneficiaries better compared to those in traditional Medicaid. Rhode Island and Indiana also have demonstrated success with other innovative Medicaid reform initiatives.
Employer-based health insurance: The threat of Obamacare’s expensive mandates has forced major employers to seriously consider getting out of the business of offering defined-benefit health insurance. Overwhelmingly, employers want to continue to provide coverage to employees, but they know that if current cost trends continue, they won’t be able to do so. A fixed contribution toward health coverage would allow employers to have more certainty over costs and employees to select the policies that best suit their needs.
Helping the uninsured: One of the top priorities of health reform was to help the uninsured. Obamacare missed the mark by at least 25 million, according to the Congressional Budget Office. Instead of a complete overhaul of our health sector, government support could be targeted to those who genuinely need help. It’s time for Congress to put in place policy proposals that have been on the table for more than a decade and offer people a health credit to purchase coverage, either on their own, through an employer, or through other groups.
There are key structural elements common to virtually all market-oriented health reform proposals to give consumers in both public and private plans more control and ownership over healthcare arrangements.