TTRRAANNSSCCEENNDDIINNGG OBOBAAMMAACCAARREE A Patient-Centered Plan for Near-Universal Coverage and Permanent Fiscal Solvency AVIK ROY Senior Fellow, Manhattan Institute for Policy Research TRANSCENDING OBAMACARE A Patient-Centered Plan for Near-Universal Coverage and Permanent Fiscal Solvency AVIK ROY Senior Fellow, Manhattan Institute for Policy Research Published by the Manhattan Institute for Policy Research Copyright © 2014—All rights reserved About the Author VIK ROY IS A SENIOR FEL - He is the author of How Medicaid low at the Manhattan In - Fails the Poor , published by En - Astitute and the Opinion counter Books in 2013, and a Editor at Forbes . In 2012, Roy member of the Advisory Board of served as a health care policy ad - the National Institute for Health viser to Mitt Romney. NBC ’s Care Management. Chuck Todd, on Meet the Press , described Roy as one “of the At the Manhattan Institute, Roy’s most thoughtful guys [who has] research interests include the Af - been debating” health care re - fordable Care Act, universal cov - form. erage, entitlement reform, international health systems, and Roy is also principal author of FDA policy. The Apothecary, the influential Forbes blog on health care policy Roy is the founder of Roy and entitlement reform. Healthcare Research, a consult - MSNBC’s Chris Hayes calls The ing firm in New York. Previously, Apothecary “one of the best he served as an analyst and port - takes from conservatives on that folio manager at Bain Capital, J.P. set of issues.” Ezra Klein, in the Morgan, and other firms. Washington Post , called The Apothecary one of the few “blogs I disagree with [that] I check daily.” He was born and raised near Detroit, Michigan, and graduated from high school in San Antonio, Texas. In addition, Roy writes regularly for National Review USA Today named him to its All-USA High School Ac - Online on politics and policy. His work has appeared in ademic First Team, honoring the top 20 high school The Atlantic , USA Today , National Affairs , and The Amer - seniors in the country. ican Spectator , among other publications. He is a fre - quent guest on television news programs, including Roy was educated at the Massachusetts Institute of appearances on Fox News, Fox Business, NBC, Technology, where he studied molecular biology, and MSNBC, CNBC, Bloomberg, PBS, and HBO. the Yale University School of Medicine. Executive Summary N 2010, P RESIDENT OBAMA SIGNED INTO LAW peal Obamacare, would not necessarily address the Patient Protection and Affordable Care the underlying problems that predate the ACA. IAct, also known as the “Affordable Care Act,” the “ACA,” or “Obamacare.” The ACA will re - Furthermore, while it is possible to “repeal and duce the number of Americans without health in - replace” the ACA with a better health care sys - surance—an important goal—but it will do so by tem, it is desirable to develop policy proposals that increasing the cost of U.S. health coverage. In - do not require the disruption implied by repeal in creasing the cost of health coverage, in turn, will order to put U.S. health spending on a sustainable worsen two of the nation’s most important policy path. problems. With these considerations in mind, the proposal The first of those problems is the increasing un - contained herein—dubbed the Universal Ex - affordability of private health insurance, a prob - change Plan (“the Plan”)—seeks to substantially lem that is straining the budgets of repair both sets of health-policy problems: those middle-income Americans, and hampering social caused by the ACA and those that predate it. mobility. The second problem is the nation’s grave long-term fiscal instability, a problem primarily It is the latter set of problems that have denied af - driven by government spending on health insur - fordable, high-quality health care to millions of ance and health care. Americans, while presenting the government with crushing health care bills. Indeed, the ACA will especially drive up the cost of private health insurance that individuals pur - The Universal Exchange Plan’s reforms are per - chase directly. The law will dramatically expand fectly compatible with the “repeal and replace” Medicaid, a program with the poorest health out - approach, but they do not require the full and for - comes of any health insurance system in the in - mal repeal of the ACA in order to be enacted. dustrialized world. And the ACA, despite spending over $2 trillion over the next decade, The Universal Exchange Plan would introduce will leave 23 million lawful U.S. residents without major changes to the broad set of federal health health insurance, according to estimates from the care entitlements: Obamacare, Medicare, and Congressional Budget Office (CBO). Medicaid. The Plan uses a reformed version of the ACA’s health insurance exchanges as the basis for In other words, the U.S. health care system re - far-reaching entitlement reform. mains in need of substantial reform, in ways that address the ACA’s deficiencies as well as the sys - The Plan would repeal many of the ACA’s cost-in - tem’s preexisting flaws. creasing insurance mandates, including the indi - vidual mandate. But it would preserve the ACA’s The ACA’s supporters wrongly contend that the guarantee that every American can purchase cov - health law requires only minor tinkering in order erage regardless of preexisting conditions. And it to succeed. But the ACA’s critics, in seeking to re - would utilize the concept of using federal pre - 6 Avik Roy Executive Summary mium support subsidies, on a means-tested basis, LEARNING FROM THE BEST to defray the cost of private health coverage. INTERNATIONAL HEALTH SYSTEMS It would gradually migrate most Medicaid recipi - THE PLAN HAS ITS ROOTS IN REAL -WORLD EXAM - ents, along with future retirees, onto these re - ples of market-oriented, cost-effective health re - formed exchanges. This change would form. Notably, two wealthy nations—Switzerland dramatically increase the quality of health cover - and Singapore—spend a fraction of what the age offered to Americans at or below the poverty United States spends on health care subsidies; yet line, and preserve the guarantee of health cover - they have achieved universal coverage with high age for low- and middle-income seniors, while en - levels of access and quality. The Universal Exchange Plan’s Key Reforms Repeals ACA individual mandate, employer mandate, & all tax hikes except ‘Cadillac Tax’ Emancipates exchanges from costly federal regulation • Combats hospital monopolies Migrates most Medicaid enrollees and future retirees onto reformed exchanges Projected Fiscal and Coverage Outcomes 30-year deficit reduction of $8 trillion • 30-year revenue reduction of $2.5 trillion Makes Medicare Trust Fund permanently solvent • Reduces private-sector premiums For Medicaid population, improves provider access by 98%; medical productivity by 159% By 2025, increases coverage by 12.1 million above ACA levels suring the fiscal sustainability of both federal In 2011, the Singaporean government spent $851 health care commitments. The Plan proposes per capita on health care: less than a quarter of minor changes to the treatment of employer-spon - what the U.S. spent, adjusted for purchasing sored health coverage, while giving workers addi - power parity. Singapore has achieved its savings tional tools to lower their health care bills. It using a universal system of consumer-driven would curb the pricing power of hospitals, cap health care. The government funds catastrophic malpractice damages, and accelerate medical in - coverage for every Singaporean, and reroutes a novation. portion of workers’ payroll taxes into health sav - ings accounts that can be used for routine ex - Taken together, these changes could usher in a penses. new era of consumer-driven, patient-centered health care. Switzerland offers its citizens premium support subsidies, on a sliding scale, for the purpose of According to our estimates, the Universal Ex - buying private health insurance; there are no change Plan would, by 2025, increase the number “public option” government insurers. Low-in - of U.S. residents with health coverage by 12.1 mil - come individuals are fully subsidized; middle-in - lion, relative to the Affordable Care Act. Over come individuals are modestly subsidized; and time, we project that the Plan would outperform upper-income individuals are unsubsidized. The the ACA by an even wider margin. sliding scale addresses a key challenge posed by welfare programs: mitigating the disincentive for The Plan would also expand economic opportu - welfare recipients to seek additional work, for fear nity for those struggling with high medical bills. of losing their benefits. It would improve the quality of health care deliv - ered to the poor, and put America’s finances on a The Swiss system shares some of the unattractive permanently stable course. features of the ACA, including the individual Transcending Obamacare 7 Executive Summary mandate. But because Switzerland focuses its consumers, because they are of higher quality at a public resources solely on lower-income individu - lower cost. The Plan expands access to health sav - als, the federation’s universal coverage system is ings accounts. Because these reforms lower the far more efficient than America’s. In 2012, cost of insurance for younger and healthier indi - Switzerland public entities spent approximately viduals, they have the potential to expand cover - $1,879 per capita on health care: 45 percent of U.S. age, despite the lack of an individual mandate. public spending. Put another way, if U.S. govern - ment health spending was proportional to Switzer - Employer-sponsored insurance reform . The Plan land’s, the U.S. would be able to eliminate its repeals the ACA’s employer mandate, thereby of - budget deficit. fering employers a wider range of options for sub - sidizing workers’ coverage. The Plan preserves Of course, the U.S.