June 5, 2018

...AND CHEAPER...:

COULD WE AFFORD UNIVERSAL CATASTROPHIC HEALTH COVERAGE? (ED DOLAN, 6/05/18, Niskanen Center)

So far, we have looked at the economics of UCC in the abstract. This section turns to the challenging issue of estimating the actual dollar cost of a specific UCC plan.

To date, the most ambitious attempt to do so is one by Jodi L. Liu of the RAND Corporation. Liu uses a detailed simulation model that includes population data, estimates of demand elasticities, and estimates of additional cost-saving measures, all drawn from reviews of the literature. She applies the model to two different national health care plans: a 2013 version of Sen. Bernie Sanders' Medicare for All proposal and a UCC plan outlined in 2012 in National Affairs by Kip Hagopian and Dana Goldman.

For purposes of estimation, Liu sets the parameters of the catastrophic plan as follows: The low-income threshold is 100 percent of the FPL. The deductible is 10 percent of eligible income. Copays are 5 percent, subject to an out-of-pocket maximum of 14.5 percent of eligible income. Given these parameters, households thus hit their out-of-pocket maximum at the point where health care expenses reach 100 percent of eligible income. Liu also assumes a fixed charge, waived for incomes up to FPL and assessed on a sliding linear scale up to a maximum of $3,350 at 300 percent of the FPL. She calls this charge a "tax," although Hagopian and Goldman themselves, writing in Forbes, call it a "premium." Liu does not model the cost of a package of free preventive services, even though the original Hagopian-Goldman plan that she draws on recommends such a feature.

The basic version of the UCC plan that Liu considers leaves Medicaid and Medicare intact, and covers everyone who does not participate in either of those programs. As such, it completely replaces all employer-sponsored insurance. She also considers variants that preserve employer-sponsored plans as optional alternatives.

Liu estimates that for 2027, the basic UCC plan would reduce total national health care expenditures by $211 billion, or about 8.7 percent. She estimates that total federal expenditures on health care would increase by $648 billion compared with expenditures under the ACA for that year. Of that increase, $524 billion would be covered by revenue from the dedicated tax/premium. The remainder would be slightly more than offset by increased revenue from income and payroll taxes due to elimination of the deduction for employer-sponsored insurance. As a result, the net impact of the basic UCC plan on the national budget would be a saving of $40 billion.

For comparison, Liu estimates that Sanders-style first-dollar coverage would increase total national health care expenditures by 18 percent and federal health care expenditures by 60 percent. Most of the additional federal spending for the Sanders plan would come from new taxes.

Next, Liu estimates potential savings in administrative costs for insurers and providers, together with further savings from negotiation of better prices for prescription drugs, hospital services, and other provider services. The net effect, with the further cost savings, would be a reduction of total national health care expenditures by $767 billion dollars, or 35 percent.

Although some of the $767 billion of further savings in national health care expenditures would accrue to individuals, Liu estimates that $556 billion of those savings would accrue to the federal budget. Including the further cost savings, then, total impact of the basic UCC plan on the federal budget would be a net saving of $596 billion, rather than the $40 billion estimated for UCC without further cost saving. Note also that the federal share of further cost savings of $556 billion is  slightly greater than the estimated $524 billion of revenue that would be raised by the tax/premium feature of the basic UCC plan. Putting this all together, then, total federal expenditures on health care would be $72 billion less than under the ACA even if the tax/premium were dropped from the plan.

Liu's estimates are carefully constructed and draw on the best available data. Nonetheless, they should be considered as illustrative, not as definitive. Further research might reach different conclusions regarding the responsiveness of health care consumers to system changes, the success of cost control efforts, and changes in tax revenues. Other investigators would doubtless want to explore the effects of changes in various UCC parameters, and to examine a broader UCC plan that replaced Medicaid and/or Medicare. Still, UCC proponents will find Liu's estimates encouraging, since they are consistent with the expectation that a reasonable UCC plan could be implemented without new taxes or large increases federal health care spending.



Posted by at June 5, 2018 2:53 PM

  

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