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A Real Solution for Covering the Uninsured

Speaking about health care reform in his State of the Union address, President Obama said “But if anyone from either party has a better approach that will bring down premiums, bring down the deficit, cover the uninsured, strengthen Medicare for seniors, and stop insurance company abuses, let me know.” Now, as America knows, he wants to meet with Congressional  Republicans and Democrats on February 25 to discuss health care reform.

On February 25, Republicans should seize the opportunity to broadcast the best kept secret of health policy: the uninsured can be covered at relatively modest additional net cost, without a government takeover of health care, rationing, new health care bureaucracies, or any of the other central components of Obamacare.

The lack of a clear safety net for the uninsured is what gives Democrats the political clout to keep coming back for socialized medicine. Republicans should advance the modest reforms necessary to establish a true safety net that will ensure that no one who needs it will be denied essential health care. Only these reforms will permanently protect the health care of the American people from government takeover and control.

Reform should start with Medicaid, which already spends over $400 billion a year providing substandard coverage for 50 million poor Americans. Congress should transform Medicaid to provide assistance to purchase private health insurance for all who otherwise could not afford coverage, ideally with health insurance vouchers.

This one step would enormously benefit the poor already on Medicaid. The program today pays doctors and hospitals only 60% of costs for their health care services for the poor. As a result, 40% of doctors and hospitals won’t take Medicaid patients. This is already a form of rationing, as Medicaid patients find obtaining health care increasingly difficult, and studies show they suffer worse health outcomes as a result. Health insurance vouchers would free the poor from this Medicaid ghetto, enabling them to obtain the same health care as the middle class, because they would be able to buy the same health insurance in the market.

Ideally this would be done by changing Medicaid financing to provide the federal assistance to the states for the program through finite block grants, which would not vary to match increased state Medicaid spending as it does today. States that innovate to reduce costs can then keep the savings. States that operate programs with continued runaway costs would pay those additional costs themselves. Such reforms worked spectacularly well in halting the runaway costs of the old AFDC program when Congress adopted welfare reform in 1996.

The block grants should provide states with increased federal funding that is sufficient, counting state Medicaid funds, to give assistance to all who truly cannot afford health insurance. The voters of each state can then decide how much assistance for the purchase of health insurance to provide families at different income levels. This would, rightly, vary with the different income and cost levels of each state.

Done right, this would ensure that no one would lack health insurance because they couldn’t afford it. But to ensure a complete safety net, federal funding should also be provided for each state to set up an uninsurable risk pool. Those uninsured who become too sick to purchase health insurance in the market for the first time, perhaps because they have cancer or heart disease, would be assured of guaranteed coverage through the risk pool. They would be charged a premium based on their ability to pay. Federal and state funding would cover remaining costs.

Such risk pools already exist in over 30 states, and they work well at relatively little cost to the taxpayers because few people actually become truly uninsurable. This works far better than forcing insurers to cover everyone regardless of pre-existing conditions, or regulations such as guaranteed issue (requiring insurers to cover everyone who applies regardless of health condition) or community rating (requiring insurers to charge everyone the same regardless of health condition). Such regulation naturally causes health insurance premiums to soar. That is because it is akin to requiring insurers to provide fire insurance for houses that are already on fire. With the above reforms, such cost increases would be avoided, while ensuring that everyone has somewhere to go to get essential coverage and care.

The law already provides that insurers cannot cut off existing policyholders, or impose discriminatory rate increases, because they become sick while covered. That would be like allowing fire insurers to cut off coverage for houses once they catch on fire. If this law needs to be modernized, it should be.

With these reforms, those who have insurance can keep it, those who can’t afford it are given help to buy it, and those who nevertheless remain uninsured and then become too sick to buy it still have a back up safety net in the risk pools. Notice that this completely solves the problem of the uninsured without any individual or employer mandates, which are burdensome, unnecessary gateways to enormous trouble. Republicans must also be careful to reject any reform involving health care rationing in any form.

Peter Ferrara is Director of Entitlement and Budget Policy for the Institute for Policy Innovation, and a Senior Policy Advisor on Health Care to the Heartland Institute. He served in the White House Office of Policy Development under President Reagan, and as Associate Deputy Attorney General of the United States under the first President Bush.

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