During both the Democrat and Republican conventions, the American Association of Retired Persons (AARP) spent a fortune running ads over and over with very troubling personal stories of individuals who were bankrupted with medical bills even though they thought they had health insurance. Some apparently even lost their houses as a result. The ads didn’t offer a solution. Their theme was simply “something needs to be done about it.”
Not enough details were given to understand exactly what happened in these cases. Generally, the individuals involved seemed not to understand the insurance coverage they had, or thought they had. Moreover, any standard local lawyer for a modest fee should be able to prevent anyone from losing their house over medical bills.
But there is no point in parsing through these details. Conservatives cannot politically defend the position that if you fail to get insurance or adequate insurance, and you end up in bankruptcy and lose your house due to medical bills, that is your fault and not our concern. Nor can we defend leaving anyone without essential health care to avoid death or suffering. In other words, the public will demand a safety net to cover the kinds of cases highlighted in the ads.
But that does not mean we have to suffer national health insurance and government-run health care, along with the resulting increased taxes, government spending, and big government, as well as reduced health-care quality, to provide such a safety net. In fact, we can provide a much better safety net than today by reducing government, effectively achieving universal access to health care through the free market.
We are already supposed to have a health-care safety net in America for those who cannot afford essential care. It is called Medicaid, and we spend close to $350 billion a year on it. Moreover, this is one of the big entitlement programs projected to explode in future years, already likely to double as a percent of GDP by 2050. That will be like spending $700 billion on the program today.
Yet, despite the enormous, ultimately intractable spending for this program, we still have the cases highlighted by AARP. Giving still more money and power to the same government that already runs this program is not a promising solution.
What we need is just the opposite. The model is the 1996 reform of the old Aid to Families with Dependent Children (AFDC) program. The federal funding for that program was sent back to each state in a block grant, to be used for a new welfare program designed by each state based on work for the able-bodied.
The key is that the block grant for each state is finite, not matching, so it does not vary with the amount the state spends on the program. Previously, the Feds matched increased state spending, so each new welfare dependent signed up brought more federal funds to the state. This proved to be a formula for endlessly increasing welfare rolls. But with each state now getting a finite block grant no matter how much it spends, if the new program the state adopts increases costs, the state must pay for those extra costs itself. If the new state program saves money, however, the state can keep the savings.
This legislation was based on the long term vision for welfare reform first advanced by Ronald Reagan and his longtime top welfare aide in both California and the White House, the late Robert Carleson. Vindicating their vision, the reform was shockingly successful, with the old AFDC rolls reduced by close to 60-percent nationwide, close to 80 percent in states that pushed work most aggressively.
This same Reagan vision should now be expanded to budget busting Medicaid. Provide the federal share of funding to each state in finite block grants that do not vary with the state share of spending on the program. Limit federal spending on the block grants to grow no faster than the rate of growth of GDP over time, which would leave federal Medicaid spending at reasonable levels taxpayers could support over the long run. Then let each state use the block-grant money along with its own funds to develop a new health-care safety net that does not leave people falling through the cracks to bankruptcy and even loss of their homes due to medical bills.
Ideally, each state would provide vouchers to lower income residents enabling them to buy private health insurance. Each state would decide how much support to provide at what income level. This would cover children as well, so the State Children’s Health Insurance program (S-CHIP) should be included in this reform as well. Such assistance would assure that lower income people would be able to afford essential health coverage, based on the assessment of the voters of each state.
But states could also decide to provide full-blown socialized medicine with health care run by the state. Let the competition begin.
Another key component of a revitalized health-care safety net is uninsurable risk pools. Such pools already exist in 33 states, and they have worked extremely well. Those who do not have health coverage and then become uninsurable because of contracted illnesses would obtain coverage from the risk pool in their state. The state would charge above market premiums for this coverage based on what each applicant could pay, which would guard against unnecessary use of the pools, and abuse of the taxpayers. In states where block grant funds are used to finance health-insurance vouchers for lower-income workers, such vouchers could be used for these risk pools.
The state then subsidizes the pool to cover remaining costs. This has proved to be a relatively minor cost in the states that have such pools. Very few people actually become uninsurable. So the risk pool enables them to be covered without exploding costs and big government for everyone else. States should be allowed to use the block grant funds discussed above to help pay for these risk pools.
The final component of a new, revitalized safety net would be guaranteed renewability for health-insurance policies. This means that as long as the premiums are paid, an insurance company cannot cancel a health-insurance policy after the beneficiary becomes sick. That would be like a fire insurance policy that the insurer could cancel once the house caught on fire. Such a policy would provide no real protection against the costs of fire, or serious illnesses in the health-insurance context, and so would not be real insurance at all. It would be a fraud. That is why this element is already supposed to be in force in every state. To the extent loopholes have developed over time, they should be closed.
With these components, we would have universal access to essential health care. If you have health insurance, you are assured of keeping it. If you are too poor to buy health insurance, you would get assistance to assure you could buy at least a basic essential plan. If you nevertheless still do not get coverage, or turn out to have insufficient coverage, and then become too sick to buy coverage in the market, you would be able to get essential coverage and health care through the state uninsurable risk pool. In the process, we would have actually solved the problem of runaway federal Medicaid spending. For states that use the block grants to finance health-insurance vouchers, the insurance function of Medicaid will have been privatized. So we have achieved universal health care while actually making government smaller.
Other reforms would help these components to work even better. Expanded health-savings accounts would reduce health costs. So would eliminating state benefit mandates requiring all insurers in the state to provide coverage for costly non-essential benefits. So would freeing consumers to buy health insurance across state lines, which would create a national, competitive market. These cost reducing measures would expand those with regular private coverage. So would extending the same tax benefits for those with employer provided coverage to everyone. But this should be done without increasing taxes. Ideally, it should involve a net tax cut.
But don’t expect AARP to be satisfied with this. They are not a seniors’ organization. They are just another Washington liberal left front group. If they really spoke for seniors, rather than neo-socialism, they would support measures like eliminating the death tax, or reducing or eliminating the capital-gains tax, or the taxation of dividends. It is seniors who have accumulated the most capital, and who receive the most dividends, because they have been around the longest. A true seniors’ organization would also speak up for gun rights, seeking to empower seniors to defend themselves when necessary.
But you never see AARP supporting anything like this. They are always posturing for still more taxes and government spending. They are always playing dumb as to the problems of Social Security and Medicare, other than to call for still more benefits and taxes. Following the organization’s preferred policies, including national health insurance, taxes, and government spending would soar in future years to close to 60 percent of GDP. Actually much more, because GDP would collapse in the face of this socialist onslaught. But we would all be in AARP heaven at that point.
While AARP would not be satisfied, however, the broad, general public would be. That is why this is the winning health-care agenda for conservatives.
– Peter Ferrara is director of entitlement and budget policy for the Institute of Policy Innovation, and General Counsel of the American Civil Rights Union. He served President Reagan in the White House Office of Policy Development, and the first President Bush as Associate Deputy Attorney General of the United States.