Unless COVID-19 hastens a severe disruption in our economy such as a multi-year recession, depression, or runway inflation, U.S. health care will be largely socialized by 2030.
The 2021 Supreme Court Head Fake
On March 2, 2020, the United States Supreme Court agreed to hear another legal challenge to the Patient Protection and Affordable Care Act (ACA). The case is Texas v. Azar, a lawsuit challenging the constitutionality of the ACA’s individual mandate.
As the third time the Supreme Court decided to hear an ACA case, this generated a multitude of stories over the first few days of March. The case revolves around the legality of the ACA now that penalties (taxes) for violations of the individual mandate have been reduced to $0 under federal law. Texas and nearly half of all states argue that because the Supreme Court previously held that the individual mandate is integral to the function of the ACA, its nullification in December 2017 under the Tax Cuts and Jobs Act necessitates the collapse of the entire law.
Frankly, it is a clever and plausible argument since the Supreme Court already held that the ACA’s individual mandate is not severable to the law’s proper function. Nevertheless, it is an extraneous issue at this point. America’s path on health care is clear and will follow the country’s movement toward more government and socialization.
It’s the Socialism, Stupid
America will have a much more socialized health care system over the next decade. By 2030, we’ll have some form of Medicare (or more likely Medicaid) for-all in place. A quick perusal of the 2020 Democratic Presidential candidates illustrates that the most conservative Democrats are all pushing for a growth of the ACA and the addition of a “public option” to the exchanges. Hence, the ability for a citizen to buy into something like Medicare or Medicaid with taxpayer assistance if they make less than 400% (or 600% in the case of California) of the federal poverty level.
America’s move to the left on most macroeconomic and social issues has been swift and unmistakable. Recent polling shows that:
- 50% of Americans either identify as Democrats or lean Democratic; 42% identify as Republicans or lean Republican. In 2016, Democrats only held a 4-point edge (48% to 44%).
- 56% of Americans believe the government should provide a national health insurance program for all Americans, even if this would require higher taxes (only 40% opposed).
- 47% of Democrats view capitalism positively, down from 56% in 2016. 57% of Democrats now view socialism positively.
- Every single 2020 democratic candidate for president supports the use of taxpayer dollars for illegal immigrant health care.
- In four states (including the two largest, CA & TX), more Democratic primary voters on Super Tuesday said they had a favorable view of socialism than an unfavorable view, according to results from an NBC News Exit Poll.
- In California, taxpayers already cover about 70% of what is spent on health care according to analysis by the UCLA Center for Health Policy Research. Nationally, taxpayers fund about two-thirds of all health care expenses.
Add to these facts that if President Trump is reelected in 2020, the following President (and very possibly entire federal government) is likely to be Democratic. It is extraordinarily rare for America to elect a member of the same party after 8 years of that party in the Presidency. This, along with Trump fatigue for much of society, means that national health care policy will very likely be controlled by the Democratic Party and their increasing affinity for governmental control of health care.
Trump’s Last Stand
A Trump reelection would add a four-year detour to America’s path toward socialized medicine. President Trump has been no fan of Obamacare. However, behind the scenes, the Trump administration is asking many questions about, and setting a strategic course that would require the assistance of ACA exchanges to operate at peak efficiency.
Specifically, the Trump health care brain trust has been laying the foundation to more widespread use of pre-tax dollars to fund individual health plans purchased by employees, as opposed to employers.
Individual Care Health Reimbursement Accounts
In June 2019, the Trump administration issued regulations allowing employers and employees to buy individual insurance plans with pre-tax dollars for the first time in U.S. history. That regulation became effective on Jan. 1, 2020. It means that employers can now set aside Individual Care Health Reimbursement Accounts (ICHRAs) and allow employees to take the dollars out of those accounts to buy individual insurance policies on or off of the ACA exchanges. This represents a tectonic shift in the way we deliver health care in the United States. But it is still a new concept, with some rather restrictive and largely untested regulations at this point.
For example, how can an employer fund ICHRAs for individual plans and efficiently ensure they meet minimum affordability standards? Exchange plans are priced based upon plan, zip code and age. A 45-year-old in one zip code may very well pay a different premium than a 45-year-old in a neighboring zip code for the same exact plan. If we then consider different family sizes and ages of employees, we see that we have a rather convoluted issue for guaranteeing that the employer’s HRA funding meets the affordability standard by costing the employee no more than 9.78% of household income in 2020. Tech insiders are already working on the platform that will efficiently allow this to seamlessly integrate with state exchanges. There is also some speculation that the Trump administration could issue further regulations in the near future making simpler safe harbors for employers who wish to fund ICHRAs.
ICHRAs will begin to decouple health care from employment for smaller employers. Employers can simply hand over a set amount of cash to an employee in the ICHRA and the employee can buy whatever health plan he or she wants with that cash. The Trump administration is pursuing a larger rollout of this strategy behind the scenes and if Trump is re-elected, you can expect to see this grow.
In fact, I also think that if Biden is elected President, you could see this strategy continued along with the addition of a public option. At its core, this is an embrace of the exchange mentality and the pursuit of individual policies promoted in the ACA. That makes this a unique health care option that has the potential to draw support from moderate Republicans and Democrats alike. It is also an option to do something that economists of all political persuasions know is long overdue — break the link between health insurance and employment. It is economically inefficient to have an employer decide on one or a few insurance options for 21-year-olds and 64-year-olds. It adds a middleman to the decision to purchase that is no longer needed in the modern world of exchange-based plans.
Defined Contribution vs. Defined Benefit
The growth of ICHRAs will be akin to the shift we have seen in retirement plans over the past four decades.
In 1980, 38% of workers had a pension; today only 15% do. The 401(k) plan was created in 1978 and now 81% of employers offer 401(k) enrollment to new hires.
With an ICHRA, instead of telling employees what their benefit plans will be, employers will set aside pretax dollars for an employee to buy whatever health care plan he or she wants. Then, when the inevitable 6% to 10% annual health insurance premium increase arrives, it will be up to employees to shop on their state exchanges and address that concern as is best for them instead of having an employer try to decide on paying more premium or reducing copays and deductibles for hundreds of different employee-family situations.
In the end, it makes no sense to try and offer health care that is right for both Millennials and Baby Boomers, for example. It is an inefficient and overly paternal function for an employer to try and fill. No employer actually enjoys the process of taking time and resources away from the business’s core function to become benefit experts on the side. A shift to ICHRAs removes the employer from the world of never-ending insurance increases and allows them to tightly control, forecast and budget for health insurance premium increases.