Part 3: Paying for Idaho Care
Idaho Care could be funded anyway the legislature chooses. As discussed in Part 2, it could be partially funded with Federal Medicaid and Obama Care funds. Though their are a number of ways to fund the plan, I’ll provide an example to encourage discussion.
Since the goal is to replace third-party payers with plan owners who compare prices and shop around, the system would best be funded by the individual. Idaho Care is not welfare, so it should come directly from the participant or through a method that implies individual responsibility.
A flat payroll deduction would be a reasonable method to fund the Health Care Saving Accounts (HSA). It would also be the easiest method for Idahoans to opt out of. Sales taxes or income could be used to “top off” or fund those who don’t earn enough to meet the Idaho Care Approved Basic Minimum (ABM). Sale tax is preferred because a portion of it would be (partially) funding one’s own top off contribution.
The ABM is the annual minimum health saving account amount, set at a level sufficient to pay for a basic annual health care maintenance, block payment catastrophic insurance, and fund savings accumulation.
Those on public assistance, just as anyone else, would shop around and choose the HSA that fits their needs. Upon joining the plan, the participant could pick one of the approved plans or if a participant doesn’t identify a plan, they would be randomly assigned to one of them.
Wage and Health Care Insurance Equalization
During the first year of implementation, employers could be required to increase workers wages by nine tenths of the cost of employer paid health care insurance premiums, since this is actually part of their compensation. This additional amount would then be added to the worker’s HSA accounts. If an employer did not provide health care insurance, they don’t have insurance and wages to equalize so this would not be required for them.
Why would the employee only receive nine tenths of the cost of health insurance? Primarily because employers pay half the Social Security and Medicare payroll taxes for wages and transferring that compensation to employees would entail additional taxes.
Approved Basic Minimum
Idaho Care is not welfare. Ultimately, the ABM should be based at the market value to deliver health care for an “average” Idahoan and perhaps an additional amount to save for future health care expenses, whatever that amount may be.
In Part 1, I showed you a video of the Surgery Center of Oklahoma. In that video, their surgeries cost anywhere from one tenth to one fourth the cost of similar surgery paid by insurance. The well respected (if not famous) economist, Milton Freedman, said that studies show that government doubles the cost (at least) for services or by extension, mandates. Therefore, we can eventually expect health care under a free-market system to cost at least half of what we pay today.
So, where should the ABM be set during the first year of implementation, since we don’t know its true market value?
Valuing the Approved Basic Minimum
To come up with a working theory of value, let’s look at the wages of Idahoans and the price of insurance.
According to the U.S. Bureau of Labor Statistics (as of May 2015), the median (or middle) wage in Idaho was $32,000 (the average is $40,800). To determine a basis for health care insurance, I used YourHealthIdaho.com to determine the cost for a typical Idaho family of four. This family consisted of two 37 year old parents and two 9 year old children. The age of the adult is the median age of Idahoans and the age for the children is half way between 18 years of age. I also figured the health care cost for a 37 year old single adult.
According to Your Health Idaho, the total cost for for my typical family’s insurance plan was $6,192 per year or an additional $2.97 per hour. The costs for the single adult was $3,096 or $1.48 per hour, which is twice the cost of a typical family plan.
Given the above numbers, what should the ABM be for the first few years, until good data can give us a market value? What if we used the price for each of the members of our family of four? If we used that amount, it would cost 74 cents per hour or $1,548 per year, per person.
Is this accurate? It may be close, since Ben Carson suggested $2,000 might be a good starting figure (see video, below). If you recall, doctor Carson is a pediatric brain surgeon who ran for the U.S. Presidency in 2016. So, if we used his number, it would cost 96 cents per hour to fully fund a full time worker which cost an additional $452 per year, for every Idahoan.
Approved Basic Minimum Examples
Let’s assume it will cost $1,548 (74 cents per hour) to fully fund an Idaho Care Health Saving Account HSA for every Idahoan that participates. This also comes to 5 percent of the medium annual compensation for Idahoans. We’ll use that figure to determine the ABM level and payroll wage deduction, which I’ll discuss below.
Remember, this is the individual amount Obama Care said was right for a family of four. I’ll also assume the free market will bring down prices, since human beings (not third parties) are making buying decisions. I’ll also assume, there will be significant savings by not having to comply with Obama Care which may actually be a major cost of health care. If these assumptions are accurate, the above figure should be more than sufficient.
Since this is a working theory, there should be more research to identify a more accurate ABM, before its implemented.
Payroll Funding Example
If funded by a payroll deduction, given the above ABM calculation, the amount would be 5 percent, per participant. If someone wanted to opt out, they could do so at any time.
In this example, the head of household would fund each dependent family member. For example, 5 percent would be deducted for child A, child B, and a non-working spouse, each. In this scenario, the total HSA payroll deduction would be 20 percent.
It’s worth mentioning again that wages increased by a factor of the employer-sponsored health insurance premiums. So, in this scenario, the 20 percent is effectively near 16 percent, the same amount it would have cost the head of household considering total compensation under Obama Care. For those employers that pay all of an employee’s health insurance, the result is no change in a family’s insurance costs. So, in essence, the end result is almost neutral.
Above the ABM Contributions
Any contribution above the ABM would remain in the fund, unless the participant requested a refund before the participation year ended. Alternately, an individual could elect to stop the deductions once the ABM was reached. The deductions would start at the beginning of the new participation year. Those on public assistance could not receive a refund of any publicly contributed dollars.
Let’s look at an example. Let’s say the payroll deduction was set at 5 percent and the ABM level was set at $1,500 and Mary earned $40,000 this year. Therefore, she would have contributed 19 percent more than the ABM. In this scenario, she decided not to withdraw the extra $200 before the end of the participation year. She decided to “bank” that amount for future health care expenses.
Now, what if Mary earned $27,000 next year? Would the extra $200 contributed last year be applied toward the current year’s ABM shortfall? Answer: No. Because, the ABM is a periodic supplement either monthly or annually. Once funded, it is hers. Since the state’s top-off contribution is based on the current year only, she would receive the State’s supplemental $300.
Sales Tax Funding Example
Idaho could either add a certain percentage to the sales tax rate or cut expenses somewhere else and use all or a portion of the sales tax receipts to fund the top-off contribution of Idaho Care.
In this scenario, the sales tax receipts would be used to fund that portion of the ABM not fully funded. In the above example, using the same ABM we discussed earlier, Mary’s top-off contribution would come from a portion of the sales tax.
Prerequisites: A Constitutional Amendment
I believe the plan would require an Idaho Constitutional Amendment to implement. Moreover, the nature of an amendment would encourage a dialogue of the pros and cons of the plan. It has to be something Idahoans support.
Critical Elements Required for the Idaho Plan
There are five elements necessary for the plan’s adoption and success.
1. Though all Idahoans are enrolled automatically, any one can opt out of the plan and live with the consequences of their decision.
2. Except for those that opt out, no one should be treated differently no matter their income. Idaho Care is not welfare and the HSAs are owned by the individual and portable. They are not employer or government funded, except for plus-up contributions.
3. To prevent insurance companies or government from making buying decisions, insurable medical events will be paid directly to the HSA in block payments.
4. To be eligible for the supplemental plus-up contributions, the individual and insurance companies must comply with the Idaho Care standards and policies.
5. So Idaho Care is not in conflict with Federal regulations, Idaho will have to request a Federal waiver before implementing the plan. Efforts should be made to authorized the plan, even before the waiver is given. This would pressure the Federal government and demonstrate to the President and Congress the readiness of Idaho to implement a free-market approach.
The waiver should request block grants with little or no restrictions; because, Federal restrictions would likely reduce the competitive nature of the plan and reduce or eliminate the costs savings which come with the structure of the plan.
How Idaho Care HSAs Would Work
I want to conclude by showing you a video of pediatric neurosurgeon, Benjamin Carson, M.D. In this video he explains how health savings accounts work and how they’ll improve health care. He even discusses how HSAs might be funded.
In Part 1, I explain how the health care system became so expensive. When we began letting someone else (called a third party) pay our health care bills, costs began to climb. To control costs, insurers and government use formulas and medical providers and hospitals use politics to drive prices higher. Today, there is no correlation between the costs of services and the patient’s ability to pay for health care. I ended Part 1 by showing you a video of a free-market based surgery center that saved 75 to 90 percent of the costs of a traditional insurance-based center.
In Part 2, I explained the framework of Idaho Care and how its design will return market forces to the health care market place, yet improve quality and outcomes. With the Idaho health care plan all Idahoans are enrolled, yet anyone can opt out. In this free-market approach, you and your doctor will decide what health care services you should or should not have, not government and not your insurance company. In fact, medical providers will be relieved of the requirement to comply with the tens of thousands of pages of regulations and dictates from government or insurance companies. Because of this, billing offices will almost disappear and innovation will replace government regulations.
Health insurance companies would no longer micro managed one’s health care because block payments would replace line item insurance, which would go directly into one’s HSA. For medical expenses that exceed one’s HSA, a state-sponsored or designated charities would evaluate one’s health care needs and donate additional funds to cover such costs (this sentence was added after to the article after it was recorded – see Part 2 for more information). With Idaho Care, your HSA will be an asset which you own and can will or donate to your family, friends, cooperatives, or charities. I ended Part 2 by showing you a video of doctor Carson explaining how HSAs would transform health care.
In Part 3, I explained one method to fund and pay for Idaho Care. In our scenario, I discussed how an Idahoan could opt out of Idaho Care. I then explained how the value of employer based health insurance compensation would equalize an employee’s wage, so wages would be sufficient to fund an individual’s HSA. This key component of Idaho Care makes health insurance portable (owned by the person, not the employer). The individual would then be responsible for shopping around and paying for their routine health care expenses and purchasing plus-up and catastrophic health care insurance from their Idaho Care approved HSA.
I then explained what an ABM is and one method to calculate it. I followed with two funding examples, the first used payroll deductions to fund one’s HSA and the second explained how it used Sales Tax receipts to top off those who don’t meet the AMB. I discussed the Idaho Constitutional amendment and the five necessary elements for Idaho Care’s adoption and success.
This was an effort to get Idahoans thinking. More research is needed to determine the full cost to to implement, especially the size of the top off contributions. I’m fairly confident that the HSA could be funded at a sufficient level, with payroll deductions so long as the employer’s health care premiums were equalized into wages. There is a lot of research available already, but not necessarily with all the components I proposed, herein.
The research suggest the costs savings are obtainable. However, the most push back will be from the insurance companies and the health care systems that have grown comfortable with today’s health care funding and delivery. Too many doctors believe health care cannot follow a free-market scheme, but I believe it’s what they were all taught, – just as I was taught in graduate school. However, I think a lot of them are rethinking their positions as Obama Care continues to roll out, and roll over their patient-doctor relationship.