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December 12, 2016

Finally, Giving the Poor Access to Good Insurance

  Forbes

Health and Human Services Secretary-nominee Tom Price has a radical idea: Let Medicaid recipients choose their own health insurance plan just as millions of Americans do every year.

Both House Speaker Paul Ryan and Price want to replace Obamacare subsidies with refundable tax credits—which would essentially function like a federal subsidy—for people who do not have access to employer-provided health insurance, Medicare, Medicaid or VA coverage.

But under legislation introduced by Price in 2015 (see section 102), a person in a government-run program such as Medicaid could opt out and take the tax credit instead.

That’s exactly the right thing to do.

Historically, Medicaid has faced numerous quality and access problems, not to mention rampant fraud and states gaming the funding mechanisms.

Republicans have long wanted to block-grant Medicaid funds to the states and give them the flexibility to experiment with new coverage models, which might lead to improvements. But Medicaid beneficiaries should be allowed to take the refundable tax credit option—and I would add an additional state-provided subsidy based on their low-income status—and use it toward their health insurance.

First, an explanation of refundable tax credits, which work differently than tax deductions. Tax credits are subtracted dollar-for-dollar from an individual’s federal income tax. Thus, if an individual’s income tax obligation is $5,000 and that person receives a $3,000 tax credit, the person only pays $2,000 in taxes.

A “refundable” tax credit means that if the tax credit is more than an individual’s income tax, the taxpayer keeps the difference. If an individual pays no income tax, which likely applies to most of the Medicaid-eligible poor, he or she could keep the entire amount of the credit—and in this case use it toward the purchase of health insurance.

The age-adjusted tax credits proposed by Price in 2015 were relatively modest: $1,200 for individuals 18 to 35; $2,100 for 35-50; and $3,000 for those who are 50 and over. It is likely that some in Congress—and certainly advocacy groups—will want more generous levels, but at least Price provides a starting point. There is no income test in the Price plan as there is with Obamacare subsidies.

According to the Kaiser Family Foundation, in 2011 adult Medicaid enrollees cost on average about $3,200 per year, and $2,500 for children. Those figures, which exclude Medicaid beneficiaries using long term care and disability benefits, could easily be 25 percent to 30 percent higher today.

Those who qualify but choose to opt out of traditional Medicaid should receive the refundable tax credit, plus an additional subsidy if the basic tax credit levels are too low to buy coverage. The combined total should be close to the average amount Medicaid spends on a person. Such a change would cost little or no additional federal money because it just repurposes the current Medicaid per-person cost, especially if the subsidy above the tax credit came from the states’ Medicaid spending.

Individuals could choose a health insurance plan approved by their state insurance department and the money would flow directly to the health insurer, just as it does in the Medicare Advantage program. If the premium costs less than the tax credit plus the low-income subsidy—and there were such policies prior to Obamacare’s implementation in 2014—the Medicaid beneficiary should be allowed to deposit the difference into a Health Savings Account.

But wouldn’t a refund provision encourage Medicaid beneficiaries to look for the least expensive plan?

Actually, it would encourage them to look for the best value for their health care dollars. And remember, the plans would have to be approved by the state insurance commissioner, and each state could set certain parameters for Medicaid-qualifying private health plans.

Of course, nothing in this proposal hinders block-granting Medicaid to the states or state efforts to reform the program, including a work requirement. This proposal simply lets Medicaid beneficiaries get their coverage in the private insurance market if they choose to do so.

If a state were to create an attractive Medicaid option—for example, a Medicaid Health Savings Account plan similar to that currently available in Indiana—beneficiaries might prefer that to purchasing their own coverage in the individual health insurance market.

What Republicans have consistently called for in Medicaid reform is giving states flexibility. Let’s give individuals flexibility too.


 

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