The World's Greatest Healthcare Plan?

In just about every economy I know of, there are numerous state-mandated distortions going on whereby normal market signals are being skewed either by being exaggerated or by being suppressed.

Because of this, people frequently get paid more than the marginal value of their labour, higher prices get passed on as costs to customers, as do lower prices as costs to providers (the medical profession - the topic of this blog - is perhaps the worst case in point), and the whole price system of value being attached to choices becomes distorted.

As well as all the other costs to society in the shape of lost value and forgone opportunity, what also happens is that people are given perverse incentives, which means when they are acted on there are all sorts of sub-optimal outcomes in relation to supply, demand, cost, quality, access and lifestyles.

Now it's fair to say that America's healthcare system has been in a bit of a mess for the past few years, with Obamacare proving to be far from effectual. For those unfamiliar with how it works, I'll try to summarise what I see with an analogy, where the people around the table are American citizens. 

There is a group of 7 friends sitting at a table with a big cake they are about to share. Obama's grand plan was to invite 4 other friends around to share the cake while at the same time promising that the 7 people's share of the cake wouldn't be any smaller. Obama carried on maintaining that the USA is a country of 10 or 11 people eating a cake and only 8 or 9 are paying for it, and thus he wanted the other 2 to chip in.

Both sides of the debate constantly seemed to be lacking two vital things; 1) The solution of making the cake bigger, and how to do it. And 2) The fact that there is more than one type of cake, and by inviting friends over you might have to change from a cake you like to one you don't. Moreover, it would be more fruitful for some of the critics (on both sides) if they learned the difference between health care and health insurance (Those who had a healthcare plan and were on board with Obama's vision probably thought those who were the most recent to sign up would get whichever leftover options were available).

Anyway, Donald Trump, who never seemed that keen on Obamacare has now, after meeting Obama at the White House, decided he might be interested in keeping some of the key provisions of Obamacare.

Given the foregoing, I thought you might be interesting in this proposed legislation for American healthcare, sponsored by a member of the House Republican leadership and a member of the health committee in the Senate - it is modestly titled The World’s Greatest Healthcare Plan. Read the whole thing, please do - but for a bullet-pointed summary, here are the major provisions of the legislation:

• It repeals all the ACA mandates and replaces current tax and spending subsidies with a universal tax credit that varies by age and geography, but is the same regardless of income.
• It ensures that the health care safety net will always be adequately funded, regardless of the number of people with private insurance.
• It allows Medicaid to compete with private insurance, since the size of the tax credit for private insurance is roughly equal to the federal contribution to a well-managed Medicaid plan.
• It allows employers to buy individually-owned insurance for their employees — insurance which they can take with them from job to job.
• It replaces all tax-favored medical accounts with a Roth Health Savings Account.
• It gives employers and employees new tools to control costs, allowing them to convert insurance benefits of marginal value, dollar-for-dollar, into take-home pay.
• It denationalizes and deregulates the exchanges and subjects competing health plans to a type of “free market risk adjustment.”

Here is a summary of the major provisions of the legislation, with links to short white papers explaining each of them. Here are 25 problems in the ACA that the legislation is designed to correct. Whether it would still be beset by many of the political problems that plague domestic healthcare plans is still the big question. But it's an interesting proposal to look over - particularly if you're an American reader.