America will dramatically change the way it provides health care by 2030

A benefits specialist looks ahead and sees... something for all. Not Medicare.

(Credit: Thinkstock)

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.

 Here’s why.

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.

Related: ACA compliance in 2020: An update

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 percent (or 600 percent 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:

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 it, 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 percent 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 percent of workers had a pension; today only 15 percent do. The 401(k) plan was created in 1978 and now 81 percent 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 percent to 10 percent 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.

Referenced-based pricing

ICHRAs will not be the right solution for all employers. Larger and more sophisticated employers with younger or healthier workforces will be able to offer a better benefit platform through referenced-based-pricing (RBP).

RBP removes employers from the bloated pricing of private HMOs and PPOs and allows employers to take advantage of the significantly lower prices the federal government pays for health care services in Medicare. RBP presents an employer with a myriad of options for reining in health care spending in a very significant way. Quality resources are widely available on the topic, so instead of diving into them here, I’ll just summarize one of the most common approaches.

Instead of contracting with an insurer or an insurance network, an RBP employer self-funds its health plan with the use of a TPA, reinsurance company, and claim re-pricer. Often employers will go ahead and rent a lower-cost doctor network for physician charges. This gives employees the security of an “in-network” doctor thereby eliminating the need to use RBP on 80 percent to 90 percent of the claims that come through a health plan. All facility charges, then (which constitute 10 percent to 20 percent of claims but regularly generate at least 80 percent of a plan’s cost) are priced in relation to a reference point.

Often, that reference point will look something like 140 percent of Medicare. This means that instead of paying 200 percent to 800 percent of what Medicare pays for a facility charge (which is incredibly common amongst PPOs), the employer plan is only going to pay 40 percent more than Medicare would pay. It is an incredibly powerful and aggressive way to dramatically reduce an employer’s health care costs. It requires sophisticated consultation with an experienced adviser, robust employee communication, and a partnership with a legal apparatus to intervene in the 3 percent or so of claims that end up in a dispute between the provider and the plan. Nonetheless, all of these hurdles are abundantly achievable and RBP will be the right solution for a significant percentage or larger employers.

Once an employer has 250 to 500 employees and the cash flow to pay its own claims, that employer will have an opportunity, through RBP, to offer more robust benefit plans that are, on average, 20 percent to 30 percent cheaper than what employees will be able to buy in state exchanges. It offers a massive competitive advantage for those employers in recruitment and retention as they will be offering better plans, often without network limitations and at a much lower price. This is likely to remain an option as long as there is a Republican or a more moderate Democrat in the White House. However, if the more liberal wing of the Democratic Party moves into power, I suspect that this option will be phased out as the hard left works to implement a Medicare/Medicaid-for-all solution.

Medicare/Medicaid for All

By 2030, America’s journey toward socialism will be nearly completed in health care. Even if President Trump is re-elected until 2024, there will likely be a shift toward Democratic leadership thereafter. As stated in the beginning of this article, America is growing more Democratic, Democratic voters have an increasingly optimistic view of socialized medicine, and our entire political landscape now speaks openly and optimistically about socialism while downplaying capitalism.

If President Trump is reelected, ICHRAs and RBP will expand over the next four years, they will be two of the most impactful tools free-market capitalists have at their disposal to present as an alternative to greater socialization. And if ICHRAs and RPB do prove to be successful, I think that roughly 20 percent to 25 percent of U.S. health care can remain privately funded in 2030. But, by in large, those will be strong waves cutting against an outgoing tide. They will offer resistance but cannot stop the overwhelming national momentum toward more laws, rules, regulations and government involvement. While the Trump administration has made significant progress in reducing regulation and forcing light into hidden PPO and prescription drug pricing, the administration has only accelerated the reckless government spending of the past two decades.

In the end, I do not think the United States will end up with Medicare-for-all, the way we now offer Medicare. We simply cannot afford it. Far be it from me to suggest that the leadership in either party cares a bit about debts and deficits. We are currently $23.5 trillion in debt and none of our last three presidents (from either party) have even pretended to address the problem.

An economic reckoning is coming. Famous economist Herbert Stein said, “if something cannot go on forever, it will stop.” America’s wholly irresponsible spending will come to an end. But, will it end inside of five years or 30? That, of course, is the answer we all wish we had. In any case, a strong majority of U.S. politicians understand that we cannot afford Medicare for all.

The dirty little secret is that we can’t even afford Medicare as it currently stands. The current Medicare system already faces a $44 trillion shortfall over 30 years. Specifically, Medicare is projected by the congressional budget office to collect $17 trillion in payroll taxes and spend $61 trillion on benefits.

Enter COVID-19

Every war fought in American history except for the Revolutionary and Civil Wars, end up making Americans poorer and reducing individual freedom because wars always run up deficits, increase taxation and inflation and spawn giant expansions of the government. This includes traditional wars like World War I as well as modern wars like the “war on terror” and our new “war on COVID-19.” The most recent example of this is the growth in debt and the creation of Homeland Security and the Transportation Security Administration after the devastating attacks of Sept. 11, 2001. Also, during that time, the U.S. inflated, spent and quantitatively eased its national debt from $8 trillion in 2008 to over $23 trillion today.

The federal government has already begun to implement the same playbook in response to this pandemic. It is understandable. Nobody wants to see people’s lives destroyed due to this virus and the resultant economic crash. As a country, we will do all we can to extend the credit card as far as possible in an effort to ameliorate the losses. During this time, businesses are going to close. Employees are going to lose work, and most will not be able to afford COBRA. This is only going to fan the flames of socialism and governmental growth. Will we see a doubling in the size of the Centers for Disease Control? A new federal agency aimed solely at blunting the spread of global pandemics? Medicare-for-all? Or all of the above?

The fallout of COVID-19 is likely to be the final surge needed for proponents of universal health care. Stories of tens of thousands of Americans losing their jobs and then their health care in the face of a devastating pandemic will be the last push necessary to tip these scales in that direction. The only caveat to this prediction is if COVID-19 ends up being more in line with the very worst projections and it not only lingers for 18 months to 24 months but pushes our economy into a deep, devastating depression that we cannot quantitatively ease out of one last time. If that happens, America will be in a state of social unrest and economic distress such that we are likely to see far less government as that which cannot go on forever comes to an end. However, I do not think COVID-19 and our bailout responses are going to do that to the American economy. I do believe we can inflate, print, and spend our way out of at least one more economic crisis.

Where do we end up?

American will end up with something more like (to borrow phrasing from South Bend, Indiana, Mayor Pete Buttigieg) “Medicaid-for-all who want it.” Medicaid is the lowest cost safety-net in America. When first passed in the late 1960s, it was meant to cover the lowest income 2 percent of Americans.

Through the inevitable mission-creep of all governmental programs, it now covers around 20 percent of Americans. And, Medicaid only costs about half of what Medicare does. If the U.S. were to make Medicaid its base-line universal health care platform, we would blow a smaller hole in the national budget and we would still retain a strong incentive for people to want to buy their own private policy individually through an exchange or via their employer’s RBP program in order to have access to a larger panel of providers and shorter wait-times for care. And I think we’ll certainly be there by 2030.

Craig Gottwals is a health care attorney and senior vice president at McGriff Insurance Services. He teaches employee benefits at the University of California, Davis.

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