Let’s call the health reform that will be in place after budget reconciliation passes the Senate and is signed into law Health Reform 1.0. I think someday we’ll see Health Reform 2.0 that focuses more on costs. Between now and then there will be tweaks to version 1.0. Here’s are a few things I’d like to see in version 1.1:
- Medicare Advantage competitive bidding
- Larger individual mandate penalties
- More access to insurance exchanges (more below)
- Simpler employer mandate penalty with no perverse incentives
Depending on an individual’s income, the employer plan for which he is eligible may be a better deal than exchange-based plans (or vice versa). That’s because employer plans benefit from a tax subsidy and exchange plans come with low-income subsidies. Except (perhaps) in the case of small businesses employees, one can’t receive the tax subsidy for an exchange plan and one can’t receive both a tax subsidy and a low-income subsidy.
All this heterogeneity in subsidy rules creates different incentives that have nothing to do with the underlying quality of health plans. I’d much rather see all insurance products compete on a level playing field where subsidies are fully portable across all plan types. I don’t like the employer-sponsored health insurance tax subsidy, but I accept that it won’t go away quickly or easily. If we’re going to have it anyway then let’s allow the subsidy to be used for an exchange plan.
In time states will be permitted to allow larger employers to offer exchange plans. So that’s a good start. The sooner we decouple health insurance from employment the better.