What is All the Fiduciary Fuss About?

February 27, 2017

Paul Ryan and Republicans are asking to replace the subsidies for those who purchase insurance on the individual markets, with a system of refundable tax credits, ranging from $2,000 for those under 30 to $4,000 for those over 60, regardless of income. This is no a small detail. In 2016, ACA’s subsidies covered 10 million people for buying insurance through the individual market, with the average size of the subsidy at $4,700. 


Given the extent of talk, anger, and argumentation over the ACA, you would expect that this central component of the bill, would have a price tag that matches the extent of the talk about it. But it does not. The CBO reports that in 2016, the gross cost of subsidies for those 10 million people amounted to a mere $47 billion (about 2/3′s of the $70 billion spent on Food Stamps in 2016).


While, the Medicaid expansion, which is the other major component of the ACA up for the chopping block, costs $64 billion. Given that there is almost no criticism of this component, it is interesting that the price tag is larger - a fact that may highlight what is wrong with the individual market. 


Unlike the individual market, the full cost of health care is covered by the state and federal governments for the 11 million people who gained Medicaid coverage because of the ACA’s expansion of the program. Not a cent of Medicaid goes to health insurance company profits, their outrageous administrative fees, nor do recipients have absurdly high deductibles and outrageous copays (things Trump and other Republican like to parade). Medicaid is a European style single-payer health care system operating ‘like a fine tuned machine’ (at least compared with private insurance) in the US of A.


Given that the the House Republicans plan is quite odious, and it will not pass a Senate filibuster, let me offer one limited suggestion - not an treatise, but what could be a piece of a bi-partisan bill.


From Sanders to Trump there has been bipartisan admonishment of the 2003 Medicare Part D prescription drug plan. This costly addition to Medicare was designed to help seniors and the disabled pay for prescription drugs. However, unlike the Veterans Administration and Medicaid, Medicare was statutorily forbidden from negotiating drug prices. 


From across the spectrum, the estimated savings from allowing Medicare Part D to negotiate for drug prices are huge and will only grow, with the overall cost of Medicare Part D on track to double by 2022 with the retirement of the baby boomers. For 2016, the CBO estimates savings of around $16 billion, while economist Austin Frakt estimates costs of upward of $30 billion a year. 


These savings could nearly wideout half of the cost of the ACA’s individual market subsidies. If this were coupled with some measure that would actually push down the cost of individual market coverage, such as allowing the Federal Government to negotiate prices with private insurance providers on the health insurance exchanges, then the cost dimension of the individual market could be drastically downsized. 

Please reload