Crystal ball (Credit:Thinkstock)

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Unless COVID-19 hastens a severe disruption in our economy suchas a multi-year recession, depression, or runway inflation, U.S.health care will be largely socialized by 2030.

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 Here's why.

The 2021 Supreme Court head fake

On March 2, 2020, the United States Supreme Court agreed to hearanother legal challenge to the Patient Protection and AffordableCare Act (ACA). The case is Texas v. Azar, a lawsuit challengingthe constitutionality of the ACA's individual mandate.

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As the third time the Supreme Court decided to hear an ACA case,this generated a multitude of stories over the first few days ofMarch. The case revolves around the legality of the ACA now thatpenalties (taxes) for violations of the individual mandate havebeen reduced to $0 under federal law. Texas and nearly half of allstates argue that because the Supreme Court previously held thatthe individual mandate is integral to the function of the ACA, itsnullification in December 2017 under the Tax Cuts and Jobs Actnecessitates the collapse of the entire law.

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Related: ACA compliance in 2020: An update

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Frankly, it is a clever and plausible argument since the SupremeCourt already held that the ACA's individual mandate is notseverable to the law's proper function. Nevertheless, it is anextraneous issue at this point. America's path on health care isclear and will follow the country's movement toward more governmentand socialization.

It's the socialism, stupid

America will have a much more socialized health care system overthe next decade. By 2030, we'll have some form of Medicare (or morelikely Medicaid) for-all in place. A quick perusal of the 2020Democratic Presidential candidates illustrates that the mostconservative Democrats are all pushing for a growth of theACA and the addition of a "public option" to the exchanges. Hence,the ability for a citizen to buy into something like Medicare orMedicaid with taxpayer assistance if they make less than400 percent (or 600 percent in the case ofCalifornia) of the federal poverty level.

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America's move to the left on most macroeconomic and socialissues has been swift and unmistakable. Recent polling showsthat:

  • 50 percent of Americans either identify as Democratsor lean Democratic; 42 percent identify as Republicans orlean Republican. In 2016, Democrats only held a 4-point edge(48 percent to 44 percent).
  • 56 percent of Americans believe the government shouldprovide a national health insurance program for all Americans, evenif this would require higher taxes (only 40 percentopposed).
  • 47 percent of Democrats view capitalism positively,down from 56 percent in 2016. 57 percent ofDemocrats now view socialism positively.
  • Every single 2020 democratic candidate for president supportsthe use of taxpayer dollars for illegal immigrant health care.
  • In four states (including the two largest, CA & TX), moreDemocratic primary voters on Super Tuesday said they had afavorable view of socialism than an unfavorable view, according toresults from an NBC News Exit Poll.
  • In California, taxpayers already cover about70 percent of what is spent on health care according toanalysis by the UCLA Center for Health Policy Research. Nationally,taxpayers fund about two-thirds of all health care expenses.

Add to these facts that if President Trump is reelected in 2020,the following President (and very possibly entire federalgovernment) is likely to be Democratic. It is extraordinarily rarefor America to elect a member of the same party after 8 years ofthat party in the Presidency. This, along with Trump fatigue formuch of society, means that national health care policy will verylikely be controlled by the Democratic Party and their increasingaffinity for governmental control of health care.

Trump's last stand

A Trump reelection would add a four-year detour to America'spath toward socialized medicine. President Trump has been no fan ofObamacare. However, behind the scenes, the Trump administration isasking many questions about it, and setting a strategic course thatwould require the assistance of ACA exchanges to operate at peakefficiency.

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Specifically, the Trump health care brain trust has been layingthe foundation to more widespread use of pre-tax dollars to fundindividual health plans purchased byemployees, as opposed to employers.

Individual-care health reimbursement accounts

In June 2019, the Trump administration issued regulationsallowing employers and employees to buy individual insurance planswith pre-tax dollars for the first time in U.S. history. Thatregulation became effective on Jan. 1, 2020. It means thatemployers can now set aside Individual Care Health ReimbursementAccounts (ICHRAs) and allow employees to take the dollars out ofthose accounts to buy individual insurance policies on or off ofthe ACA exchanges. This represents a tectonic shift in the way wedeliver health care in the United States. But it is still a newconcept, with some rather restrictive and largely untestedregulations at this point.

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For example, how can an employer fund ICHRAs for individualplans and efficiently ensure they meet minimum affordabilitystandards? Exchange plans are priced based upon plan, zip code andage. A 45-year-old in one zip code may very well pay a differentpremium than a 45-year-old in a neighboring zip code for the sameexact plan. If we then consider different family sizes and ages ofemployees, we see that we have a rather convoluted issue forguaranteeing that the employer's HRA funding meets theaffordability standard by costing the employee no more than9.78 percent of household income in 2020. Tech insidersare already working on the platform that will efficiently allowthis to seamlessly integrate with state exchanges. There is alsosome speculation that the Trump administration could issue furtherregulations in the near future making simpler safe harbors foremployers who wish to fund ICHRAs.

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ICHRAs will begin to decouple health care from employment forsmaller employers. Employers can simply hand over a set amount ofcash to an employee in the ICHRA and the employee can buy whateverhealth plan he or she wants with that cash. The Trumpadministration is pursuing a larger rollout of this strategy behindthe scenes and if Trump is re-elected, you can expect to see thisgrow.

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In fact, I also think that if Biden is elected President, youcould see this strategy continued along with the addition of apublic option. At its core, this is an embrace of the exchangementality and the pursuit of individual policies promoted in theACA. That makes this a unique health care option that has thepotential to draw support from moderate Republicans and Democratsalike. It is also an option to do something that economists of allpolitical persuasions know is long overdue — break the link betweenhealth insurance and employment. It is economically inefficient tohave an employer decide on one or a few insurance options for21-year-olds and 64-year-olds. It adds a middleman to the decisionto purchase that is no longer needed in the modern world ofexchange-based plans.

Defined contribution vs. defined benefit

The growth of ICHRAs will be akin to the shift we have seen inretirement plans over the past four decades.

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In 1980, 38 percent of workers had a pension; todayonly 15 percent do. The 401(k) plan was created in 1978and now 81 percent of employers offer 401(k) enrollment tonew hires.

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With an ICHRA, instead of telling employees what their benefitplans will be, employers will set aside pretax dollars for anemployee to buy whatever health care plan he or she wants. Then,when the inevitable 6 percent to 10 percentannual health insurance premium increase arrives, it will be up toemployees to shop on their state exchanges and address that concernas is best for them instead of having an employer try to decide onpaying more premium or reducing copays and deductibles for hundredsof different employee-family situations.

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In the end, it makes no sense to try and offer health care thatis right for both Millennials and Baby Boomers, for example. It isan inefficient and overly paternal function for an employer to tryand fill. No employer actually enjoys the process of taking timeand resources away from the business's core function to becomebenefit experts on the side. A shift to ICHRAs removes the employerfrom the world of never-ending insurance increases and allows themto tightly control, forecast and budget for health insurancepremium increases.

Referenced-based pricing

ICHRAs will not be the right solution for all employers. Largerand more sophisticated employers with younger or healthierworkforces will be able to offer a better benefit platform throughreferenced-based-pricing (RBP).

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RBP removes employers from the bloated pricing of private HMOsand PPOs and allows employers to take advantage of thesignificantly lower prices the federal government pays for healthcare services in Medicare. RBP presents an employer with a myriadof options for reining in health care spending in a verysignificant way. Quality resources are widely available on thetopic, so instead of diving into them here, I'll just summarize oneof the most common approaches.

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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 goahead and rent a lower-cost doctor network for physician charges.This gives employees the security of an "in-network" doctor therebyeliminating the need to use RBP on 80 percent to90 percent of the claims that come through a health plan.All facility charges, then (which constitute 10 percent to20 percent of claims but regularly generate at least 80percent of a plan's cost) are priced in relation to a referencepoint.

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Often, that reference point will look something like140 percent of Medicare. This means that instead of paying200 percent to 800 percent of what Medicare paysfor a facility charge (which is incredibly common amongst PPOs),the employer plan is only going to pay 40 percent morethan Medicare would pay. It is an incredibly powerful andaggressive way to dramatically reduce an employer's health carecosts. It requires sophisticated consultation with an experiencedadviser, robust employee communication, and a partnership with alegal apparatus to intervene in the 3 percent or so ofclaims that end up in a dispute between the provider and the plan.Nonetheless, all of these hurdles are abundantly achievable and RBPwill be the right solution for a significant percentage or largeremployers.

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Once an employer has 250 to 500 employees and the cash flow topay its own claims, that employer will have an opportunity, throughRBP, to offer more robust benefit plans that are, on average,20 percent to 30 percent cheaper than whatemployees will be able to buy in state exchanges. It offers amassive competitive advantage for those employers in recruitmentand retention as they will be offering better plans, often withoutnetwork limitations and at a much lower price. This is likely toremain an option as long as there is a Republican or a moremoderate Democrat in the White House. However, if the more liberalwing of the Democratic Party moves into power, I suspect that thisoption will be phased out as the hard left works to implement aMedicare/Medicaid-for-all solution.

Medicare/Medicaid for All

By 2030, America's journey toward socialism will be nearlycompleted in health care. Even if President Trump is re-electeduntil 2024, there will likely be a shift toward Democraticleadership thereafter. As stated in the beginning of this article,America is growing more Democratic, Democratic voters have anincreasingly optimistic view of socialized medicine, and our entirepolitical landscape now speaks openly and optimistically aboutsocialism while downplaying capitalism.

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If President Trump is reelected, ICHRAs and RBP will expand overthe next four years, they will be two of the most impactful toolsfree-market capitalists have at their disposal to present as analternative to greater socialization. And if ICHRAs and RPB doprove to be successful, I think that roughly 20 percent to25 percent of U.S. health care can remain privately fundedin 2030. But, by in large, those will be strong waves cuttingagainst an outgoing tide. They will offer resistance but cannotstop the overwhelming national momentum toward more laws, rules,regulations and government involvement. While the Trumpadministration has made significant progress in reducing regulationand forcing light into hidden PPO and prescription drug pricing,the administration has only accelerated the reckless governmentspending of the past two decades.

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In the end, I do not think the United States will endup with Medicare-for-all, the way we now offer Medicare. We simplycannot afford it. Far be it from me to suggest that the leadershipin either party cares a bit about debts and deficits. We arecurrently $23.5 trillion in debt and none of our last threepresidents (from either party) have even pretended to address theproblem.

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An economic reckoning is coming. Famous economist Herbert Steinsaid, "if something cannot go on forever, it will stop." America'swholly irresponsible spending will come to an end. But, will it endinside of five years or 30? That, of course, is the answer we allwish we had. In any case, a strong majority of U.S. politiciansunderstand that we cannot afford Medicare for all.

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The dirty little secret is that we can't even afford Medicare asit currently stands. The current Medicare system alreadyfaces 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 onbenefits.

Enter COVID-19

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

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The federal government has already begun to implement the sameplaybook in response to this pandemic. It is understandable. Nobodywants to see people's lives destroyed due to this virus and theresultant economic crash. As a country, we will do all we can toextend the credit card as far as possible in an effort toameliorate the losses. During this time, businesses are going toclose. Employees are going to lose work, and most will not be ableto afford COBRA. This is only going to fan the flames of socialismand governmental growth. Will we see a doubling in the size of theCenters for Disease Control? A new federal agency aimed solely atblunting the spread of global pandemics? Medicare-for-all? Or allof the above?

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

Where do we end up?

American will end up with something more like (to borrowphrasing from South Bend, Indiana, Mayor Pete Buttigieg)"Medicaid-for-all who want it." Medicaid is the lowest costsafety-net in America. When first passed in the late 1960s, it wasmeant to cover the lowest income 2 percent ofAmericans.

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


Craig Gottwals
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CraigGottwals is a health care attorney and senior vicepresident at McGriff Insurance Services. He teaches employeebenefits at the University of California, Davis.

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