from Forbes – by Avik Roy – When Florida was faced with the choice of whether or not to implement Obamacare’s enlargement of Medicaid, Republican governor Rick Scott said yes, but the GOP-controlled legislature said no. That, however, isn’t the end of the story. Recently, two leaders in the Florida House of Representatives, Will Weatherford and Richard Corcoran, unveiled a new proposal to replace the Obamacare Medicaid expansion with a 100-percent state-funded program to give low-income Floridians the money to purchase private, catastrophic health coverage. Their plan is impressive and thoughtful. It could serve as a free-market model for the many states that are skeptical of Obamacare’s push to double down on the broken Medicaid program.
Florida’s skepticism about expanding Medicaid
“The Florida House has developed a plan that will fit the needs of Florida, not the requirements of Washington,” said House Speaker Weatherford in a statement. “Our plan increases our commitment to a strong safety net and ensures Floridians are not on the hook for billions that we currently do not have.”
In their proposal, Weatherford and Corcoran express plenty of good reasons for why the legislature rejected the Medicaid expansion. The first group of reasons have to do with how Medicaid harms the existing health-care system: by imposing poor health outcomes upon Medicaid enrollees; worsening physician access for people with other forms of insurance, especially Medicare; and driving up the cost of private insurance through cost-shifting.
The second set of reasons are fiscal. Future projections of Medicaid’s costs are unreliable, subjecting the state budget to considerable risk; the federal government may reduce the scale of its matching payments to the program over time, placing greater pressure on the state budget; and state Medicaid spending growth crowds out other categories of spending on education, infrastructure, and law enforcement.
Finally, Medicaid’s flawed design—with no expectations for cost-sharing—increases welfare dependency, and strongly discourages poor Floridians from seeking more work and better pay.
Who is uninsured in Florida?
Weatherford and Corcoran, in their proposal, address a question that few health-policy types bother to think about: who exactly is uninsured in Florida, and why? It turns out that only 28 percent of uninsured Floridians live below the poverty line, according to the Census. The Census also found that 91 percent of the Florida uninsured say that they are in “good,” “very good,” or “excellent” health. They note that most people who become uninsured—71 percent, according to the Congressional Budget Office—are reinsured within a year.
“These temporary periods of no insurance,” Weatherford and Corcoran note, are “largely explained by the general mobility of a modern workforce and tax rules that encourage insurance policies to be tied to jobs, not people.”
The policy solution for these individuals is not to shove them into permanent dependency and poor coverage through Medicaid, but rather to provide bridge financing such that the temporarily uninsured have protection against catastrophically large medical bills. And that’s exactly what the Weatherford-Corcoran proposal does.
The new proposal: Free-market, consumer-driven coverage
Here’s how the Weatherford-Corcoran bill stacks up against the other alternatives. Under Obamacare, everyone under 138 percent of the federal poverty level—$32,499 for a family of four—will get coverage through Medicaid. If Florida does nothing, those between 100 and 138 percent of poverty will get coverage through Obamacare’s exchanges. In addition, some Florida adults below the poverty line already get coverage through Medicaid: jobless parents (below 22 percent of FPL) and working parents (below 56 percent of FPL). At present, childless adults below the poverty line do not get Medicaid in Florida.
Under the new Florida House proposal, parents below the poverty line who didn’t already qualify for Medicaid would get $2,000 a year deposited into a health savings account called a CARE account (CARE stands for “Contribution Amount for Reasonable Expenditures”) in exchange for an individual contribution of $25 a month, for a total HSA contribution of $2,300 per year. The proposal would also offer this benefit to disabled individuals below the poverty line who are ineligible for Medicaid.
Beneficiaries could use their CARE accounts to purchase whatever health coverage products they want, through a health-insurance clearinghouse called Florida Health Choices. Unlike Obamacare’s subsidized insurance exchanges, which force insurers to adhere to a bevy of mandates and regulations in order to participate, the Florida insurance clearinghouse allows insurers to sell a broad range of insurance products, including catastrophic coverage.
Alternatively, a CARE beneficiary could keep the $2,300 in the health savings account and use that money to pay for out-of-pocket expenses. Any unused expenditures would roll over into the following year. Or, the CARE funds could be transferred to a health savings account that the beneficiary already controls.
Employers who wanted to offer coverage to their employees could also use the CARE system to make a defined contribution to their workers’ health expenses. And the plan contains a work requirement similar to the one that accompanied Nineties-era welfare reform. CARE beneficiaries would be required to work between 20 to 35 hours a week, depending on the age of their children and other considerations.
It’s exactly what you’d want a subsidized, free-market-based system to look like.
Proposal spends far less state money than Obamacare does
It’s estimated that expanding Medicaid, as Obamacare prescribes, would reduce Florida’s uninsured population by about 900,000 people. The Florida House proposal would cover 55 percent of that group, through a combination of Obamacare’s exchanges and the CARE program.
Weatherford and Corcoran estimate that the proposal would cost about $237 million a year, assuming that 80 percent of eligible Floridians signed up. The Obamacare Medicaid expansion, by contrast, would require more than $1.3 billion a year in state spending upon full implementation.
One key difference between Obamacare and the Weatherford-Corcoran proposal is that Obamacare is a defined benefit whereas the Florida proposal is a defined contribution. Obamacare covers a menu of health-care services, regardless of their cost. The CARE subsidies, starting out at $2,000 a year, provide the state with fiscal certainty, and give beneficiaries to spend their health dollars in the most cost-efficient way.
Florida Gov. Rick Scott (R.), who once swore that he would not implement the Obamacare expansion of Medicaid, has completely switched sides. Yesterday, he blasted the Weatherford-Corcoran proposal. “The House’s plan will cost Florida taxpayers on top of what they are already taxed under the President’s new healthcare law. This would be a double-hit to state taxpayers,” exclaimed Scott.
But Scott’s argument is factually incorrect. The Weatherford-Corcoran plan spends far less state money than Obamacare does, directly benefiting Florida taxpayers. And, it provides beneficiaries with far more freedom to pursue the type of health coverage that is best for them.
An innovative model for other states
Governor Scott may prefer to expand Medicaid. But at the end of the day, if he’s faced with a choice between the Weatherford-Corcoran plan and doing nothing, is he going to support doing nothing? One would hope not.
Indeed, Scott has the opportunity to make Florida the nation’s leader in innovative, free-market health care policy. Among its many salutary features, the Weatherford-Corcoran plan would be entirely funded and managed by the State of Florida, minimizing federal interference. If the program is a success—and it looks very promising—the state could consider expanding the program, while reducing the footprint of Medicaid.
Most importantly, Florida has given other states a brand new option to consider instead of Obamacare’s Medicaid expansion. While Arkansas goes down the road of expanding Medicaid with a window-dressing of private-sector involvement, Florida appears set to move in the opposite direction: toward a free-market system in which individuals regain control of their own health dollars. Keep a close eye on the Sunshine State.
UPDATE: Commenters are wondering (1) if plans bought through Florida CARE would comply with the individual mandate, and (2) what $2,300 can buy you in Florida in terms of insurance products.
On the first point: individuals below 138 percent of FPL are exempt from the mandate, because they will have to pay more than 8 percent of their income to purchase Obamacare-qualified health insurance. (8 percent of $32,499 is $2,600, which is way below what Obamacare exchange plans will cost.) In addition, families whose incomes are below the threshold for filing a tax return—$20,000—are exempt from the mandate.
On the second point, here is a scenario that Weatherford and Corcoran included in their proposal:
Mary is a single 35-year-old mom of two. She selects a $2,500 deductible plan providing 11 months of coverage for just herself (kids on Medicaid) costing $1,884.
- Receives a $2,000 taxpayer-funded CARE contribution
- Pays $25/month as per personal contribution
- Has $416 left over in CARE account to cover out-of-pocket health care for the year
- Has 46% chance of using less than $500 in health care in given year
- Best case (has coverage, uses nothing beyond preventive): Has $116 more in her CARE account than she paid in at year-end
- Likely case (uses $500 in health care during year): Has all health care expenses except $84 covered by CARE account
- Worst case (has coverage and $250,000 catastrophic health event; less than 1% chance of this happening): Has $6,384 out-of-pocket expenses