Dallas Mavericks owner Mark Cuban is rumored to have toyed with the idea of running for president. Whether he does or not, he has done some innovative thinking on how to reform the health care system. It’s worth our attention.
The Cuban plan is similar to an idea once proposed by Milton Friedman and later by Harvard economist Martin Feldstein. In a nutshell, people would be responsible for health bills up to a certain percent of their income, and government would pay everything above that. In other words, people would pay ordinary bills out of pocket, and government would provide catastrophic coverage for the large bills.
No More than 10 Percent
Cuban’s plan is designed for individually purchased insurance and not for the employer market. The average household would be responsible for its own medical bills but in any given year would never have to pay more than 10 percent of its income.
Suppose a family had a large expense but didn’t have the immediate resources to pay it. The family would get an immediate (low-interest) government loan that would pay the doctors and the hospital in full. Then, in each successive 12-month period, the family would be required to use 10 percent of its income to pay off the loan. There is a 15-year limit on this arrangement, and the government would forgive any balance remaining after that.
Let’s put some numbers to this idea. Last year, the average family income was $78,750. A family earning this amount every year, indefinitely, would never have to pay more than $7,875 a year for medical expenses. Suppose this family had a catastrophic health event in year one that cost $117,750. The providers would get their income immediately, and after 15 years of annual payments the family would have paid off the entire amount (ignoring interest). If the bill were more than $117,750, the government would eat the excess.
This example illustrates that a medical bill would have to be really high before it cost the government anything. Basically, the average family, over time, would be paying 100 percent of its medical costs, except in rare circumstances.
Cuban Plan v. Obamacare
Now let’s compare that to the current system. According to EHealth, the average Obamacare family premium last year was $13,824, and the average deductible was $8,439, so a family that earned too much to qualify for a subsidy (about 40 percent of the market) was paying a great deal of money. Under Obamacare, a family of three could pay almost 16 percent of its income, even if everyone stayed healthy. In case a mildly catastrophic event pushed expenses above the deductible, the family would pay more than one-fourth of its income.
Of note, the recent stimulus bill will temporarily restrict premiums to 8.5 percent of income. But the measure doesn’t curb the sky-high deductibles or expand the very narrow networks that bar access to the best doctors and the best hospitals. On balance, Obamacare doesn’t come close to providing the access to care and the catastrophic protection of Cuban’s proposed care.
The RAND Corporation has analyzed the Cuban plan and found it workable. Yet RAND assumes that, under the Cuban plan, there will be little change in the health care system as a whole. This is surely wrong.
Plan Could Bring Radical Change
Under the Cuban plan, almost 50 million people would be paying for care with their own money (at least eventually). There is no role for health insurance and no need for one. We already know what happens in medical markets where there is no third-party payer (no Blue Cross, no Medicare, no employer, etc.). We get price competition, quality competition and low prices.
The markets for cosmetic surgery and Lasik surgery are two examples, and there are many more. Canadians who come to the US for hip and knee replacements get package prices similar to what Medicare pays. Even today, Americans spending their own money can do what the Canadians are doing. Market competition alone will bring prices down, without the need for any government mandate. RAND, by the way, finds that if patients are paying Medicare prices, the Cuban plan actually saves money for the federal government, even though it virtually achieves universal coverage. Good as it is, I would make three additions to the plan as currently outlined: self-insurance with Roth Accounts, efficient loan repayment, and centers of excellence.
Changes to Make Plan Better
The biggest problem in family health care economics is that we don’t know when we are going to need medical treatment. That makes financial planning very hard. To address this problem, people should be allowed to make regular deposits to a Roth Health Savings Account – where the deposits are after-tax and the withdrawals for any purpose are tax-free. The maximum deposit might be 5 percent of income every pay period. In this way, regular saving will prepare people for irregular health events.
Secondly, there should be efficient loan repayment. Participation in Cuban care should be voluntary. In return for the government’s offer of catastrophic coverage, people should be willing to allow repayment of loans through 10 percent wage garnishment every pay period. The government shouldn’t have to take any other legal action to enforce the contract. Otherwise, the administrative costs of the program could become quite high.
Third, the plan should consider centers of excellence. Chronic illness generally extends over long periods of time and a promising way to treat it is with integrated, coordinated care by specialists. For example, diabetics should be able to form a long-term relationship with a diabetes center. There needs to be a way to use medical loans to enter such contracts in advance of treatment.
On the whole, the Cuban plan is a good start. It deserves hearings, testimony, briefings and serious deliberation by those on Capitol Hill.
A version of this article appeared in Forbes on April 8, 2021. John Goodman is president of the Goodman Institute, the author of New Way to Care, and the co-publisher of Health Care News. Reprinted with permission.