As states clean up Medicaid rolls, a tax break for health sharing could benefit residents and focus the troubled program on its mission.
Medicaid “churn” is back
Since the federal government removed COVID restrictions, state Medicaid is once again required to prove enrollee eligibility. Many are expected to seek other options.
Traditionally, workers who are seasonal, part-time, and self-employed experience “churn” – that is, they intermittently qualify for Medicaid or health insurance, but they have to switch relatively often when their income eligibility changes.
Frequent coverage changes are a time suck on productivity. They create a paperwork headache that repeats with every Medicaid redetermination. They also consume state resources for people who are oh-so-close to being independent of this cumbersome state program.
Compared to employers, individuals are at a disadvantage in purchasing coverage. Federal tax-exemption for employers disguises the true cost of health insurance for employees. When people leave and try to maintain the same coverage on their own, COBRA sticker shock is notorious. There has been no similar tax exemption for individuals – but there could be. And states don’t have to wait for the federal government to act.
A little-known Tax Deduction
Fifteen years ago, Missouri enacted a health sharing tax deduction.
At the time, options were limited to faith-based organizations. However, stable secular options are now available. By modifying the deduction to include broader options, states can level the playing field for individuals in the private market. This would especially benefit people subject to “churn” between insurance enrollment periods.
Health Sharing is familiar to most Americans as a membership alternative to health insurance. In contrast to insurance and Medicaid, sharing has the distinct advantage of simplicity. People themselves manage care decisions and reimbursement, and there are no enrollment period limits.
Under this model, American patients and clinicians have the added satisfaction of improved relationships free of managed care demands.
State response should focus on better service, open options
Governor Whitmer is trying to retain high Medicaid enrollment, which boosts federal funding to the state. Yet just this week, MDHHS had to close registration early due to high public demand to give feedback on direct caregiver and mental health programs.
Instead of driving enrollment in the troubled Medicaid program, Michigan should recognize the real advantages to private sector alternatives. Letting people leave the state program for popular sharing options could increase their satisfaction and improve state services.
Facilitating this choice via tax deduction could allow states to refocus Medicaid’s mission as payer of last resort. In a win for the chronically-ill and disabled, overworked state Medicaid caseworkers and administrators would be able to focus time and services on those in greatest need.
From a fiscal standpoint, this tax deduction pales in comparison to Medicaid program costs. For example, a single individual generally pays $1100-3000 per year for health sharing membership, while in 2020 Michigan paid Medicaid health plans an average of $6000 per year for each individual. (State administrative costs are over and above plan payments.)
In sum, a Michigan tax deduction is likely to net the state over 200% of current Medicaid costs saved for every person who choses health sharing.
And taxpayer earnings, instead of passing through federal and state government to insurance companies before distribution, would remain at work in the private sector, supporting local economies.
Patients, clinicians, taxpayers, and even state employees benefit. Sounds like a win all the way around.