GUARANTEED CATASTROPHIC CARE:
A HEALTH CARE PLAN WE CAN AFFORD
JESSE JENSEN AND PIERRE YARED 1
There is bipartisan agreement that the Affordable Care Act is flawed. Should the supreme court strike it down, the American people deserve a better solution to healthcare. The goal of this plan is to protect families from disastrous medical expenses while providing access to top-tier healthcare, and that’s exactly what the Guaranteed Catastrophic Care (GCC) Plan does. The GCC is less expensive than the Affordable Care Act and it improves upon market-based incentives, and most importantly, it protects those with pre-existing conditions.
Guaranteed Catastrophic Care (GCC) is an approach that protects families from
financially ruinous medical expenses and protects pre-existing conditions.
GCC is cheaper for middle class families compared to the Affordable Care Act (ACA) exchange.
GCC improves upon market-based incentives relative to the status quo by fostering better
transparency and competition while preserving quality.
GCC introduction can be budget neutral without adding to the nation’s ballooning deficit.
The United States spends approximately 16.8% of its GDP on healthcare, almost double the
OECD average of wealthy nations. 2 Yet, the United States has the lowest life expectancy and the
highest chronic disease burden in the OECD. 3 Approximately 27.5 million people in the U.S. do
not have any form of healthcare insurance. 4 A report by the Ways and Means Committee found
that those who did have insurance paid almost four times more for prescription drugs than people
in similar countries. Additionally, costs are on the rise—increasing by 27% between 2011 and
2016 at 2.5 the rate of inflation. 5 Clearly, the United States is over-paying and underperforming
compared to peer nations.
Medicare-for-all has been proposed as a solution. However, contrary to popular belief, no
country in the world has adopted this system, which is not surprising given its numerous
shortcomings. 6 The plan is unaffordable, with a cost of $32 trillion over the next decade. 7 And even if it were paid for with higher taxes, it would dwarf all other Congressional appropriations,
turning Congress into a national health insurance company. Medical decisions for families would
be made by government administrators, and families would have little choice over the type or
quality of care they receive. Without competitive buyers, providers in turn would have little
incentive to innovate and improve the quality of care.
1 Jesse Jensen is the Republican candidate for Congress from Washington’s 8 th district. Pierre Yared is the MUTB Professor of
International Business at Columbia Business School.
2 This figure is for 2018 and is from the National Health and Expenditure Account retrieved from
3 Tikkanen, Roosa, and Abrams, Melinda K., U.S. Health Care from a Global Perspective, 2019: Higher Spending, Worse
Outcomes? (Commonwealth Fund, Jan. 2020).
4 Berchick, Edward R., Barnett, Jessica C., and Upton, Rachel D., Current Population Reports, P60-267(RV), Health Insurance
Coverage in the United States: 2018, U.S. Government Printing Office, Washington, DC, 2019.
5 H.R. Ways and Means Committee Rep., A Painful Pill to Swallow: U.S. vs. International Prescription Drug Prices, pp. 1-77
6 Al Agba, Niran S., Four Myths about Universal Health Care in Other Countries. MedPage Today, October 22, 2019.
7 Blumberg, Linda J., Holahan, John, et al. From Incremental to Comprehensive Health Insurance Reform: How Various Reform
Options Compare on Coverage and Costs. Urban Institute, October 16, 2019.
OUTLINE OF PROPOSAL
GCC ensures that everyone can afford care in a system that embraces market-based reforms to
enhance transparency, choice, and innovation, while also not bankrupting the government.
Overview. GCC is a proposed form of public-private insurance covering all Americans. It
provides insurance for costly health care treatments associated with hospital visits or life
threating diseases. GCC acts as a high deductible plan where individuals privately finance their
routine medical expenses until they hit their yearly deductible at which time the federal
government, contracted with private insurers, would pick up the remaining tab. This plan would
substantially reduce the likelihood of household bankruptcy due to crippling medical expenses.
For people without insurance, this policy would provide basic coverage in the case of life
threating or serious illness. For people with insurance, this policy would replace the catastrophic
part of their existing plan which would reduce their overall plan cost.
The Deductible. The individual’s deductible would be a proportion of “surplus income”—that
is, their income above the level at which they qualify for Medicaid. This proportion would be the
same for everyone and, depending on the details of the program, equal to a rate between 10%
and 25% in order to make GCC budget neutral for the government. As an example, with a 25%
maximum deductible, all households with incomes less than 250% of the federal poverty level
would have health expenses of no more than 15% of their total pre-tax income. More than 95%
of households would have expenses less than 20% of their pre-tax income. A family with an
income of $64,000, roughly 400 percent above the federal poverty level, would pay up to a
deductible of $12,000, or 19% of its total income. This number is 45% lower than what it would
be under the ACA, which has an average premium over $8,000 a year with an out-of-pocket
maximum of an additional $14,000 for a total of $22,000. 8
The Role of Private Insurance. Out-of-pocket costs before reaching the deductible could prove
substantive, especially for high income families. It is important to note that GCC insurance only
takes effect once the deductible is hit, and the policy allows for the private insurance market to
operate before the deductible is reached, including plans provided by employers. Thus,
individuals could choose to pay for a premium-based private insurance to cover routine medical
expenses in lieu of paying out of pocket. These private insurance plans would cost substantially
less than current plans offered on the market because the insurance company would have a cap
on medical expenses (the deductible amount) for which they are liable. Moreover, these plans
would not be allowed to refuse coverage or charge more because of pre-existing conditions. 9
Impact on Government Budget. A properly calibrated version of GCC can be introduced
without expanding the deficit. 10 Cost savings would come from three sources. First, GCC
introduction would require any healthcare plan offered by an employer to no longer be tax
deductible and be subject to income and payroll taxes. Second, less demand for healthcare
induced by higher deductibles together with a lower subsidization of health insurance would
induce more price discovery and market-based competition, reducing overall health spending.
Finally, reduced costs relating to administration and implementation would yield substantive
reductions in overall spending. 11
8 Dolan, Ed, Universal Catastrophic Coverage: Principles for Bipartisan Health Care Reform. Washington D.C.: Niskanen
Center, June 2019.
9 Additional features of GCC to mitigate costs for high income families would include the expansion of health savings accounts.
10 For a discussion of different related proposals and references, see Dolan, Ed, Universal Catastrophic Coverage: Principles for
Bipartisan Health Care Reform. Washington D.C.: Niskanen Center, June 2019.
11 See Liu, Jodi L., Exploring Single-Payer Alternatives for Health Care Reform. Santa Monica, CA: RAND Corporation, 2016.