The Dream That Just Won’t Die (Gwen Moritz Editor’s Note)

CBS News reported last week on the remarkable recovery of Alexis Hernandez, an American citizen who moved to Guadalajara, Mexico, for medical school in January 2019 when he was 23. Two days after he arrived, the water boiler in his apartment exploded and he was severely burned over most of his body as he tried to find his way out of the burning building.

Hernandez was stabilized in a Mexican hospital and then flown to the U.S. Army’s Institute of Surgical Research in San Antonio, which CBS rightly described as “one of America’s premier burn centers.” After two years, 19 surgeries (with more to come) and hundreds of hours of physical therapy, Hernandez is disfigured but alive and functioning and with his medical school aspirations intact. If he can afford it.

CBS took an interest in this young Puerto Rico native not because of his inspirational rehabilitation but because he is now facing a $1.7 million medical bill from the federal government. His policeman father’s medical insurance has denied coverage for the treatment provided by the Army hospital in Texas because Hernandez was injured in Mexico.

CBS wasn’t able to get any comment from the insurance company or from any federal department — not the U.S. Treasury that sent the bill nor Defense nor even Justice — so I have no idea how this will work out. Like so many others have in the past, Hernandez could file bankruptcy to get out from under his crushing medical debt, but I don’t think his insurance carrier should get off that easy while the patient’s credit is ruined.

Exactly how this case is resolved — and I trust it will be, especially with national media attention — is less important than the problem that it underscores: Despite improvements like family coverage for adult children and guaranteed coverage for pre-existing conditions, our country’s patchwork of insurance coverage is still threadbare in spots.

Watching the CBS report made me think, naturally, of universal catastrophic coverage, the health insurance concept that makes so much sense to me that I find a way to write about it in this space a couple of times a year. (That it still doesn’t seem to get any traction in the national political conversation is a testament to my irrelevance, not an indictment of the concept.)

Instead of a patchwork of public (Medicare and Medicaid) and private (individual and group) plans that cover most Americans most of the time, UCC would provide a blanket that would cover all Americans — but only for what economist Ed Dolan of the Niskanen Center described as “those relatively rare but ruinous healthcare expenses that are truly unaffordable.”

That certainly describes Hernandez’s catastrophe, but the definition of ruinous depends on resources. Writing for National Affairs in 2012, California venture capitalist Kip Hagopian and Dana Goldman, a health care economist from the University of Southern California, proposed a scalable deductible depending on household income. One suggestion was 10% of household income above the level eligible for Medicaid under the Affordable Care Act; for simplification, let’s say that’s $40,000 for a family of four.

Under this formula, a family earning $100,000 would have a deductible of $6,000 per person, perhaps with an annual cap of twice that for the entire family. After reaching that deductible, the UCC policy would pay 100%. For a household with $1 million in annual income, the deductible would be $96,000 per person. Rare but ruinous, remember?

But that’s the beauty of UCC. Families with resources would be able to buy supplemental private insurance to hedge against the high UCC deductibles. With the upper limit of the private carrier’s exposure being a known quantity, it is easy to imagine a robust, competitive private market of “gap” insurance policies — like “name your price” auto insurance with variable copayments and deductibles and highly personalized benefits.

Another beautiful thing about UCC: Employers could get out of the health insurance business without fear that employees would be uninsured. Or they could offer gap insurance as an attractive employee benefit.

There would still be families that have to pay catastrophic-level deductibles in installments or declare bankruptcy. But even in those cases, the write-off by the provider would be limited, shifting fewer costs to other patients. And a promising young man like Alexis Hernandez could concentrate on getting his life back, not on a $1.7 million hospital bill.

Gwen Moritz is the editor of Arkansas Business.