Republicans in Congress and the Trump administration failed to fulfill their commitment to repeal and replace the Affordable Care Act (ACA) in 2017, but they did succeed in repealing the tax penalties enforcing the law’s individual mandate, starting in 2019.
The GOP still might try again to fully repeal and replace the ACA in 2018, perhaps with a modified version of the Graham-Cassidy legislation. However, with Republicans now down to a 51-seat majority in the Senate and some House and Senate members facing difficult mid-term elections this November, it will be even more challenging to get a sweeping rollback of the ACA through Congress in 2018 than it was in 2017.
Republicans would have a better chance of getting something passed if they lowered their sights and used the possibility of enacting bipartisan market stabilization legislation to achieve more limited objectives. Senator Susan Collins (R-ME) and others are pressing GOP leaders to pass the compromise plan sponsored by Senators Lamar Alexander (R-TN) and Patty Murray (D-WA) early this year, along with additional reinsurance funding. That legislation could serve as the vehicle for Republicans to pursue additional changes in current law to move the overall system in their preferred direction.
But pursuing a limited, step-by-step approach to reform presumes that Republicans have a clear overall destination in mind that they could try put in place on an incremental basis. Unfortunately, there are still deep divisions among Republicans about what exactly they are trying to achieve in health care. Their first objective should be more clarity and unity on their vision for reform.
In Need Of A Vision: A Step-By-Step Approach To Market-Driven Health Care
Last year was probably the best chance Republicans will ever have to systematically roll back the ACA. Having fallen short, GOP leaders and the Trump administration must now decide if it is worth it to try again even though the most likely result would be another failure.
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Senate Health, Education, Labor and Pensions Committee Chairman Lamar Alexander (R-TN) stands in the subway on Capitol Hill. Reuters.
Instead of a repeat of 2017, Republicans would be better off trying to move current law gradually in a more preferred direction. The overall goal should be market-driven health care with secure insurance for all Americans. The GOP should not ignore the effects of their proposals on overall insurance enrollment. Put another way, Republicans should not want to be the party that increased the number of Americans without health insurance by 10 or 20 million people. To the contrary, Republicans should embrace reforms that lead to more enrollment in health insurance than would have occurred under the ACA, even after repeal of the individual mandate.
There are elements of the ACA that can help Republicans achieve their goal of a more market-driven system. For all of their problems, the ACA’s exchanges are supposed to facilitate consumer choice and competition among insurance options. Moreover, the ACA established a system of income-tested credits to facilitate enrollment in private health insurance plans. Republicans can work to improve this framework, to make it less expensive with less burdensome government regulation, and to drive down costs for consumers and the federal government.
Recent developments have made it clear that Republicans are not yet clear on what they are trying to achieve in the aftermath of the failure of full ACA repeal. In the tax legislation signed into law in December, Congress repealed the taxes enforcing the individual mandate, which was an important provision of the ACA. Many supporters of the mandate believe this was a catastrophic mistake which will destroy the ACA exchanges; opponents of the mandate, and some supporters, believe repeal is no big deal because the mandate was too weak to make much of a difference.
The truth is probably somewhere in between these extreme points of view. The ACA exchanges were already suffering from some adverse selection before the mandate was repealed. Repeal of the mandate is likely to make the problem somewhat worse. On the other hand, the ACA’s subsidies are so generous that the heavily subsidized enrollees are unlikely to drop out of coverage just because the mandate has been repealed. The markets are somewhat unstable, but they are not likely to collapse.
The Trump administration is also taking steps to make it easier for some consumers to get coverage outside of the constraints of the ACA. The Department of Labor issued a proposed rule to allow more small businesses to form association health plans that can offer insurance that does not conform to all of the ACA’s rules for the individual and small group markets. Further, the administration plans to release new rules governing so-called “short-term, limited-duration” plans that can be sold outside of the ACA’s rules requiring community rating and guaranteed issue of coverage. These plans would be priced based on the health status of the prospective consumer, which means they would be attractive to the young and healthy who find the premiums in the ACA exchanges to be too expensive for what they get.
The effort to promote association health plans and short-term coverage will pull more healthy people out of the ACA exchanges, which means premiums are likely to go up in the exchanges quite rapidly in 2019, just as they did in 2018. It would be reasonable to conclude that one of the Trump administration’s objectives with these moves is to erode enrollment in the ACA exchanges by giving low-cost consumers additional, lower cost options.
At the same time, press reports indicate that President Donald Trump has said told Senator Collins and others that he would like to see bipartisan stabilization legislation get passed in Congress, legislation that has the express goal of lowering premiums in the exchanges in order to make the offerings more attractive and increase enrollment.
Republicans need to decide which path they want to take. Do they want to reform the ACA’s exchanges to suit their purposes? Or do they want the exchanges to shrink and perhaps collapse while they build an alternative structure outside the ACA’s regulations?
We believe the better course is to reform the ACA’s exchanges, to make them truly market-driven and less costly, because the alternative would risk a return to much higher numbers of people going without coverage, with all of the problems that then ensue. The President’s recent executive ordercalling for the expansion of association health plans and short-term plans that would not be subject to all of the ACA’s insurance regulations could shift some healthy people from the exchanges, potentially raising exchange premiums. However, as we pointed out in an earlier post, it is premature to speculate on the net impact of such proposals on enrollment and premiums, but we suspect that the impact will not be as significant as others think.
Republicans must know that their repeal of the individual mandate has made the party at least partly responsible for what transpires in the individual insurance market. Democrats are sure to make this point repeatedly throughout the coming year.
Short-Term Market Stabilization
In the short-term, then, the GOP should try to use the prospect of bipartisan stabilization legislation to advance a vision of the exchanges and individual market that would foster consumer choice, better options, and lower premiums. An important component of such a plan must be some kind of replacement for the individual mandate.
The following are the key features of a stabilization plan that Republicans should support:
Funding Of The ACA’s Cost-Sharing Program
The Trump administration terminated funding for the cost-sharing subsidy program, on the legitimate grounds that Congress had never properly appropriated funds for this purpose. A short-term stabilization plan should provide this funding, which the Congressional Budget Office (CBO) estimates would actually lower long-term costs.
Reinsurance
Reinstatement of a federally funded and state-administered reinsurance would lower premiums in the individual insurance market because insurers would have greater certainty about the extent of their potential losses. The premium reductions induced by reinsurance would also lower the cost of the premium tax credits paid to lower-income households, thus partially offsetting the cost of the reinsurance fund.
State-Enforced Premium Penalties For Breaks In Coverage
With federal enforcement of the individual mandate becoming inoperative in 2019, the states must be given the freedom to change their insurance rules to stabilize the market. One approach would be to create a new default rule that would apply in all states unless they came up with a more effective alternative. The default rule would retain the ACA’s community rating and guaranteed issue protections. However, persons who voluntarily opt out of the market in 2019 or later and purchase coverage at a later point would face premium penalties when they return to the market. These penalties would grow with the duration of the break in coverage to encourage the uninsured to get back into the market as quickly as possible. States could devise alternative rules to achieve the same objective.
State Flexibility On Other ACA Insurance Regulations
In addition, states would be given more freedom to loosen insurance rules in order to lower premiums without damaging protection for those with expensive conditions. The net effect of state adjustments would need to be an overall increase in enrollment in coverage that does not impose excessive costs on those expected to require substantial medical attention. This would be a difficult balance, but it is possible that some states could find combinations of adjustments (including reinsurance) that result in higher overall enrollment in a way that allows additional premium payments to finance greater support for those with pre-existing conditions.
High-Deductible Health Plans With Health Savings Accounts
The ACA exchanges should make high-deductible plans sold in combination with Health Savings Accounts (HSAs) available to all consumers in the individual market. Individuals eligible for premium or cost-sharing assistance should be allowed to use their subsidies to buy such coverage (regardless of their age), and to deposit any subsidies not used for premiums into an HSA.
Automatic Enrollment Into Coverage
States should be encouraged to establish automatic enrollment into health insurance. The Internal Revenue Service (IRS) would share federal data on insurance enrollment and incomes with the states, which would allow identification of persons who are eligible for assistance. The states could then use that data to enroll those persons into no-premium default insurance plans based on the value of their federal premium assistance. (The default plans would have deductibles high enough to keep the premium for enrollment below the value of the person’s federal assistance.) States would notify individuals enrolled into default plans of their insurance coverage, and give them the option to select an alternative plan or dis-enroll altogether. States would use other data systems, from employers and insurers, to continuously cross-check the IRS data to prevent duplication of enrollment.
In combination, these policies might be robust enough to allow the individual insurance market to stabilize and become more competitive and flexible, with lower premiums and more attractive options for consumers. And these improvements would occur without reliance on the ACA’s individual mandate.
If enacted and implemented, these reforms would provide the basis for proceeding on more far-reaching changes that are needed to bring greater market and budget discipline to health care.
Beyond The Short-Term
The overall goal for Republicans should remain building a market-driven system that is less expensive for consumers and the federal government. Moving toward such a system will not happen quickly, but there are some steps the GOP should plan on taking at the earliest opportunity.
Adjustments To The ACA’s Premium Credits
The ACA’s premium credits are generous, to the point where they create high implicit marginal tax rates on lower income households, potentially discouraging work. The ACA is less generous to households with incomes that are slightly above the levels that receive large subsidies. In the repeal and replace plans considered in 2017, Republicans wanted to make adjustments to the current law credits, to ensure more households at the lower end of the middle-class would get some help to support their enrollment in coverage, and to lower the implicit tax on earned income in the phase-out range of the ACA’s credits. It is difficult to strike the right balance, but the goal should be a plan that provides some incentive for all Americans to enroll in a health insurance plan, and enough help to lower-income households to make coverage affordable while still encouraging the pursuit of higher incomes. Striking this balance can aided by the Medicaid changes discussed below that would focus more resources on the lowest-income households in the non-expansion states while it frees up resources by lowering the cost of the overall program over the long-term.
Medicaid Reform And Compromise
The ACA Medicaid expansion remains politically unstable. Federal resources are now distributed very unevenly across the country based on which states have agreed to the expansion, and which have not. A sensible compromise would establish an income level for eligibility for Medicaid that is between the ACA threshold and what existed previously. A new bonus program would reward all states that established eligibility at least at that level. States that failed to do so would see their share of the bonus fund distributed to compliant states. This compromise on the expansion population would be included in a larger reform of Medicaid that ended the current federal matching system and replaced it with federal per-person payments to the states. States would get more flexibility to manage the program for cost-efficiency (but not to cut mandatory enrollment or benefits).
Medicare Reform
Medicare is central to building a more cost-effective health system. The program should be modified to encourage more transparent and clear competition among Medicare Advantage plans, unmanaged fee-for-service, and Accountable Care Organizations (ACOs). The beneficiaries should have strong incentives to enroll in cost-effective coverage. Beneficiaries selecting coverage with below-average premiums should keep the savings. Beneficiaries selecting more expensive coverage should pay the difference themselves.
Replacement Of The “Cadillac Tax”
Both parties want to repeal the ACA’s excise tax on expensive employer coverage, called the “Cadillac tax.” But Congress should not repeal the tax without replacing it with a more sensible option, which would be to place an upper limit on the amount of employer-paid premiums that can be excluded from the taxable wages of workers. This approach would mean higher-income taxpayers would pay more than low-wage workers for any excess premium payments by an employer because higher-income workers face higher tax brackets. A limitation of this kind is absolutely essential to giving employers and workers strong incentives to seek out the most cost-effective options for coverage. Without such a limitation, Republicans cannot claim they are really interested in a market-driven plan.
HSA Reform
Today’s HSA law needs to be modified to expand the effectiveness of the accounts in holding down costs. HSA holders with high-deductible insurance should be allowed to purchase organized care at a fixed monthly rate from their accounts. This would promote greater competition among service providers, in ways that would be easier for consumers to understand. In addition, HSAs need to be fully incorporated into the Medicare and Medicaid programs.
A Limited Window For Improving The 2019 Outlook
If Republicans want to improve the outlook for the individual insurance market, they have a limited window to put in place changes that would improve the situation for the 2019 enrollment year. Insurers must begin deciding soon what rates they will charge next year because many state regulatory agencies require submission of initial premium estimates for an upcoming calendar year by early spring of the current year. For instance, eighteen states required insurers to submit their initial premium estimates for calendar year 2017 by May 10, 2016. New federal legislation would need to be passed by Congress soon to give insurers sufficient time to determine how it would affect what they should charge consumers for their offerings in 2019.
If Congress fails to act quickly on a stabilization plan despite the obvious need for it, it does not mean that the political imperative for a fix will then fade away. The problems now plaguing the individual market will get worse rather than better if nothing is done. So passing a stabilization plan will be important, no matter when it occurs. Failure to act soon will needlessly punish consumers with higher than necessary premiums for another year.