After railing for years about ObamaCare’s affordability problems, Republicans came up with a plan that would make them exponentially worse.
“Few low-income people would purchase any plan,” the Congressional Budget Office said of the Senate TrumpCare bill, either because premiums for comprehensive coverage are out of reach, or deductibles for lower-cost plans amount to an untenable percentage of income — more than one-third of income for individuals in some cases and potentially much more for families.
TrumpCare is so “mean” — President Trump’s own characterization of the House-passed bill — that relatively moderate GOP governors and senators have rejected it. Yet if TrumpCare is about to be buried and it’s possible to start looking for a path forward, let’s not forget that there’s a reason ObamaCare was unpopular and suffered from weak marketplace enrollment even before TrumpCare came around.
While ObamaCare has helped the near-poor and those with chronic conditions who otherwise might be stuck without affordable coverage, it gives a bad deal to pretty much everyone else. That’s why the exchanges’ pool of customers is too small, too old and too costly, and premiums have soared as insurers like UnitedHealth Group (UNH), Aetna (AET) and Humana (HUM) have mostly exited the markets.
How Not To Fix ObamaCare
Unfortunately, the two most likely paths forward are forms of triage that would try to control the bleeding, rather than address ObamaCare’s underlying affordability problems. One approach would focus on stabilizing insurance markets, principally by providing protection for insurers against high-claims customers — a good idea and an important step, but one that addresses the symptoms, not the underlying problem of affordability. After all, ObamaCare’s unpopularity and weak enrollment preceded its premium spikes, so moderating premium increases isn’t the answer.
A second path, represented by the proposal from Republican senators Susan Collins of Maine and Bill Cassidy of Louisiana, wouldn’t actually fix anything. It forces states to choose between ObamaCare, with all of its problems, and a less-regulated alternative built around Health Savings Accounts that’s guaranteed to undermine Affordable Care Act protections for low-income households and older adults facing high medical costs.
So here’s a crazy idea: How about Congress actually trying to deliver something that Americans can broadly support, that works for the finances of old and young, working class and middle class, and that will lead to stable insurance markets with lower premiums?
There’s no good reason to aim lower, and ideology shouldn’t stand in the way. In fact, the very best step for public policy, within the realm of what might be possible, would be to give people a choice between the comprehensive coverage that Democrats want them to have — and that many people with chronic conditions or low incomes clearly need — and the consumer-driven model that Republicans believe in, which allows people to opt for catastrophic coverage and set aside funds to cover basic medical needs.
This would involve turning ObamaCare’s cost-sharing support into something more akin to working-class tax cuts and removing ObamaCare’s heaviest-handed mandates, while preserving the ACA’s critical protections and support.
Here’s ObamaCare’s harsh reality that makes these changes so important — even if the law weren’t under political attack and insurance markets weren’t experiencing turbulence. Even among working-class households earning 150% to 250% of the poverty level, supposedly among ObamaCare’s biggest beneficiaries, just 1 in 3 people who lack insurance from other sources are getting coverage that will protect them from financial disaster. Most of the other two-thirds are uninsured, either because they or a spouse work full time and don’t qualify for exchange subsidies, or else they’ve spurned subsidized bronze plans that carry $6,000-$7,000 deductibles.
IBD’S TAKE: Find out why hospital stocks rose and one analyst touted UnitedHealth and HCA Healthcare — even as Senate Republicans called for steep Medicaid cuts in a TrumpCare bill estimated to cut the ranks of the insured by 22 million.
ObamaCare’s Stacked Deck
A central problem with ObamaCare is that the rules stacked the deck in favor of those needing comprehensive coverage, leaving far too many in the working class with three unappealing options: a silver plan that costs too much; a bronze plan that won’t pay their medical bills until long after they’re in financial distress; or an individual mandate penalty for opting against coverage that may be of little use.
Think of a couple, age 30, in St. Louis with income of $40,000 (about 200% of the poverty level) and a child covered by Medicaid. For this couple, the cheapest silver plan under ObamaCare offers pretty solid coverage but costs $2,430 — likely too much for a young family that’s probably already struggling to save anything. The cheapest bronze plan, costing $1,068, might be doable, but the $13,300 deductible ($6,650 per person) could make a hospital stay financially devastating. (By the way, that bronze option would be far worse under the Senate TrumpCare bill, costing roughly $2,000.)
The chasm between ObamaCare’s silver and bronze deductibles — $700 vs. $13,300 — is by design, though clearly a poor one. ObamaCare provides extra cost-sharing subsidies that shrink deductibles for modest-income households, but only if they buy silver plans. Those cost-sharing subsidies work exactly like premium subsidies, paid directly from the government to insurers each month, even if the policyholder gets no medical care.
Republican Principles, Democratic Values
Looking through the lens of these 30-year-olds in St. Louis, a bipartisan replacement, merging Republican principles and Democratic values, is easy to identify.
First, don’t get rid of the comprehensive option. If this couple is trying to have a second child or one spouse has a chronic condition, they will be desperate for a low-deductible plan with a wide range of essential benefits.
Second, offer people the flexibility to choose a Republican option. A replacement for ObamaCare could give young, modest-income families the chance to set aside some savings for health expenses with two simple tweaks. Relax ObamaCare’s age-rating restrictions that inflate insurance costs for the young, but only for high-deductible plans, keeping comprehensive plans affordable for older adults. (That could mean silver plans with a 3:1 age rating, bronze 4:1 and catastrophic 5:1.)
Next, let people use cost-sharing subsidies to reduce premiums, if they prefer, effectively making it a tax cut. Those two steps would shrink that St. Louis couple’s bronze premium to zero, and they’d have about $900 left to put in a Health Savings Account to defray medical expenses — not nirvana, but a dramatic improvement over what ObamaCare offers.
We also should do something about the steep drop off in cost-sharing subsidies that serves as a big disincentive to earn above 200% of the poverty level. A more gradual phase-out by 300% of the poverty level would provide more constructive incentives, while delivering modest tax cuts to income-tax-paying households. Premiums could essentially be free for everyone up to 250% of the poverty level — if a catastrophic-plan option is made available.
Families above 200% of the poverty level, who are more likely to remain uninsured under ObamaCare, despite the mandate penalty, should be able to opt for coverage with higher deductibles than bronze, roughly around the “copper” option proposed by the insurance industry and some moderate Democrats.
Freedom to choose a catastrophic plan with a 5:1 age-rating should satisfy the GOP that the reformed insurance markets will provide sufficient flexibility to meet the needs of all comers. Democrats should acknowledge that it’s far better to let a young-adult member of the working class get a higher-deductible plan for free than pay a penalty for going uninsured, and the broader, healthier risk pool will serve to hold down premiums for everyone.
The Right Kind Of Nudge
As for the individual mandate, among the biggest issues of contention, if people earning up to 250% of the poverty level can get high-deductible coverage essentially for free — and in most cases get extra cash on top — there should be no need to threaten them with fines.
Above 250% of the poverty level, an alternative to the individual mandate is well worth considering. Among the reasons that the ObamaCare individual mandate doesn’t work very well is that relatively young and healthy people who gamble on going without coverage can reasonably expect to win their bet and end up with a financial gain. ObamaCare encourages this kind of short-term calculation, since only those who get sick pay a price.
A more logical approach would eliminate the incentive to go without coverage when one is young and healthy, then sign up when one’s health starts deteriorating. Much like Medicare’s late-enrollment penalties, the idea would be to very gradually shrink future tax subsidies based on how long people go without coverage. This should apply to both the individual market and employer market, or else people would have reason not to get coverage between jobs that offer insurance. The key for this to work in the constructive way intended is that subsidies must be sufficient to make coverage affordable, or else people would opt out for legitimate financial reasons and their future cost of coverage would gradually become even less affordable.
Even without this more constructive incentive, it’s important to give members of the middle class a better deal than they get now. Those who earn too much to receive ObamaCare subsidies — including young adults earning well below the official cut-off at 400% of the poverty level — should be treated more equitably relative to their peers covered through the workplace.
A fiscally responsible solution would be to put a floor on tax credits for anyone buying coverage on the individual market equal to 25% of the cost of a silver plan, while limiting the income-tax benefit to 25% of the cost of employer-provided coverage and capping that benefit for high-income households. People in the 25% tax bracket (up to $91,151 for singles and $151,900 for married couples) who get coverage from an employer wouldn’t be hurt by the tax change, while there would be minimal effect on those in the 28% bracket (up to $190,150 for singles and $231,450 for couples).
The sad reality today is that ObamaCare throws millions of modest-wage, full-time workers under the bus. There are some 4.5 million uninsured full-time workers who — along with their spouses — don’t qualify for exchange subsidies, even if bronze-level workplace coverage costs close to 10% of income, which ObamaCare deems “affordable” but clearly isn’t. That can amount to five times what people pay on the subsidized exchanges, sometimes even more. That’s why perhaps a million other modest-wage earners — solid numbers aren’t available — opt for “skinny” coverage at work that won’t pay for hospitalization or surgery but will keep them from having to pay a mandate penalty.
The employer mandate is easy to dodge and ends up harming the low-wage workers it was supposed to help. Getting rid of it is a progressive thing to do — especially if it is done while fixing the individual insurance market.
Finally, we should allow states that haven’t expanded Medicaid to do so while limiting the expansion to 100% of the poverty level, easing the fiscal burden of the expansion on states, as suggested by Urban Institute scholars.
Why This Matters
The ideas here wouldn’t deliver gold-plated insurance to most people, but they are the least we can do. All of these features would create a broad, stable risk pool, with affordable coverage options and plenty of flexibility to let people get the coverage that they believe suits them best. While they entail a fiscal cost, we can tackle that while still putting the nation on a sounder fiscal course and strengthening the social safety net.
Having a robust nongroup market for insurance that serves people well should be a priority for the nation. The dynamism of our economy will be better served if entrepreneurs and idealists who are willing to step out on a limb don’t have to fear that their health insurance support will come crashing down. Demographic changes make it increasingly important for people to have the flexibility to step back from full-time work to help care for an aging parent or a sick child. Amid minimum-wage pressures and health care mandates, ultra-competitive markets and the advance of technology threaten to widen the cracks in our employer-centric insurance system that millions of workers, many with modest wages, are already falling into. And don’t forget that we’re entering the ninth year of an economic expansion. When the next recession hits, all of these pressures will multiply and millions more people will depend on insurance outside the employer system.
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