Wednesday, August 12, 2015

As the ACA mandate bites harder, will a Bronze Age follow?

I have a post up at healthinsurance.org responding to a forecast by Investor's Business Daily reporter Jed Graham,to the effect that as the individual mandate clubs more people into the ACA exchanges, more low income shoppers will buy bronze plans.

Graham assumes that most of those who have remained uninsured have looked at what's on offer and decided it's too expensive, or that only bronze is affordable and that the sky-high bronze deductibles render those plans a poor value.  While that's doubtless true for some, I point to survey data indicating that large percentages of the still-uninsured don't know what's on offer.

I want to skip here to a somewhat fuller discussion of solutions Graham offers to what he calls "the bronze trap" in his just-released e-book, Obamacare is a Great Mess: A View of the Affordable Care Act Without Partisan Blinders & How to Fix It, which is well worth a read.

Graham's recommendations include incorporating Cost Sharing Reduction (CSR) subsidies in bronze plans as well as in silver, albeit at a lower level -- giving low income buyers a more viable premium vs. coverage tradeoff.   I'm on board with that and have proposed it myself.

Graham further suggests giving bronze buyers the option of rolling the CSR subsidy into premium price, further trading coverage for premium relief.  Finally, concerned with lower-than-projected enrollment among younger uninsureds, he would increase age rating -- the ratio according to which the youngest enrollee can be charged less than the oldest -- from the current 3-to-1 to 5-to-1 -- but for bronze plans (enhanced with CSR) alone.  At present, bronze plans are proportionately much cheaper for older subsidizable buyers. That's because their subsidies, keyed to the benchmark silver plan, are much larger than those for younger buyers, since the unsubsidized price of plans offered to them is much higher. The larger subsidy often covers the difference in premium between silver and bronze plans.

All of those proposals involve tradeoffs. Bronze plans would improve, but more low income buyers would select them. While very few would end up with plans that leave them as underinsured as bronze plans currently do, many of the 80+% of buyers under 200% FPL who currently buy silver would end up with skimpier coverage. Underinsurance would be diluted but spread further. More people might be enticed into the risk pool. But more might leave when confronted with out-of-pocket costs they deem affordable.

Easing the individual mandate

For Graham, making bronze plans more affordable and viable is linked to making the penalty for not buying insurance less onerous. He proposes that the penalty simply be a reduction in the subsidy available in subsequent years (or in a tax credit he proposes for those who earn too much to qualify for the current subsidies), with the subsidy reduction increasing for each year that a person remains uninsured. This strikes me as probably too mild and too abstract a penalty for someone remaining uninsured. A person who remains uninsured for five years would forfeit just a quarter of her tax credit if she bought coverage the next year. Going without coverage for one year would leave her with 95%  of her tax credit the next year. Lower income buyers would lose just 1% of their future subsidies for each year they went uncovered. In one example Graham sketches out,  the penalty costs the buyer $40 in over four year after going uncovered.*

I am open to mandate substitutes, but I don't see how a penalty of this nature would deter anyone from going uncovered.

Graham's book is constructive. He assumes that the ACA's various flaws and limitations pose more of an existential threat to the ACA than most supporters do. But the problems he addresses -- limited affordability at higher subsidy levels, the "subsidy cliff" for those who earn just too much to qualify for aid, a clunky employer mandate, and others -- are very real, and some of his proposed solutions could work. Many supporters of the law should probably take the possibility that these flaws collectively could cause insurance markets to sag more seriously.

P.S. probably all of Graham's proposals could be tried on a state level via Section 1332 "innovation waivers."

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* I elaborated the mandate description slightly, 8/20.

1 comment:

  1. I have long favored the following reform:

    Leave the mandate where it is, including its higher penalties next year.

    But when the government collects the mandate, it assigns the taxpayer a catastrophic health plan, i.e. a very high deductible and no preventive services.

    This might not satisfy the pure deficit-hawk bean counters, who will point out that mandate money was supposed to help the federal budget.

    Big deal, in my view. The mandate would help get more people insured, at least for hospital care and major surgery.

    ReplyDelete

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