Wednesday, December 24, 2014

How conservatives might amend (rather than destroy) the ACA

The Affordable Care Act is by any rational assessment a conservative plan to expand access to healthcare -- relying in large part on private insurance and competition, devolving oversight and insurance industry supervision to the states, and imposing fiscal 'responsibility' on individuals with incomes as low as 138% of the Federal Poverty Level to contribute to the cost of their healthcare.

Yet conservatives complain bitterly that the private market is not free (i.e., to exclude benefits now deemed 'essential'); that the states are commanded to administer within a federal straitjacket; that the employer mandate will choke off job growth; and that the individual mandate is an unconstitutional impingement on personal liberty.

Looking back at a year of blogging about the ACA's increasingly successful implementation, it occurs to me that I've addressed three possible changes to the law that could reasonably be called conservative. Two increase viable consumer choice within the exchanges; one takes seriously the possibility of replacing the individual mandate, and one would loosen or perhaps partially replace the employer mandate.

Here they are:

1) Attach Cost Sharing Reduction (CSR) to bronze plans: At present, CSR is available only with silver level plans, conceived by ACA drafters as the default or benchmark coverage level in various ways (and accounting for 65% of all private plan purchases on all exchanges in 2014). Silver plans are effectively the only viable choice for almost all buyers with incomes under 200% FPL, since below that income level CSR reduces deductibles, copays and yearly out-of-pocket maximums really sharply.

Limiting low-income shoppers' viable choices to silver would be okay if silver plans were always truly affordable, as the ACA subsidy formulas designed them to be. In some cases, though, they are a heavy lift to say the least. If you earn $23,000 this year and seek solo coverage, you'll pay $118 per month for the benchmark second-cheapest silver plan, and usually only a few dollars less for the cheapest silver.

Depending on your age and zip code, if you earn that $23k, the cheapest available bronze plan may cost as much as $75 per month or as little as -- zero. The catch is that it's likely to have a deductible ranging from $5,000 to $6,600, and in many cases, no benefits that kick in before the deductible is reached, except the ACA's mandated free preventive services. That deal reminds me of the old eastern-bloc workers' joke: we pretend to work, and they pretend to pay us. In this case it's: I'll pretend to pay, and you pretend to cover me.

Why not change those terms? As I argued recently:
CSR could attach as easily to bronze as to silver, without increasing the subsidy level. The CSR subsidies are based on a plan's actuarial value (AV) -- the percentage of the average user's yearly medical expenses that the plan is designed to pay. Without CSR, silver ACA plans have a mandated AV of 70%; bronze, 60%.  Depending on income level, CSR raises the AV of a silver plan to 94%, 87%, or 73%.  Why could the subsidy not be available with a bronze plan, boosting AV to 84%, 77% and 63%? Or, if the subsidy needs to be a ratio of the unsubsidized AV, CSR could boost bronze AVs to 81%, 75%, and 63%...

Letting CSR attach to any metal level would not only afford buyers more choice, which is not always a good thing, but more viable choices. As of now, bronze plans are generally horrible deals -- unless either you're wealthy enough to absorb $5,000 or $6,000 a year in medical costs without too much trauma (unlikely for CSR-eligibles unless they're young adults with affluent parents), or the plan in question offers substantial benefits (e.g, low copays for doctor visits and generic drugs) before the deductible is reached, as some but I think less than half do.

At present, an older low-income buyer often has to choose between an all-but-free bronze plan likely to do them very little good and a hard-to-afford silver plan that will put out-of-pocket costs within relatively manageable range. Letting CSR attach to bronze would add a really viable choice level for many buyers: a very low premium for a plan with an AV superior to that of silver plans unenhanced by CSR.
An added benefit is that no one who's eligible for CSR would miss it. As of now, depending on the state, anywhere from perhaps 5% to 30% of CSR-eligible buyers forgo the benefit. Why should this vital subsidy vanish if a low-income buyer makes the "wrong" choice? Why shouldn't CSR-eligible buyers be able to make premium-vs.-out-of-pocket-cost choices proportionate to those faced by higher income buyers?

2) Let HSAs fulfill the employer mandate: Employees who don't earn much may fare better on the ACA exchanges than in health plans offered by employers, particularly those available to many small businesses (depending on their location and the composition of their work force). Employers with more than 50 employees (100 this year only) pay a penalty if they don't provide coverage. Employers (e.g., those not subject to the mandate) are prohibited from financing or subsidizing premiums for plans that employees buy in the individual market, e.g., on the ACA exchanges.  And if a business drops coverage and wants to compensate employees for the lost benefit, extra pay will reduce the subsidies for which employees are eligible on the ACA exchanges.

Some forms of compensation do not increase employees' Modified Adjusted Gross Income (MAGI), however -- the figure used to calculate ACA subsidies. Among them is employer funding of a Health Savings Account (HSA), a tax-sheltered account used to be pay out-of-pocket medical expenses. HSAs must be linked to an "HSA-qualified" high deductible health plan -- which are available on the ACA exchanges.   That led me recently to this modest proposal:
If you earn, say, $30,000 a year, a bronze plan with a $5,000 or $6,600 deductible may not do you much good under normal circumstances. If your employer funds an HSA with $3,350, however -- or $4,350 if you're over 55 -- that plan may suddenly be a viable alternative. If you carry such a plan for a year or more in which you don't fully exhaust the contributed funds, it's even more viable -- it may effectively cover your costs and then some. The employer and the federal government are essentially splitting the cost of your coverage...

..given conservatives' love of HSAs, this hybrid employee benefit could conceivably, some day, point a way toward a political compromise that would reform the ACA in a conservative direction. Republicans have trained their fire on the employer mandate, and a lot of Democrats and progressive health policy wonks acknowledge that it's not very well-designed and is perhaps unnecessary. What if all employers -- or, say, employers with up to 200 employees -- could fulfill the mandate by fully funding HSAs -- perhaps with a raised cap? What if the requirements for getting a health plan HSA-qualified were radically simplified, , as Manhattan's Feyman and Howard suggest,  -- i.e., what if all plans with deductibles at or above the minimum allowable for HSA-qualified plans automatically qualified?  That is, what if deductibles continued to rise, but employers effectively picked them up? That is one way to make the federal government effectively a catastrophic insurer, financing medical care above the $5,000 or $6,000 mark.
A major catch here is that the IRS and HHS are at present dead-set against encouraging employers to dump coverage. The ACA on this front is somewhat at cross-purposes with itself.  Its design ultimately points toward decoupling employment and health insurance, a decoupling which most economists -- and, in theory, almost all conservatives -- consider highly desirable. In practice, though, administrators are faced with a rational equivalent of "Lord, make me chaste, but not yet." More than 150 million Americans get health insurance through their employers, and no one really wants to upend the system all at once. On the other hand, progressives generally acknowledge that the employer mandate is poorly designed and perhaps not necessary at all, as the vast majority of large employers have long provided coverage without it. An HSA option might accelerate the transition away without opening the floodgates all at once.

3) Repeal and replace the individual mandate on the state level: Under the ACA's Section 1332 innovation waivers, states can propose to HHS alternative coverage schemes that alter or replace virtually every specific ACA provision designed to extend coverage to the uninsured -- as long as the alternative scheme provides coverage "at least as comprehensive" as that provided by the ACA's default scheme. Among the provisions that could be replaced is the vilified individual mandate, which decrees that individuals must either obtain insurance or pay a tax penalty (unless coverage is deemed unaffordable).

Replacing the mandate entails finding an alternative means to deter people from buying insurance only when they get sick, and to compensate insurers for accepting a prohibition against taking a buyer's health and medical history into account when pricing coverage.  Republican governors and legislatures serious about doing so could propose, via Section 1332 waiver, provisions lifted from the swiftly-forgotten ACA replacement framework floated in early 2014 by Senators Coburn, Burr and Hatch.  Here's my summary:
To replace the individual mandate, CBH kicks off with an open enrollment period in which all uninsured Americans can buy insurance (subsidized if their income is up to 300% FPL) without medical underwriting, i.e., regardless of any preexisting conditions. After that, it is incumbent on everyone to maintain continuous insurance or else be subject to medical underwriting.  To prevent people from breaking that chain in hard times, CBH would auto-enroll everyone who loses coverage in a default catastrophic plan in which the premium does not exceed the subsidy. The auto-enrolled could opt-out (freedom!) -- but would then lose their protection from medical underwriting.  If the loss of that protection seems harsh, one might imagine adding a provision from an ACA replacement plan created by James Capretta and Douglas Holtz-Eakin, on which CBH seems closely modeled: schedule an open enrollment plan every five years.
One aspect of this scheme that struck me recently, after some extended exploration of ACA exchange offerings via the shop-around features on and state exchanges, is that the free "catastrophic default" option might well be viable -- because bronze plans, most of which are effectively catastrophic -- are also effectively free for many, many buyers -- and would be for perhaps most of the suddenly-unemployed. I would prefer that default plans (and in fact all plans, except perhaps for the wealthy) provide better than catastrophic coverage -- and also that open seasons be offered more frequently than every five years (let alone just once). But the framework seems a viable alternative to the mandate.

I can imagine potentially valid arguments against all three changes.  But perhaps all of them could be tried on a state level -- the ACA really does provide tremendous scope for state experimentation, all the cries of "federal takeover" notwithstanding. All of them increase choice, and thus arguably "freedom," for individuals, employers, and/or insurers.

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