Thursday, May 28, 2015

Republican conundrum: Can the federal government subsidize private health insurance without regulating it?

Two moderate conservatives, neither of them averse to a federal effort to make health insurance affordable for all Americans, walk into a conference session and disagree about likely Republican behavior should the Supreme Court rule for the plaintiffs in King v. Burwell, thus cutting off subsidies for some eight million Americans who bought their health plans on

This happened earlier this month at the Health Insurance Exchange Summit in Washington, D.C. The disagreement was between Stuart Butler, a longtime Heritage Foundation scholar now at the Brookings Institute, and Christopher Condeluci, who was tax and benefits counsel to the Senate Finance Committee while the ACA was being drafted.

Butler, generally considered the father of the individual mandate (though he has renounced his brainchild and its bastard stepchild, the ACA), kicked off the session by sketching out a post-King settlement that he hoped might lead to a "kumbaya moment" and win 400 votes in the House.  That settlement would build on the ACA's existing "innovation waivers," provided in Section 1332, which empower states to propose alternative schemes that meet the ACA's coverage and affordability goals by different means.

Section 1332 puts everything up for grabs -- the individual and employer mandates, health plan coverage rules, exchange structure, and subsidy allocations. Since alternative schemes must meet ACA standards for coverage and affordability, however, Republicans complain that Section 1332 takes away with the left hand the freedom it proffers with the right. Butler proposed that in a post-King negotiation Republicans and Democrats might negotiate a "superwaiver" process that would loosen the ACA standards and lighten HHS oversight while also moving up the timeline -- at present, approved state proposals can't take effect until 2017.

Condeluci, who has said that Republicans on the Senate Finance Committee had signed off on 80% of the bill that eventually became the ACA, agreed that Republicans post-King would look to "1332-like" alterations to the ACA. But he said that Republicans would not accept the waiver structure as a framework. Instead they would invite states to opt into a Republican alternative that would include repeal of the individual and employer mandates as well as of the essential health benefits that every plan qualified under the ACA must provide.

Afterward, I asked Condeluci whether the plan he envisioned would give states free reign to take federal subsidy money and reorder their insurance markets as they saw fit, or rather to opt into a prepackaged Republican scheme that would lay out new coverage rules. He said, in effect, either/or. His answer spotlights an important...let's call it tension in Republican thinking about healthcare reform.

GOP Plan: The Ten Suggestions?

"A Republican alternative could take one of two forms. The first could be more prescriptive: if you want to opt into our Republican alternative, here are the rules of the road. There might be ten things in the package: no individual mandate, no employer mandate, no essential health benefits -- but with market reforms: no annual and lifetime limits, coverage for adult children up to age 26, protections for those with pre-existing conditions."*

The second possible form would be to give states carte blanche. telling them: "Here's what we envision, here's a list of ten things -- mix and match."

I asked whether legislation can be written that puts forth suggestions rather than rules. Condeluci said that he thought that the more prescriptive plan was, in fact, likelier. "But when I say 'prescriptive,' I think there will be a level of flexibility built into that structure."

The bottom line, according to Condeluci, is that "a Republican alternative would not involve HHS's blessing in any way, shape or form." That's the core of his disagreement with Butler. He elaborated: "Under 1332, you can waive all requirements. With a Republican alternative, you don't have to comply with this list. It's prescriptive as to what you no longer have to comply with."

I asked whether, given that starting position, Republicans might ultimately negotiate something like Butler's superwaiver, with lightened as opposed to nonexistent oversight.  "No," he said. "I do not think Republicans would have an appetite for incorporating into any Republican alternative some sort of oversight or permission granted by the federal government. At least, not under a Democratic administration."

Hmm. That  raises the question: if the GOP plan is at all "prescriptive," who would ensure that states comply with the plan set forth in statute?

"That's a good question,"  Condeluci responded. "I don't know. It strikes me that Republicans don't have an appetite for someone to give states permission to do what the Republican alternative tells them to do...HHS might have some sort of oversight role. Or they might kick it to the NAIC [National Association of Insurance Commissioners]."

So there you have it.  A Republican post-King plan might be composed not of Ten Commandments but Ten Suggestions. Or maybe four or five Thou Shalt Nots -- for those who opt in. Or maybe "do what you will shall be the whole of the law." And here's a pot of money to do it with -- restored by Republicans in exchange for this freedom.

If the prospect of kicking oversight to the NAIC seems a bit outlandish, it's worth keeping in mind that the states have historically had jurisdiction over insurance, including private market health insurance. But if Republicans accept a core ACA component, federal subsidies for private insurance plans (a concept Republicans have historically favored), that implies some degree of federal oversight.

Of course, the Democrats who drafted the ACA perceived a crying need for new rules of the road for health insurance, since pre-ACA plans were honeycombed with exclusions. limited by coverage caps, and rescinded almost at will. And Condeluci envisions a Republican plan retaining the ACA's most popular coverage rules, including the one that drives up costs the most: protections for those with pre-existing conditions. He has affirmed elsewhere that Republicans on the Senate Finance Committee had signed off on the Essential Health Benefits that lay out what all plans must cover.

But in today's Republican party, federal reform of the structure of health insurance and federal oversight of the reformed market are anathema. Condeluci is doubtless right about that.

* Of course, as Richard Mayhew points out in a comment below, the mandates exist to make these popular protections viable. But there are alternative methods of pulling the uninsured into a large enough risk pool to make guaranteed issue viable, and Condeluci envisions some such alternative as part of a GOP plan. A variant of one was in the “repeal and replace” legislative outlined floated in early 2014 by Senators Coburn, Burr and Hatch. It’s a triple stool:

1. Provide protection against “medical underwriting” to anyone who maintains continuous coverage.
2. When people lose insurance, if their income is low (e.g., has abruptly fallen after a job loss), default-enroll them into a subsidized catastrophic policy rendered free or affordable by the premium subsidy.
3. Have open enrollment seasons (no medical underwriting) at long intervals. (The Coburn-Burr-Hatch plan provided for only one kickoff open enrollment, but previous proposals put them at intervals of several years.)

As far as I can tell, the update of this plan introduced by Senators Burr, Hatch and Upton early this year drops the catastrophic auto-enroll leg of this stool.


  1. Taking away the mandates but keeping guarantee issue and subsidies blows up the entire structure of the law.

    1. Yes -- I left out of this one what I included in a prior recap of the Butler-Condeluci exchange: the plan would include mandate substitutes such as those in Coburn-Burr-Hatch. Will add as FN.

  2. Protection against medical underwriting for those with continuous coverage is very over-rated. I say this as someone who left a corporate plan due to layoff and had to find individual coverage with health problems. Not a single carrier in MN actually offered a guaranteed issue plan. It was not worth it to them. There were few customers and all were sick. They could not charge enough.

    I am not sure what is accomplished by having longer intervals with no underwriting. Wouldn't sick people just stay uninsured in the interval? What do we gain?