Wednesday, November 16, 2016

The individual mandate is not the hill for Democrats to die on

A few days ago, Adrianna McIntyre sketched out the likely contours of Republican plans to replace the ACA.  In the main, three core changes have been floated in a variety of plans: deregulate the kinds of insurance plans available in the individual market (e.g., loosening age-banding, allowing lower actuarial values, and reducing EHBs); block-grant Medicaid (without, Adrianna guesses, clawing back the ACA eligibility expansion); and end the individual mandate, replacing it with "continuous coverage" protection from medical underwriting.

If those contours prove to be on target, the question of how many people lose coverage will come down to funding. If Republicans end the federal government's 90-100% funding of Medicaid for those rendered newly eligible by the ACA, as Ryan proposes, the ranks of the uninsured will rise rapidly. If subsidies for enrollees in the individual market are cut significantly, or become much skimpier for lower-income enrollees (the bulk of current enrollees), many enrollees will find themselves unable to pay. If the ACA's high federal matching rate for Medicaid is left in place and funding for tax credits in the individual market is not radically cut, change will be more gradual.

One change that need not be too disruptive, I suspect -- if done right -- is replacing the individual mandate with continuous coverage protection -- that is, protection from medical underwriting for anyone who maintains continuous coverage.  "Done right" means rendering coverage available and affordable to those who lose their jobs and/or income.

Some Republican "repeal and replace" plans essentially provide free catastrophic coverage to those who lose employer-sponsored insurance. For example, the legislative outline put forward by Senators Coburn, Burr and Hatch in January 2014 proposed to
Create a new “continuous coverage protection” that rewards individuals moving from one health market to another—regardless of whether in the individual, small group, or large employer markets—by allowing them to get a similar plan at a similar cost and not be rated on health status.

States would be allowed to use auto-enrollment to design sustainable insurance options with premiums equal to the value of the tax credit for individuals who have a health tax credit, but who fail to make an affirmative choice in choosing a plan within a specified timeframe. If an individual did not like the initial default plan selected, they would be able to switch plans or opt-out of coverage altogether—no American is forced to have health insurance they don’t want (my emphasis).
Similarly, the replacement plan published by the American Enterprise Institute in December 2015 calls for "default insurance":
States would be responsible for designating several insurance plans as default options to which persons who are eligible for a refundable tax credit would be assigned (on a random basis) if they failed to sign up for coverage on their own.

The key to making this concept work is that the premiums for default insurance would need to be set to the value of the tax credit so that persons who were assigned to such plans would not be charged any additional premium.And to keep the premiums equal to the credits, the insurance plans must be given the authority to set their upfront deductibles accordingly so that the cost of the coverage does not exceed the federal credit (p. 25).
This kind of provision raises a lot of questions. How low would the actuarial value have to be (and how high the deductible) to zero out the premium for enrollees at various income levels, net of subsidy? The current ACA marketplace serves primarily low income people, with incomes under twice the federal poverty level. Many of them could currently obtain a bronze (lowest-tier) plan for close to nothing, thereby forfeiting the Cost Sharing Reduction subsidies that attach to silver plans only. Those subsidies render actual medical care affordable, whereas bronze plans typically have deductibles north of $6,000. For the many low income buyers who are also asset-poor, a $6,000 deductible may as well be $6 million. Would default plan deductibles be even higher? Would more usable plans be affordable? "Default" plans might be of more benefit to hospitals and doctors, who would be paid for expensive care beyond the deductible, than to enrollees.

Nonetheless, a free catastrophic plan is better than a penalty.-- and better for the marketplace, as it would bring more people into the risk pool. As a matter of fact, it could work under the current ACA structure and might strengthen the current ACA marketplace -- though the conditions under which someone could opt out of the current four-tier structure might be hard to work out, and "insurance" cheap enough to zero out the premium for many buyers would doubtless be very skimpy indeed.

The individual mandate took on huge symbolic significance as the fulcrum of the challenge to the ACA's constitutionality. It was a powerful rally point, as forcing people to buy a private product does intuitively feel like an intrusion on personal liberty (never mind that the concept was hatched in the Heritage Foundation and later championed by Mitt Romney). But it is only one way to pull healthy people into the individual market. That leg of the 3-legged stool could be carved differently.


Postscript: one premise of those conservatives who do want to spend some federal dollars to help insure the uninsured is that if you remove the ACA's essential health benefits and other coverage requirements, more people will find plans that they like - basically because they'll laser in on exclusions or other coverage limitations unlikely to hurt them personally. Without onerous coverage mandates, the mantra goes, coverage is more affordable. But as the plan authors also doubtless know, the ACA's EHBs and other coverage requirements are a small part of the reason unsubsidized premiums went up for many healthy individual market customers post-ACA. The main reason is guaranteed issue --the ban on charging people with pre-existing conditions more. And that is something Republicans are unwilling to give up. Kevin Drum, responding in part to this post, argues that guaranteed issue is the Democrats' main bargaining chip, because it can't be removed via reconciliation because it doesn't directly affect the federal budget. If Republicans use reconciliation to gut the ACA subsidies but leave guaranteed issue in place they will destroy the individual market and take the blame, Drum argues. Jonathan Chait, OTH, forecasts that Republicans will go for "repeal and delay" -- sunset the ACA subsidies, which will kill the individual market by causing insurers to withdraw, and force Democrats to cooperate in constructing "some kind of ultra-threadbare replacement plan."


  1. The arch conservative Michael Cannon has a provocative piece in the National Review that says guaranteed issue must go.

    If you want lower premiums, he is right. Under continuous coverage, insurance companies will have almost as many expensive people as they have now. Premiums will not go down a nickel.

    1. Err, so the solution is for sick people to die?

      That's what they call healthcare?