Monday, July 17, 2017

If serious compromise on healthcare were possible, what would Democrats give?

As Republicans flail away at the BCRA, Democrats' first murmurs about bipartisan legislation to stabilize the ACA marketplace have been pretty basic: guarantee CSR payments and re-institute some kind of reinsurance program.

If bipartisan legislation were truly possible, however -- and admittedly, we're in contrary-to-fact territory here -- what might Democrats give up to get the most basic fixes, -and possibly further improvements?

Back in January, two leading progressive healthcare scholars at the Urban Institute, Linda Blumberg and John Holahan, floated a compromise proposal that offset provisions Democrats would not embrace unforced with improvements in subsidies and marketplace structure. Here is the package summary.Concessions to conservative priorities are bolded:
1. Replace the individual mandate with a modified version of the late enrollment penalties currently used in Medicare Parts B and D.

2. End the employer mandate. The limited gains in coverage and the revenue it generates have not been worth the controversy it has caused.

3. Replace the Cadillac tax with a cap on the tax exclusion for employer-based insurance, ideally setting the cap at levels that would generate additional revenues to help finance vital enhancements [put this in the 'hold hands and jump"category, as elected officials in both parties believe that this makes sense on the merits].

4. Improve affordability by reducing premiums, deductibles, and other cost-sharing requirements for modest-income individuals, and extend to higher-income individuals a cap on premiums at 8.5 percent of income.

5. With a premium cap at 8.5 percent of income applied to all, relax the 3:1 age rating to be more in line with actual differences in spending for younger and older individuals.

6. Examine the essential health benefits package, recognizing that eliminating certain benefits would eliminate risk pooling for those services, shifting all costs to individuals needing those services. That is problematic for any service, but particularly so for prescription drugs, mental health, and substance use disorder treatment [note that Blumberg and Holhan can't bring themselves to put forward any specific "good" way to "examine" EHBs -- and that goes for their longer discussion of this point as well. See also Timothy Jost pulling one of his own teeth on this point.]

7. Stabilize the Marketplaces by taking steps to increase enrollment. This would include investing in additional outreach and enrollment assistance and allowing states to extend Medicaid eligibility to 100 percent of the federal poverty level (FPL) rather than 138 percent of FPL. People with incomes between 100 and 138 percent of FPL would move from Medicaid to Marketplace coverage and thereby benefit from the affordability provisions mentioned above. Further, it should be made easier for working families to be eligible for income-related tax credits.

8. Address the impact of insurer and provider concentration on nongroup market premiums by capping provider payments in those plans at Medicare rates or some multiple thereof—an approach currently used by the Medicare Advantage program. This would limit the use of market power by large provider systems and make it easier for insurers to enter new markets.

9. Use a broad-based source of revenue (e.g., assessments on all health insurance and stop-loss coverage premiums or general revenues) to permanently protect nongroup insurers from the consequences of enrolling a disproportionate share of very high-cost enrollees, as is done in Medicare Part D and Medicare Advantage.
The concessions in this ambitious package are embedded in an intricate web of offsets. Replacing the mandate with a weaker penalty(which Blumberg and Holahan plainly do not endorse on the merits) requires more robust reinsurance. A penalty strong enough to be effective requires making insurance more affordable for all, including the modestly affluent (whom Blumberg and Holahan show elsewhere to pay the highest percentage of income on premiums and out-of-pocket costs in the individual market).   Dropping the Medicaid eligibility threshold is conditioned on boosting cost-sharing support for the lowest income marketplace enrollees -- and indeed for all enrollees. Letting insurers have their way with age-rating deepens the imperative to protect older buyers, including the modestly affluent, by capping premiums as a percentage of income.* Higher subsidy levels in turn drive an imperative to reduce the prices that private insurers pay providers to as close to Medicare rates as possible.

The concessions that really hurt from a progressive standpoint are the individual mandate replacement and tinkering with Essential Health Benefits. Blumberg and Holahan plainly believe that  any significant denting of the EHBs will have ill effects, driving up the cost of coverage for any eliminated benefit. They offer no suggestions for how to do this "well." Similarly, they consider their preferred mandate substitute -- a premium surcharge for those who went without coverage for a period -- to be inferior to the mandate, in that "Many would likely be unaware of the surcharges until they decided to enroll, whereas uninsured individuals experience the ACA penalty each year when filing their tax returns."  Then too, the concession on the mandate is implicitly offset with the improved premium subsidies put forward elsewhere in the proposal:
It is critical to remember that merely increasing penalties without improving affordability would have little effect. Most individuals who remain uninsured under the ACA are exempt from the individual mandate penalties because they don’t have access to qualifying coverage that is deemed affordable under the law’s standard. If additional penalties are to have a significant effect on coverage levels, coverage would have to be made more affordable for more people.
I am most intrigued by a proposal that Blumberg and Holahan save for second-to-last.  Proposal #8 all but converts the ACA marketplace into a version of Medicare Advantage. It thus transfers the main benefit of a "strong" public option -- government-level rates paid to healthcare providers -- into an all-private marketplace. It is close to my own preference: a marketplace of "all-public" options, or, if you prefer, public-private options, in which the federal government pays participating insurers a capitated rate pegged to Medicaid rates, Medicare rates or something in between. 

Blumberg and Holahan's proposal here seems to me to point toward a barrier to structuring the marketplace more or less exactly like Medicare Advantage, which pays plans a capitated rate based on fee-for-service Medicare rates in the plan's area. Unlike in Medicare, there is no extensive data base for pricing in the individual market, which the ACA transformed in 2014.

Jon Kingsdale, first executive director of the Massachusetts Connector, the precursor to the ACA marketplace, described to me a backdoor way to effectively cap rates as Blumberg and Holahan propose: require healthcare providers who accept Medicare rates for Medicare patients – i.e., almost all providers – to do the same for marketplace enrollees who obtain care outside their insurer’s provider network (if approved by the insurer or allowed by policy terms or local law).  If a given rate is the best  providers can get by staying out of network, they will join a network that pays that rate.

Constraint on provider payment rates, coupled with a cap on the employer tax exclusion, could pay for some benefit sweetening, which in turn would deepen the marketplace risk pool and so help keep premiums down.

In a country where a center-right party negotiated with a center-left party, Blumberg and Holahan's package would constitute a practical blueprint. We don't live in that country as of now. But it's important to flesh out a rational endpoint, informed by an understanding of how preferred policies from both sides would interact. This proposal gives us that.

The premium cap is a vital reform from the authors' point of view. Elsewhere, they demonstrate that modestly affluent buyers in the individual market spend the largest percentage of their income on premiums and out-of-pocket medical costs. While a higher percentage of income for more affluent enrollees is appropriate to a point, a median percentage in the mid-to-high teens far exceeds that point.


  1. Great job on your part as usual. At some point -- maybe -- the scorched earth tactics of the Republicans will cease, and at that point we need a positive agenda.

    When I have a moment I am going to go through your excellent list and try to come with the "pay-fors." Some of your items like a universal cap on premiums, expanded cost-sharing, and permanent reinsurance will cost some billions of dollars. We definitely will have no room for a tax cut if we do these items, in fact we will need an increase. Thanks again.

  2. I tried to estimate the cost of giving everyone an 8.5% cap regardless of income. My numbers are just educated guesses, but here goes.

    Assume a single person earns $80.000 a year. 8.5% of that is $6,800 a year or $567 a month.

    In the bad states like Nebraska, IA, Wi, AZ, the premiums for a 55 year old will probably climb to about $900 a month and keep climbing.

    Under age 50, with that income, there might be no subsidies needed.

    So what are the numbers? Say that there are 4 million people who earn more than 400% of poverty and currently get nothing.

    Say that 40 per cent of that total is over age 55.

    That would be 1.6 million people who could now get subsidies.

    How much will their subsidies be? I do not have the firepower to figure this out.

    If the average subsidy is $350 a month, $4200 a year, then the total cost of an 8.5% cap would be about $6.7 billion a year.

    This is not an enormous sum in ACA land, to remove one of the sorest areas of the law.

    1. Bob, the earlier Blumberg/Holahan report containing their subsidy recommendations, for which there's a link in the footnote to this post, includes cost estimates. They don't break out the 8.5% cap separately, but they estimate all their subsidy changes at around $220 billion/ten years, if I remember right.

  3. I remember the article. I think that the $220 billion included tiering the subsidies to gold plans. That was a big item.