The Urban Institute's Linda Blumberg and John Holahan, authors of an "ACA 2.0" blueprint, mull healthcare reform after Trump
In August 2015, Urban Institute scholars Linda Blumberg and John Holahan warned that the ACA marketplace as then constituted would probably never perform to expectations. Subsidies were insufficient to draw the robust participation the law's creators had anticipated. They proposed a revamped subsidy schedule that reduced premiums and out-of-pocket costs at every income level. For those with incomes above the current subsidy threshold of 400% of the Federal Poverty Level, premiums for a benchmark plan covering 80% of the average enrollee's costs would be capped at 8.5%.
Hillary Clinton more or less incorporated the Blumberg-Holahan proposal into her healthcare platform. And now, two years later, bills to improve the ACA introduced by Democrats in the House and Senate do likewise. Both bills precisely reproduce the plan's enhanced premium subsidies and offer even more generous reductions in enrollees' cost sharing (see the Appendix below for a summary).
The Senate bill, introduced by Elizabeth Warren and four colleagues,* places several new constraints on insurers in the individual market. These include requiring insurers to provide a better selection of doctors and hospitals, raising the percentage of premium revenue insurers are required to spend on enrollees' medical costs, and standardizing plan design. The preamble to a one-page summary of the bill appears to blame insurers alone for Americans' high healthcare costs. By generously subsidizing enrollees at all income levels, however, the bill creates conditions under which insurers in the individual market can thrive.
ACA 2.0 -- or a whole new system?
I spoke to Blumberg and Holahan last week to get their reaction to the "ACA 2.0" bills, the Warren bill in particular. Blumberg confirmed that they had been consulted by the bill's creators, though they did not participate in the drafting.
The two scholars naturally approve of the bill's subsidy structure, though they are concerned about its lack of strong cost controls. "The biggest hole is that they don't deal with provider payment rates," Holahan noted (In 2017, Blumberg and Holahan proposed capping marketplace insurers' payments to healthcare providers at Medicare rates, or somewhat above).
Blumberg and Holahan think that insurers might chafe at some of the regulations in the Warren bill, but that they could live with them, as the subsidies should create the kind of deep risk pool that the ACA marketplace has lacked.
They also have a keen sense of what a heavy political lift would be required to enact a single payer system, or a vast expansion of Medicare such as the Center for American Progress's Medicare Extra proposal. While Medicare Extra does not end employer-sponsored insurance, it includes strong levers to push the rates that employer plans pay to healthcare providers down toward Medicare levels (which it in turn raises somewhat). It would likely shrink the employer market, as both employers and employees would have the option of buying into the public plan. "You have a bigger political lift when you challenge employer sponsored insurance," Blumberg said.
"Even if Democrats take over everything, there's still headwinds to single payer, big time, Holahan added. "Putting out something short of that seems smart to me.," At the same time, "If Democrats took over House, Senate and eventually the presidency you could put a lot more than [the Warren bill] on the table."
Dealing with post-Trump wreckage
Yet there's a complication to the Warren bill's apparent path of least resistance. Blumberg is co-author of a recent Urban Institute report** predicting dire effects on the ACA marketplace from the latest round of Republican sabotage -- repeal of the individual mandate coupled with proposed regulations that would boost the allowed duration of lightly regulated short-term plans from three months to one year.
The report warns that the two changes in tandem, coupled with market disruptions introduced in 2017 by the cutoff of federal funding for Cost Sharing Reduction subsidies and sharp cutbacks in advertising and enrollment assistance, could result in 6.4 million more people being uninsured in 2019 than under current law. The combined effects of mandate repeal and the proposed new rule for short-term plans are forecast to increase premiums for ACA-compliant plans an average of 18.3% in the 45 states that don't limit or prohibit short-term plans. Government spending would rise by 9.3% -- while insuring far fewer people.
These latest blows to the ACA-compliant market come in the wake of several prior rounds of regulatory turmoil and sabotage -- most notably, the Republican Congress's defunding of the ACA's risk corridors, created to compensate insurers who took steep losses in a new, untested market, and Trump's cut-off last year of reimbursements to insurers for the Cost Sharing Reduction subsidies that insurers are legally obligated to provide to more than half of enrollees in the ACA marketplace. The first triggered a wave of insurer collapses (mostly of the non-profit co-ops established by the ACA) and withdrawals from the ACA marketplace. The second led to premium increases averaging nearly 30% in a year when premiums were poised to stabilize.
That history -- and the looming prospect of a parallel market that plays by pre-ACA rules -- leaves Blumberg and Holahan wondering whether the "ACA 2.0" market blueprinted in the House and Senate bills can get off the ground.
On the one hand, Blumberg suggested, the damage to the ACA-compliant markets that may be wrought by short-term plans may impel Democrats returning to power to "fix these markets first before you start thinking about whether the country has a taste for more dramatic change."
At the same time, envisioning a market in which short-term plans have done deep damage induced Blumberg to flip the script, at least prospectively.
"We don't know what the market is going to look like by the time there is an opportunity, under Democratic control, to do something like the Warren bill," Blumberg said. "Will there be tons of bare counties [counties in which no insurers offer ACA-compliant plans] after the short-term policies are put in place? How much work would it take to convince insurers to come back and try this again -- and give them some guarantees that they're not being asked to enter a business where the rules are being constantly pulled out beneath them after they set their premiums?"
"Even if you think that insurers could be better actors in a lot of different ways," Blumberg continued, "this administration has really made a mess, creating an environment where the insurers aren't sure what the rules are going to be from one day to the next and whether political winds are going to change and everything is going to shift again."
The Warren bill empowers state and federal administrators to require insurers that sell Medicare Advantage or managed Medicaid plans in a given market to offer plans in the ACA marketplace if there is insufficient competition in that market. Holahan was doubtful whether such a regulation would be effective.
"If they're required to participate they'll participate, but they'll participate at pretty high premiums, so it really won't make much difference." he said. If an insurer offers plans that are priced way above the benchmark plan, few will buy them, as the buyers would have to pay the difference.
Road cleared for sweeping reform?
The Center for American Progress's Medicare Extra plan would replace the current individual market with a Medicare-like public option, along with private alternatives akin to Medicare Advantage. Employers and employees alike could opt in, When the plan was released in February 2018, Harold Pollack of the University of Chicago suggested to me that such a vast expansion of public insurance might actually be easier to implement than a further redesign of the private plan market:
"If insurers say they don't want to be part of these markets any more because of their vulnerability to the political winds and what they've just been through, then that gives you wider political berth to say 'okay, well then, we need a public plan,'" Blumberg said.
I asked whether the proposed rules for short-term plans might therefore pave the way to single payer or something like Medicare Extra. Blumberg allowed the possibility -- though she sees a public option as likelier than a full-scale single payer system.
"If you end up with lots of areas where insurers are not going to participate, and you talk about doing some of the kinds of changes in the Warren bill when the tide turns and they say, 'listen, we've had it, it's just not worth it for us to put ourselves at this risk- -- I think you've got a rationale then for moving seriously with a broadly available public plan option. Whether you make folks in employer sponsored insurance eligible for it or you just limit it to the non-employer market remains a question."
Pre-ACA healthcare reform proposals built around a strong public option such as Helen Halpin's CHOICE program (2003) and Jacob Hacker's Health Care for America plan (2007) did allow employers to buy in. via a payroll tax. CAP's Medicare Extra proposal harks back to these blueprints. Halpin anticipated employer insurance withering on the vine; Hacker envisioned robust competition between employer-sponsored insurance and the public plan.
A private plan market that offered coverage as affordable and generous as stipulated in the Warren plan could get the U.S. close to universal coverage. If such a program included reinsurance and capped the rates plans pay to healthcare providers, it would look a lot like the Medicare Advantage market -- in effect, a quasi-public option, with standardized plans paying standardized rates. Add an employer buy-in -- and/or an open employee buy-in option, and you're close to Medicare Advantage for All -- without a purely public option.
One way or another, Democrats seem poised to move well beyond the ACA if and when they regain control of Congress and the presidency.
---
* The Consumer Health Insurance Protection Act, cosponsored by Maggie Hassan (D-N.H.), Bernie Sanders (I-Vt.), Kamala Harris (D-Calif.), Tammy Baldwin (D-Wis.) and Kirsten Gillibrand (D-N.Y.).
** Co-authored by Matthew Buettgens and Robin Wang, released this month.
Appendix: Premium and cost-sharing subsidies in the Blumberg-Holahan plan and Warren bill
The Blumberg-Holahan plan's proposed reductions in premiums and out-of-pocket costs compared to current ACA levels are shown below. The numbers on the left side are the percentage of income required to buy a benchmark plan at various income levels. On the right side, "actuarial value" refers to the percentage of the average enrollee's yearly costs the plan is designed to cover.
An enrollee earning 200% of the Federal Poverty Level (a shade over $24,000 per year for an individual) would pay about $80 a month for a plan covering 90% of costs -- a higher actuarial value than is offered by most employers. Under the Warren bill, a plan for enrollees with incomes up to 250% FPL would have an actuarial value of 95% rather than 90%. A couple with an income of $80,000, who would be unsubsidized under the ACA, would pay $566 for a plan with AV 80%. That's less than they would pay for traditional Medicare with a drug plan and a Medigap plan.
For a detailed look at how three couples would fare under the House/Senate bills as compared to the current ACA, see Charles Gaba.
In August 2015, Urban Institute scholars Linda Blumberg and John Holahan warned that the ACA marketplace as then constituted would probably never perform to expectations. Subsidies were insufficient to draw the robust participation the law's creators had anticipated. They proposed a revamped subsidy schedule that reduced premiums and out-of-pocket costs at every income level. For those with incomes above the current subsidy threshold of 400% of the Federal Poverty Level, premiums for a benchmark plan covering 80% of the average enrollee's costs would be capped at 8.5%.
Hillary Clinton more or less incorporated the Blumberg-Holahan proposal into her healthcare platform. And now, two years later, bills to improve the ACA introduced by Democrats in the House and Senate do likewise. Both bills precisely reproduce the plan's enhanced premium subsidies and offer even more generous reductions in enrollees' cost sharing (see the Appendix below for a summary).
The Senate bill, introduced by Elizabeth Warren and four colleagues,* places several new constraints on insurers in the individual market. These include requiring insurers to provide a better selection of doctors and hospitals, raising the percentage of premium revenue insurers are required to spend on enrollees' medical costs, and standardizing plan design. The preamble to a one-page summary of the bill appears to blame insurers alone for Americans' high healthcare costs. By generously subsidizing enrollees at all income levels, however, the bill creates conditions under which insurers in the individual market can thrive.
ACA 2.0 -- or a whole new system?
I spoke to Blumberg and Holahan last week to get their reaction to the "ACA 2.0" bills, the Warren bill in particular. Blumberg confirmed that they had been consulted by the bill's creators, though they did not participate in the drafting.
The two scholars naturally approve of the bill's subsidy structure, though they are concerned about its lack of strong cost controls. "The biggest hole is that they don't deal with provider payment rates," Holahan noted (In 2017, Blumberg and Holahan proposed capping marketplace insurers' payments to healthcare providers at Medicare rates, or somewhat above).
Blumberg and Holahan think that insurers might chafe at some of the regulations in the Warren bill, but that they could live with them, as the subsidies should create the kind of deep risk pool that the ACA marketplace has lacked.
They also have a keen sense of what a heavy political lift would be required to enact a single payer system, or a vast expansion of Medicare such as the Center for American Progress's Medicare Extra proposal. While Medicare Extra does not end employer-sponsored insurance, it includes strong levers to push the rates that employer plans pay to healthcare providers down toward Medicare levels (which it in turn raises somewhat). It would likely shrink the employer market, as both employers and employees would have the option of buying into the public plan. "You have a bigger political lift when you challenge employer sponsored insurance," Blumberg said.
"Even if Democrats take over everything, there's still headwinds to single payer, big time, Holahan added. "Putting out something short of that seems smart to me.," At the same time, "If Democrats took over House, Senate and eventually the presidency you could put a lot more than [the Warren bill] on the table."
Dealing with post-Trump wreckage
Yet there's a complication to the Warren bill's apparent path of least resistance. Blumberg is co-author of a recent Urban Institute report** predicting dire effects on the ACA marketplace from the latest round of Republican sabotage -- repeal of the individual mandate coupled with proposed regulations that would boost the allowed duration of lightly regulated short-term plans from three months to one year.
The report warns that the two changes in tandem, coupled with market disruptions introduced in 2017 by the cutoff of federal funding for Cost Sharing Reduction subsidies and sharp cutbacks in advertising and enrollment assistance, could result in 6.4 million more people being uninsured in 2019 than under current law. The combined effects of mandate repeal and the proposed new rule for short-term plans are forecast to increase premiums for ACA-compliant plans an average of 18.3% in the 45 states that don't limit or prohibit short-term plans. Government spending would rise by 9.3% -- while insuring far fewer people.
These latest blows to the ACA-compliant market come in the wake of several prior rounds of regulatory turmoil and sabotage -- most notably, the Republican Congress's defunding of the ACA's risk corridors, created to compensate insurers who took steep losses in a new, untested market, and Trump's cut-off last year of reimbursements to insurers for the Cost Sharing Reduction subsidies that insurers are legally obligated to provide to more than half of enrollees in the ACA marketplace. The first triggered a wave of insurer collapses (mostly of the non-profit co-ops established by the ACA) and withdrawals from the ACA marketplace. The second led to premium increases averaging nearly 30% in a year when premiums were poised to stabilize.
That history -- and the looming prospect of a parallel market that plays by pre-ACA rules -- leaves Blumberg and Holahan wondering whether the "ACA 2.0" market blueprinted in the House and Senate bills can get off the ground.
On the one hand, Blumberg suggested, the damage to the ACA-compliant markets that may be wrought by short-term plans may impel Democrats returning to power to "fix these markets first before you start thinking about whether the country has a taste for more dramatic change."
At the same time, envisioning a market in which short-term plans have done deep damage induced Blumberg to flip the script, at least prospectively.
"We don't know what the market is going to look like by the time there is an opportunity, under Democratic control, to do something like the Warren bill," Blumberg said. "Will there be tons of bare counties [counties in which no insurers offer ACA-compliant plans] after the short-term policies are put in place? How much work would it take to convince insurers to come back and try this again -- and give them some guarantees that they're not being asked to enter a business where the rules are being constantly pulled out beneath them after they set their premiums?"
"Even if you think that insurers could be better actors in a lot of different ways," Blumberg continued, "this administration has really made a mess, creating an environment where the insurers aren't sure what the rules are going to be from one day to the next and whether political winds are going to change and everything is going to shift again."
The Warren bill empowers state and federal administrators to require insurers that sell Medicare Advantage or managed Medicaid plans in a given market to offer plans in the ACA marketplace if there is insufficient competition in that market. Holahan was doubtful whether such a regulation would be effective.
"If they're required to participate they'll participate, but they'll participate at pretty high premiums, so it really won't make much difference." he said. If an insurer offers plans that are priced way above the benchmark plan, few will buy them, as the buyers would have to pay the difference.
Road cleared for sweeping reform?
The Center for American Progress's Medicare Extra plan would replace the current individual market with a Medicare-like public option, along with private alternatives akin to Medicare Advantage. Employers and employees alike could opt in, When the plan was released in February 2018, Harold Pollack of the University of Chicago suggested to me that such a vast expansion of public insurance might actually be easier to implement than a further redesign of the private plan market:
The fact that Republicans wholly rejected the private-plan structure of the ACA marketplace, Pollack says, “requires Democrats to think about expanded Medicare or Medicaid models, not because of ideology but because a complex, ideologically moderate approach to expanding coverage can’t be implemented within a politically polarized environment.” Oddly enough, we’ve learned, “Republicans are more likely to protect and embrace expanded Medicare benefits than to protect the private market established through the ACA marketplace.”Analyzing the possible effects of mandate repeal plus short-term plan promotion has brought Blumberg -- perhaps to her own surprise -- to a similar place. Whereas Pollack suggested that Democrats' disillusionment with the ACA's private plan market might push them toward a more sweeping reform, Blumberg sees insurers' exhaustion as a possible catalyst.
"If insurers say they don't want to be part of these markets any more because of their vulnerability to the political winds and what they've just been through, then that gives you wider political berth to say 'okay, well then, we need a public plan,'" Blumberg said.
"If you end up with lots of areas where insurers are not going to participate, and you talk about doing some of the kinds of changes in the Warren bill when the tide turns and they say, 'listen, we've had it, it's just not worth it for us to put ourselves at this risk- -- I think you've got a rationale then for moving seriously with a broadly available public plan option. Whether you make folks in employer sponsored insurance eligible for it or you just limit it to the non-employer market remains a question."
Pre-ACA healthcare reform proposals built around a strong public option such as Helen Halpin's CHOICE program (2003) and Jacob Hacker's Health Care for America plan (2007) did allow employers to buy in. via a payroll tax. CAP's Medicare Extra proposal harks back to these blueprints. Halpin anticipated employer insurance withering on the vine; Hacker envisioned robust competition between employer-sponsored insurance and the public plan.
A private plan market that offered coverage as affordable and generous as stipulated in the Warren plan could get the U.S. close to universal coverage. If such a program included reinsurance and capped the rates plans pay to healthcare providers, it would look a lot like the Medicare Advantage market -- in effect, a quasi-public option, with standardized plans paying standardized rates. Add an employer buy-in -- and/or an open employee buy-in option, and you're close to Medicare Advantage for All -- without a purely public option.
One way or another, Democrats seem poised to move well beyond the ACA if and when they regain control of Congress and the presidency.
---
* The Consumer Health Insurance Protection Act, cosponsored by Maggie Hassan (D-N.H.), Bernie Sanders (I-Vt.), Kamala Harris (D-Calif.), Tammy Baldwin (D-Wis.) and Kirsten Gillibrand (D-N.Y.).
** Co-authored by Matthew Buettgens and Robin Wang, released this month.
Appendix: Premium and cost-sharing subsidies in the Blumberg-Holahan plan and Warren bill
The Blumberg-Holahan plan's proposed reductions in premiums and out-of-pocket costs compared to current ACA levels are shown below. The numbers on the left side are the percentage of income required to buy a benchmark plan at various income levels. On the right side, "actuarial value" refers to the percentage of the average enrollee's yearly costs the plan is designed to cover.
For a detailed look at how three couples would fare under the House/Senate bills as compared to the current ACA, see Charles Gaba.
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