Triage: A moderate healthcare reform proposal

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Prescript (8/7/19): it occurs to me that this rather kludgy patch to our current system boils down to a simple rule: no one pays more than 8% of income for less than 80% AV insurance.  Paid for in part by expanding the footprint of Medicare payment rates.

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I want to float here a path to healthcare system reform that starts a gear shift or two below the Medicare for America bill, which creates a strong public option that anyone can buy into at an income-adjusted price. I am mindful of David Anderson's warning that a Democratic president who goes for sweeping healthcare reform (assuming at best a narrow Senate majority and abolishment of the filibuster) will have bandwidth for little else -- and I think other imperatives, like attacking global warming, should come first.

First, a set of working assumptions (and background on current bills) that undergird where I land (skip to the subhead, where the proposal starts, if you're so inclined).

1. The U.S. healthcare system is outrageously expensive, unjust, and inefficient, distorted by two related structural flaws:

• absence of rate-setting: our every-payer-for-itself system has enabled healthcare providers to divide and conquer, leading to unsustainable price-gouging, huge inequities of access and enormous bureaucratic waste.
• in every industry sector, an ethos and incentive structure geared toward profit or revenue maximization above all else distorts care delivery. This will be very hard to unwind.

2. We lack the political capacity to pass and the governmental capacity to implement a fast-track transformation to a single payer system. In the course of 2-4 four years, we can't, as mandated by the Sanders and Jayapal Medicare for All bills, double federal revenue, remove providers' richest payers, enroll 300 million people in a new program (fundamentally different from existing Medicare), and put the entire health insurance industry out to pasture. For God's sake, we probably won't even manage to ban balance billing -- the one abuse so egregious even Americans may not stand for it much longer -- without a giveaway to providers, enabling them to settle bills at well above prevailing commercial rates. 

3. The most plausible and likely sustainable means of system transformation is to establish a strong public insurance program (called "Medicare" if you like) that anyone can buy into on an affordable income-adjusted basis, even if they have access to other insurance (e.g., from an employer) deemed affordable. This public option would pay a variant of Medicare rates, and providers that accept Medicare would be required to accept it. 

4. The Medicare for America bill establishes such a public option. It includes other major provisions that do flow logically from this fundamental change. Because the new "Medicare" is rightly provided at no cost to people with incomes under 200% FPL, Medicaid is logically phased out and folded in. Because it includes long-term care coverage and unified comprehensive coverage, existing Medicare is also transformed and absorbed -- at higher premiums for a significant number of affluent enrollees. Because employer insurance and Medicare Advantage are not phased out, but must compete, providers are required to accept the public plan's payment rates from private payers. Finally, HHS is given control over drug pricing -- in part to enable the banning of prior authorization and step therapy, much abused in our current system.

5. While Medicare for America's parts form a coherent whole, I've come to think the bill bites off more than we can chew, on an eight-year implementation path. Two parts that give me pause are phasing out Medicaid (while enforcing state "maintenance of effort" contributions to the new program), and changing the premium schedule for seniors (though enrollees at the time of implementation would be grandparented).

6. The Medicare-X bill introduced by Senators Bennet and Kaine also creates a strong public option paying Medicare rates. Subsidized access, however, conforms to a core ACA limitation, denying subsidies to those whose employers offer insurance deemed affordable. The 2019 version does remove another major ACA limitation: the income cap on subsidy eligibility. The bill caps premiums for a benchmark silver plan at 13% of income at the highest income levels -- again, only for those who lack access to other "affordable" insurance. The bill also maintains the ACA's current "silver" benchmark, which only covers 70% of the average enrollee's costs -- a level that has proved too low to be popular. Silver plan deductibles currently average over $4,000 for an individual.

Between Medicare for America and Medicare-X

My tweener proposal is to create a strong public option coupled with a more generous subsidy schedule than the ACA's, along the lines of ACA 2.0 bills, but to open the sluice gate to universal subsidy eligibility more slowly, limiting it at first to those who truly lack access to other viable insurance. This would entail tightening the affordability standard for employer insurance. 

The first step is to remove the ACA's so-called family glitch, which renders employees and their families subsidy-ineligible if an employer offer coverage deemed affordable for the individual (requiring less than about 10% of income for the premium), even if it's not affordable for the family (e.g., if family coverage costs more than the current 9.86% of income standard). Beyond that, reduce the affordability threshold to, say 8% -- for insurance with a minimum actuarial value of 80%. Then cap the premium for a benchmark marketplace plan at the same percentage of income (and much lower at lower incomes, as now). 

Another option: match the affordability threshold for employer insurance at lower incomes with the premium for a benchmark marketplace plan. That is, if at an income 200% of the Federal Poverty Level (FPL) the benchmark plan costs 4% (it now costs about 6%), that's the threshold at which employer coverage is deemed affordable. Going this route would bring a lot of low income people into the marketplace. Low income workers with employer-sponsored insurance currently pay about twice as high a percentage of income for coverage as low income enrollees in the marketplace.

This loosening of subsidy eligibility would provide a viable option for people whose employer's offer of insurance is unaffordable and/or leaves them underinsured.  8% of income for 80% AV coverage would be a minimum standard for everyone (with more affordable options for people with incomes below 300% or 400% FPL). Not opening the door to all people with access to employer insurance would make the program considerably cheaper, while expanding marketplace enrollment by millions and giving the public option a chance to take root.  If it works well, proves popular, and reduces aggregate healthcare spending, it can be opened to all. 

The more sweeping reforms mandated in Medicare for America all should happen. Current Medicare is a Byzantine mess riddled with coverage gaps, relatively popular though it is. Long-term care insurance is desperately needed; at present, the only "insurance" available to most seniors on this front is bankrupting themselves and getting picked up by Medicaid. State administration of Medicaid is uneven, to put it kindly, and at once underfunded and overburdening state budgets. Transforming Medicare, adding long-term care insurance and absorbing Medicaid are all mammoth political and administrative lifts, however -- not to say terrifically expensive. 

A public option buy-in for all who want it (with subsidy eligibility not dependent on lack of access to other insurance) has the major advantage of simplicity. In policy terms, it's preferable to a more limited buy-in. But the latter may make sense as a stepping stone and proving ground.

Concentrating first on phasing in a strong public option, opening it to those who truly lack access to other affordable and adequate insurance, and boosting the ACA subsidy structure to make marketplace coverage (including the public option) truly affordable is a form of political and administrative triage.

Related:
New colors in the spectrum of Democratic healthcare proposals

Posts on Medicare for America

Medicare for all (who want or need it): A path for presidential candidates