It may say something about expectations for the Affordable Care Act that the simplistic “just repeal Obamacare” cries of Congressional Republicans are starting to be supplemented by proposals for its replacement.
The most detailed so far is from the conservative American Enterprise Institute, which has published an unexpectedly non-doctrinaire study authored by Harvard professor Michael Chernew and seven other respected academics.
It’s far from perfect, but it’s worth reading.
Structural details of the AEI proposal, modestly titled “Best of Both Worlds,” aren’t always clear (page 1 lists four “principles,” page 5 lists five “priorities”, and page 16 lists three “major planks”), but it does attempt a bipartisan approach, combining ideas from left and right.
Some of these ideas have been contained in other proposals, such as those of Wyden and Bennett and Fuchs and Emanuel (which may damn the AEI proposal in right-wing eyes), and most recently in a THCB piece by Martin Gaynor. They include the elimination of the employer coverage tax preference, the provision of “premium support” subsidies for most individuals, and the establishment of a national insurance exchange. Together, they are designed to encourage individual choice and responsibility and to maximize competition between insurers, while removing some of the inequities of the present system (and of the ACA).
The AEI proposal assumes that eliminating the employer coverage tax preference will result in most individuals obtaining coverage through a national exchange, with national regulation of insurance plans. Current Medicaid eligibles will be included, with the replacement of acute care Medicaid funding by subsidies for conventional coverage. All individuals will be able to choose between fully-subsidized “basic plans” and more generous partially-subsidized options, typically with substantial deductibles tied to income and health status. Insurers will be encouraged to offer multi-year coverage and, unlike in the ACA, medical underwriting will be allowed. The only government financing will be for premium subsidies, to be funded by the additional income and payroll tax revenues resulting from elimination of the employer tax preference and by redirecting federal and state Medicaid payments.
It’s a coherent and somewhat persuasive proposal (at least, on a first reading), and one which goes to some lengths to level the health insurance playing field. It removes the tax advantage that high-paid covered employees currently enjoy, and potentially eliminates “job lock” and the inequity between those with and without employer coverage. It gives individuals the opportunity (and responsibility) to choose the coverage that best meets their needs from the largest possible menu of plans, while eliminating the present “second class” Medicaid system. It allows medical and demographic underwriting in order to lower premiums for the young and healthy, but offsets this with lower deductibles and copays for the less well.
Compared with the ACA, it avoids the publicly unpopular and politically poisonous individual mandate, while offering a much less complicated structure, free of the ACA’s maze of penalties, incentives, and exceptions. According to the AEI, It would also require less government funding, by some $6 billion a year.
It’s too bad that so many of the AEI’s assumptions are overly optimistic.
Eliminating the tax preference doesn’t guarantee that the inequities of employer coverage will go away. Given the proposed high deductibles, especially for higher-paid workers, many employers will almost certainly be forced to offer supplemental coverage. A national exchange with national regulation has the potential of replacing state control by a huge federal bureaucracy. Replacing acute care Medicaid by subsidized conventional insurance would, even according to the AEI’s estimates, increase costs by one-third. Allowing almost unlimited risk underwriting has the potential of creating an actuarial nightmare while allowing insurers to structure rates so as to cream the market. Multi-year contracts are a nice idea for encouraging preventive care, but even the AEI proposal questions their feasibility.
Worse still, the proposed funding would result in “basic plan” coverage—which the AEI proposal fails to define—being extraordinarily limited. The only sources of financing for the basic plan subsidies are the additional taxes from elimination of the employer tax preference (estimated by the AEI authors as some $313 billion), and elimination of all but long term care services from Medicaid (estimated to save $332 billion). Unless the new conventional coverage for current Medicaid eligibles is to be substantially reduced from today’s levels, costs will increase by more than $100 billion a year, leaving barely $200 billion for basic plan subsidies for the rest of the non-Medicare population. Given that today’s non-government health insurance expenditures are some $900 billion, the implication is that for most of the population the basic plan coverage will be less than than a quarter of current levels, forcing individuals or their employers to purchase substantial supplemental coverage or accept such high deductibles that needed care becomes unaffordable.
So why is the AEI proposal worth looking at?
For all its considerable faults, it avoids the fundamental weakness of the ACA: perpetuating every complication of the existing system (and adding some more). Now, if the AEI could figure out a way of funding their proposal to provide an acceptable level of coverage, they might have something that could be taken seriously.
Roger Collier was formerly CEO of a national health care consulting firm. His experience includes the design and implementation of innovative health care programs for HMOs, health insurers, and state and federal agencies. He is editor of Health Care REFORM UPDATE.