As we draw nearer to the time when the Trump administration may unveil its proposals for reforming the Affordable Care Act and the Republicans in Congress may coalesce around a single repeal and replace proposal, two ideas are surfacing that should be addressed and explored—setting a goal of “universal access” rather than “universal coverage” and shifting responsibility for ACA replacement to the states. This post looks at the challenges involved in operationalizing these concepts.
The idea of a “different construct” that “would allow for every single person to gain access to the coverage that they want and have nobody fall through the cracks.” surfaced in January 18 testimony January 18 by Congressman Tom Price, President-elect Trump’s nominee for Health and Human Services Secretary, in his testimony at his confirmation hearings. House Republican leadership has been quoted as saying, “Our goal here is to make sure that everybody can buy coverage or find coverage if they choose to,” while President-elect Trump himself has promised “insurance for everybody.” A January 18 Health Affairs Blog post by congressman Pete Sessions, Senator Bill Cassidy, and John Goodman states a goal of “making sure everyone has access to health insurance that is affordable and that gives them dependable access to medical care.”
The ACA has covered 20 million Americans and has reduced the proportion of the uninsured in the United States to the lowest levels in history, but it has not achieved universal access—over 28 million remained uninsured at the end of 2015. Many remain uninsured because they live in states that refused to expand Medicaid; others are undocumented immigrants excluded from ACA coverage; but many remain uninsured because they believe that they cannot afford the coverage offered through the ACA.
Proposals for universal access presumably will reduce the cost of health insurance to make it more affordable. Some claim that they can also reduce high deductibles and eliminate narrow networks, the primary strategies insurers have used under the ACA to reduce premiums. Reform plans then offer advanceable, refundable tax credits, sometimes adjusted somewhat for age or geographic location but usually not for income. These will supposedly be set at an amount sufficient to purchase some basic level of coverage. Some plans would even auto-enroll individuals who did not opt to otherwise purchase coverage in a plan for which the premiums would be fully covered by an available tax credit.
The Difficult Challenge Of Lowering Costs And Increasing Affordability
But how would these plans reduce the cost of coverage? It is certainly the case that coverage under the ACA is not cheap, although whether ACA coverage costs more than equivalent coverage cost before the ACA, or whether premiums in the individual market have increased more quickly after than before the ACA (at least prior to 2017) is contested. The vast majority of individuals who purchase coverage through the marketplaces, however, receive premium tax credits that reduce the cost of coverage dramatically, making it affordable for most.
Nevertheless, individuals with incomes above 400 percent of the federal poverty level are ineligible for tax credits, as are purchasers outside the marketplaces. Almost half of the remaining uninsured cite cost as the reason they remain uncovered.
So how could insurance be made more affordable? There are in fact only a limited number of ways to reduce the cost of health insurance. Perhaps the most important factor accounting for the increased cost of ACA coverage is the change in the composition of the risk pool that the ACA caused by the elimination of health status underwriting, coupled with guaranteed availability and renewal, the single risk pool, and the elimination of preexisting condition requirements. Allowing insurers to reject insurance coverage for or charge higher premiums for people with preexisting conditions, or to refuse to cover claims related to those preexisting conditions, would dramatically reduce premiums for the healthy, although it would increase premiums or make coverage unavailable to people with preexisting conditions. Depending on how preexisting conditions were defined by insurers, this could affect one quarter to one half of Americans. Insurers could also reinstate gender underwriting, making coverage less expensive for men and more costly for women, and broaden age rating bands, making coverage more expensive for older and less expensive for younger people.
Reintroducing insurance underwriting, of course, would not make coverage universally available; it would simply make it more affordable for the healthy—as long as they remained healthy. Some reform proposals include some form of risk adjustment, which could make insurance more accessible to higher-cost individuals. Indeed, the ACA includes a risk adjustment program as a backstop to its underwriting bans. But risk adjustment does not make the costs of caring for high-cost individuals go away; it simply shifts those costs around among insurers.
Reform proposals often propose high risk pools to cover high-cost consumers. Thirty-five states had high-risk pools before the ACA. In general they offered coverage that was expensive, excluded pre-existing conditions, and had high cost sharing and low coverage limits. They never covered more than a fraction of the uninsured.
Unless federal funding for high-risk pools would be far more generous than that offered in current Republican proposals, they would not make coverage actually affordable to people with preexisting conditions. But if Congress is willing to adequately fund high-risk pools for high-cost consumers, why not rather use the available funds to reinsure those individuals within the standard insurance market instead of forcing them to change plans and providers to be covered in a segregated market?
The cost of insurance can also be reduced by restricting the services covered. A frequent complaint about the ACA is that its essential health benefit (EHB) package is too rich and too costly. In fact, most individual market policies covered most of the EHB categories prior to the ACA. The services least likely to be covered were maternity, mental health and substance use disorder services, rehabilitation and habilitation services, pediatric dental and vision, and prescription drugs. Eliminating some or all of these services would reduce the cost of coverage to some extent, but most of the cost of coverage is attributable to hospital and physicians services, and it is a stretch to say that a person is insured if these services are not covered. Elimination of maternity and mental health and substance abuse coverage would reduce premiums for people who believed they did not need these services, but would of course, increase the cost of coverage, potentially dramatically, for those who did.
A third strategy would be simply to increase deductibles or other forms of cost-sharing. This, of course, reduces the cost of coverage but does so by increasing the cost of care to covered individuals. It is a strategy favored by those who believe that insurance should only cover catastrophic events, but the public generally believes that cost sharing is already too high. Indeed, low-income Americans generally lack the resources to cover significant cost-sharing, which is why the ACA offered cost-sharing reductions to lower-income Americans. While high deductibles might not make care inaccessible for healthy consumers who use few health care services, they dramatically increase cost, and reduce access, for consumers with high-cost chronic needs for services on a continuing basis.
There is, moreover, considerable evidence that high deductibles discourage preventive and chronic care, and primarily cut health care costs by reducing the quantity of care used—regardless of its value—rather than by reducing the price of care. Savings in health savings accounts can help to offset higher cost sharing, but HSAs are primarily of value for those wealthy enough to have disposable income to save, unless they are funded at higher levels than they are in most replacement plans.
A fourth way to reduce the cost of coverage is to remove out-of-pocket caps or to impose annual or lifetime limits on coverage. A small percentage of the population is responsible for a large percentage of health costs in any given year. High-deductible health plans, including plans coupled with HSAs, do not affect these costs as they generally exceed the out-of-pocket limit. Removing the cap on out-of-pocket expenditures or capping the amount of coverage an enrollee receives could reduce premiums (or other forms of cost-sharing). But it does so by either denying coverage for costly care, driving consumers into bankruptcy, or forcing providers to bear the cost of uncompensated care.
A fifth strategy that health plans have used for reducing premiums is through limiting provider networks. Narrow networks allow plans to steer their enrollees toward lower-cost providers and to extract provider discounts. This is the primary strategy health plans have used to hold down costs under the ACA. Some ACA opponents promise that they can offer coverage with broader access to providers with affordable premiums, but to do so they will have to find other ways to cut costs.
Two other strategies for lowering the cost of coverage have also been proposed by President Trump or congressional Republicans—permitting the sale of insurance across state lines and imposing limits on malpractice litigation. Sale of insurance across state lines is already allowed under the laws of several states and even under the ACA, with appropriate safeguards. To date insurers have not taken advantage of the opportunity, presumably because most health insurance products are network-based and building a provider network requires a domestic presence.
Permitting sale of insurance across state lines is, however, simply a way of allowing insurers to curtail the benefits they offer or in some other way the value of coverage by evading state mandates and other requirements. The effect of allowing the sale of insurance across state lines in an unregulated market would likely be a “race to the bottom,” in which insurers would locate in the states with the least regulation and sell cheap, but limited and restricted coverage, in other states. These products would be most appealing to healthy consumers, leaving consumers with health needs to purchase domestic products, which would become ever more expensive. All consumers, moreover, would be deprived of the consumer protections offered by their own state’s insurance regulations.
Although proposals for further restricting malpractice litigation are popular with doctors, in fact malpractice costs—including defensive medicine—account for a small fraction of health care costs, and further restrictions on malpractice litigation would have little effect on health insurance premiums. In fact, medical error is one of the leading causes of death in the United States, and increasing rather than reducing medical error deterrence might save costs as well as lives.
It is universally agreed that our health care system is rife with waste, unnecessary consumption services, and excessive prices. But there is no magic formula for changing this, and change will certainly not come within any timeframe that is being considered for eliminating the ACA.
Of course, health coverage could still be made accessible to all if tax credits or other forms of financial assistance make premiums affordable. If premiums continue to vary based on geography and age (with age variation expanded), and are further allowed to vary based on health status and gender, financial assistance will need to take these factors into account or it will be too generous to some and fall far short of the cost of covering others. If financial assistance is only sufficient to purchase catastrophic, high-cost sharing, coverage, many are likely to simply not bother to purchase it, since care will remain unaffordable in any event.
Most importantly, if tax credits are not means-tested—as the ACA’s tax credits are—coverage will simply be unreachable for low-income Americans. The idea that fixed-dollar tax credits at the levels currently being proposed by ACA replacement plans could make coverage affordable to low-income Americans, much less replace Medicaid, is difficult to take seriously.
All Americans have access to high-end sports cars, expensive jewelry and furs, and exotic vacations. Few can afford them. The same is true of low-cost sharing, broad network health plans, unless generous financial assistance is offered. The questions that must be asked of those who would replace the ACA is not whether coverage will be available, but rather will it be affordable, and to whom?
Delegation To The States: Increasing Flexibility Or Avoiding Congressional Responsibility?
The other replacement proposal that has gained currency in recent days is to delegate the job of replacing the ACA to the states. The idea is that Congress could repeal the ACA but permit the states, with some level of financial assistance and perhaps some general guidelines, to chart their own course for reform. Some proposals would even let states keep provisions of the ACA if they chose to do so. Proposals to fund Medicaid on a block grant or per-capita cap basis, with greater flexibility for the states, are almost universal among replacement plans.
As it becomes increasingly clear that repealing the ACA is potentially very dangerous politically—with many million Americans losing coverage—and that arriving at a consensus replacement plan, even among Republicans, is going to be very difficult, the option of transferring the whole problem to the states is becoming very attractive.
The states have long been primarily responsible for insurance regulation—a fact recognized by the McCarran-Ferguson Act. The Medicaid program has since its outset been operated as a federal-state partnership, and Medicaid programs vary considerably from state to state. Although the ACA imposed a number of federal requirements on insurers, states have retained authority for most aspects of insurance regulation, including rate and form review and financial and market conduct oversight. Republicans have traditionally believed in a smaller federal government and more power for the states, and any Republican ACA replacement will almost certainly give more authority to the states.
But there are limits as to how much most states can or will do to fill the gaps that would be left by repeal of the ACA. In the decades preceding the ACA, states had ample opportunity to solve the problems of access to health coverage that the ACA addressed. Some states tried, but with little success. Perhaps the most successful was Massachusetts, which adopted in 2006 many of the reforms that were later copied in the ACA, but the Massachusetts reforms were possible in large part because of generous federal funding that covered much of the cost of the subsidies.
For reasons explained above, health coverage and health care cannot be made affordable for lower- and moderate-income Americans without substantial public support. Although some states have historically supported safety net providers, these programs have not come close to meeting the health care needs of lower- and moderate-income Americans. Moreover, the need for financial support for meeting health care needs is counter-cyclical—when the economy slows down the need for financial support for health coverage increases. At the same time, however, state revenues contract. States generally lack the capacity that the federal government has to borrow and run deficits during financial slowdowns. A crucial question is, therefore, whether federal support to the states in any replacement plan will be sufficient, in good times and bad, to allow the states to in fact cover the uninsured.
Another question is whether delegation of responsibility for reform to the states makes sense from a policy standpoint. The nature of disease or injury and appropriate medical treatments are generally uniform across the country. While the cost of health insurance coverage varies dramatically from state to state, the need for it does not. We have for decades had a uniform national program—Medicare— for providing health coverage for senior citizens and the disabled and a uniform national program of tax exclusions supporting employer-sponsored coverage, which covers over half of all Americans. There has been little complaint about these nationwide health care financing programs and few calls to turn them over to the states. It is far from obvious why the market for individual insurance market is different.
A state-based approach to health insurance reform is very attractive because it shifts the political and the financial responsibility for coming up with an ACA replacement away from Congress to the states. Congress and the administration can say it is not our fault that millions are losing coverage—the states are to blame. But this is not a reason for Congress to dodge its responsibility for replacing the ACA if Congress chooses to repeal it.