In the wake of Senate Republicans’ failure to roll back key features of the Affordable Care Act (ACA), there is renewed interest in exploring a bipartisan approach. Following their votes that halted action on the Senate repeal legislation, Senators John McCain, Susan Collins, and Lisa Murkowski called for a bipartisan fix for health insurance markets. A coalition of nearly 40 House Republicans and Democrats, dubbed the Problem Solvers Caucus, has advanced a proposal to stabilize individual insurance markets and encourage state experimentation.
Although it is unclear whether such efforts will bring opposing sides together, these are important developments. Major social legislation is more stable when there is support from members of both parties. A major flaw of the ACA is that it was passed with only Democratic votes, which reduced acceptance of the law among a large segment of the electorate. Political instability can lead to programmatic instability, as is now clear with a Republican administration in charge of implementing key features of a law it is trying to repeal.
The willingness of a growing number of lawmakers to consider a bipartisan approach provides an opportunity to build a more stable foundation for health policy in coming years, but only if the effort is aimed at the right goal. For months, many House and Senate Democrats have said that they were open to sitting down with Republicans to discuss how to improve the ACA. That is the wrong goal, and Republicans should not agree to it.
Such talks would end in small adjustments to current law and grudging Republican acquiescence to some aspects of the ACA. Instead of rehashing each side’s opposing views of the ACA, true bipartisanship calls for a broader vision of what constitutes health reform. If policy makers hope to gain the support of the public, they will have to look for solutions that make health care more affordable for everyone without sacrificing quality and without confining current and future taxpayers to fiscally unsustainable spending commitments.
Political Constraints Limit Options
Many Republican repeal and replace bills have been criticized by conservatives as “Obamacare lite.” That may be true, but Republicans do not have many other options. Both the ACA and Republican proposals are constrained by major aspects of the current system for financing health care that have long been accepted by policy makers and the public. Most people have employment-based insurance, which covers nearly 178 million workers and their dependents. While not everyone enrolled in such coverage is perfectly satisfied with what they have, most workers are reluctant to give it up for an untested alternative.
Medicare serves the elderly and disabled, and Medicaid provides coverage for lower-income people. These public programs are deeply embedded in the existing system and are very difficult to reform. Policy makers regardless of political party are unlikely to advance reform plans that could significantly disrupt private or public insurance systems on which millions of people rely.
Consequently, both the ACA and the GOP-drafted replacement plans are focused on improving options for the relatively small number of people who are ineligible for employer coverage, Medicaid, or Medicare. Both sides of the political aisle are reaching for the same limited number of policy levers that can make the system work better for this population.
For instance, GOP proposals include refundable tax credits for individuals who do not have access to employer coverage. Those tax credits are similar to the premium credits provided under the ACA. Republican replacement bills repeal the ACA’s individual mandate penalties but impose a premium surcharge or a waiting period to encourage healthy individuals to remain insured. There is general agreement that some such measure—whether mandate, surcharge, or waiting period—is needed to retain regulatory protections allowing people with preexisting conditions to purchase insurance in the individual market.
There are many differences between the ACA and GOP replacement proposals, and details matter. Nonetheless, the similarities between the GOP replacement plans and the ACA provide a starting point for discussion that could bring about compromise on health reform.
The Starting Point For A Productive Conversation
For a bipartisan process to be successful, both parties must agree on the core principles of health reform.
Republicans need to accept that everyone should be enrolled in health insurance and that the federal government has an important role alongside the private sector in striving for this goal. The GOP should move from being the opposition party to one that works to build a system that brings health insurance within the grasp of everyone.
For their part, Democrats must fully accede to a vision for health care that provides ample room for consumer choice, market competition, private initiative, and state experimentation. President Barack Obama and many supporters of the ACA have often said that they borrowed conservative ideas for a market-driven system when developing the law, inspired in part by the framework put in place by GOP Governor Mitt Romney in Massachusetts. But the health system today is far from a well-functioning Marketplace. If Democrats want Republican support for broadly expanding enrollment in private insurance, the party must also agree to actions necessary to bring market discipline to the system.
Components Of A Bipartisan Compromise
If a bipartisan compromise is to be reached on health reform, it must go beyond the immediate crisis and (relatively) simple fixes that get the most attention in Washington. The following is our suggestion for where bipartisan discussion should focus.
Stabilize the Market In The Short Run
Continuing uncertainty about the direction of federal policy has contributed to concerns that insurers may drop out of many exchange markets and that premiums could increase by 20 percent or more next year. Republican proposals included policies intended to stabilize the insurance market, but we have reached a point when immediate action should be taken to ensure that consumers will have affordable coverage options next year. It is particularly important for Congress to provide funding to insurers for cost-sharing reduction subsidies that help low-income enrollees pay for their health care. Additional steps to ensure market stability, including funding for reinsurance or high-risk pools, should be part of a more comprehensive reform plan that could gain bipartisan support.
Improve Support For The Middle Class
Proponents of the ACA argue that low-income enrollees purchasing insurance through the exchanges are largely insulated from rising premiums and deductibles in the individual market. The ACA’s premium subsidies, which are available to those with incomes between 100 percent and 400 percent of the federal poverty level (FPL), increase dollar for dollar with premium increases. In contrast, middle-class families buying their own coverage on or off the exchanges often are not eligible for ACA premium subsidies, or they only receive small subsidies when buying through the exchanges. These families are largely unprotected in the face of rapidly rising premiums and deductibles. Moreover, they are not eligible for the large tax break that families who get insurance through employers enjoy.
To address this inequity, the American Health Care Act (AHCA) provided a flat tax credit for households higher up the income scale than the ACA. Republicans and Democrats should explore ways to combine that concept with income-tested tax credits for low-income families.
Strike A Compromise On Medicaid Expansion And Reform
Republican Medicaid reforms would provide more budgetary control and give states more authority over the program. Democrats want to maintain the ACA’s expansion of the program and continue federal funding at existing levels. To reach a compromise, Republicans must accept that Medicaid is the nation’s safety-net program that should provide insurance to individuals below some specified threshold. However, the threshold could be set lower than the ACA’s expansion to138 percent of FPL.
To encourage all states to conform to a compromise approach, the federal government should offer significant bonuses to states that expand their Medicaid programs. States not providing coverage would lose the bonus payment, which would be distributed among those that meet the new standard. This approach is more likely than current law to get all states to a uniform standard of eligibility, and thus to provide insurance to many millions who are poor and remain uninsured under the ACA.
In return for this concession, Democrats must agree to move toward GOP proposals to reform Medicaid. The specific approach to reform will require negotiation, but it will need to include greater budgetary control at the federal level combined with additional flexibility for the states to manage the program without federal interference. State flexibility should be focused on green-lighting reforms that might improve the efficiency of the program and less on allowing states to unilaterally change benefits or restrict eligibility.
Explore Alternatives To The Individual Mandate
The ACA’s individual mandate is among the law’s least popular provisions, but it is viewed as crucial by the Congressional Budget Office (CBO). The CBO’s estimates of the GOP’s replacement plans showed large increases in the number of people going without insurance, in large part because those proposals would eliminate the tax penalty tied to the mandate.
Republicans are opposed to the government imposing on consumers the requirement to buy the product on those terms, but their replacement plans also include penalties on individuals who are uninsured without good reason. Republican alternatives to the mandate impose either a premium surcharge for one year or a waiting period before coverage begins. The penalties do not increase with the length of time a person chooses to remain uninsured. Adverse selection would be exacerbated as these approaches provide an even stronger incentive than the ACA does for healthy people to delay insurance enrollment as long as possible.
A compromise is needed to respond to the genuine resentment the mandate generates without creating excessive market turbulence. One option could be to construct insurance rules so that people who have had a break in coverage must make up for the premiums they saved when they return to the market. The penalty for going without insurance would therefore be reflected in the pricing of products instead of a payment to the federal government.
Make Consumer-Directed Health Plans Available To All Individual Insurance Market Enrollees
The ACA prescribes the types of insurance products that may be sold on the exchanges and does not allow consumers to buy high-deductible health plans combined with health savings accounts (HSAs). Such consumer-directed health plans help reduce the cost of insurance and are growing in popularity for employer-sponsored health benefits. Consumer-directed options are less commonly offered in the individual insurance market.
Insurance regulations could be written to encourage or require insurers to make this option available alongside more traditional offerings in the exchanges. Individuals selecting such plans could purchase insurance with a higher deductible and deposit any remaining funds from the premium and cost-sharing reduction subsidies into the HSA. The rules for HSAs also need to be amended to allow account holders to use their resources to get access to care through well-run integrated care plans. Today, the rules push enrollees to use fee-for-service care, which is less efficient.
Establish Automatic Enrollment
Many uninsured Americans do not use the assistance available to them under the ACA to get coverage. More than 19 million Americans who did not enroll in 2015 either paid the individual mandate tax or received an exemption from the tax. It is likely that many of these households would have qualified for some assistance to cover the cost of insurance, and those subsidies were not used.
Automatic enrollment could improve take-up of insurance and provide a measure of financial protection against high health costs for many more people. Individuals eligible for tax credits who fail to purchase coverage could be placed into an insurance plan that provides catastrophic protection. Premiums for the “default” plan could be set equal to the amount of the subsidy available to the individual, who would not be required to pay an additional premium. This would be accomplished by adjusting the plan’s deductible. Individuals who are automatically enrolled would have the option of selecting another plan or dropping coverage altogether.
Replace The Cadillac Tax With A ‘Tax Cap’
There is little appetite in either party for imposing a limit on the tax break for employer-sponsored insurance, although doing so is crucial to bringing more market discipline to health care. The ACA’s “Cadillac tax” is a clumsy mechanism for doing this. It imposes a 40 percent excise tax on all premiums in employer plans exceeding $10,200 for individual coverage and $27,500 for families. The tax was supposed to go into effect in 2018, but it was delayed until 2020 during the Obama administration. GOP replacement plans would have delayed it further, to perhaps 2026.
Not implementing the Cadillac tax leaves in place the incentives of current tax rules that have helped fuel the continuing rapid growth of health spending. If we expect to rely on market mechanisms for cost control, we should change the financial incentives that drive spending. An upper limit should be placed on the amount of employer-paid premiums that can be excluded from the taxable compensation of workers. That would encourage workers to select plans with higher cost-sharing requirements, which would help slow the growth of health spending.
A tax cap is also a more progressive approach than the Cadillac tax, which causes premiums for high-benefit plans to increase for everyone regardless of their income. With a tax cap, higher-wage workers in higher tax brackets who purchase expensive health plans would pay more than lower-wage workers buying the same plans. The policy could be designed to exempt most lower-cost insurance plans as well as households with incomes below a certain threshold. The effect of the policy would be to give well-paid people with expensive insurance strong incentives to seek out lower-cost options.
Improve The ACA’s Delivery System Reform Agenda
The most difficult and important problem facing the US health system is waste and inefficiency in delivering care to patients. The ACA launched a delivery system reform agenda that has used Medicare’s financial and regulatory leverage to change the way hospitals, physicians, and other providers organize themselves and care for patients. This agenda—highlighted by accountable care organizations (ACOs) and bundled payment initiatives—is too narrowly focused and fails to promote active patient involvement to seek efficient care.
New approaches to delivery system reform should be developed that allow beneficiaries to share in the savings from efficiency measures and that give them better information about their options. Policies should be developed to improve competition among Medicare Advantage plans, a revamped ACO option, and the traditional fee-for-service program. Medicare regulations could be amended to give beneficiaries strong incentives to use high-quality, low-cost providers of services for certain high-volume procedures.
Repeal The IPAB
Another point of bipartisan agreement is opposition to the Independent Payment Advisory Board (IPAB), which was created by the ACA to enforce limits on Medicare cost growth. If Medicare spending is expected to exceed a targeted growth rate, then the IPAB must make recommendations to eliminate the excessive spending. Congress could substitute other cost-saving policies for IPAB’s recommendations but would be required to meet IPAB’s savings amount. If Congress fails to act, the IPAB’s recommendations automatically go into effect. If no one is appointed to the IPAB, the Department of Health and Human Services (HHS) secretary is required to make recommendations to control spending that would also be automatically implemented.
The delegation of so much power to an unelected board (or the HHS secretary) concerns lawmakers of both parties. In a bipartisan reform plan, there may be sufficient support for repealing the IPAB before it becomes operational.
Short-Term Stabilization Is Not Enough
There is a pressing need for Congress to take steps necessary to stabilize the individual insurance market, ensuring that individuals will have a range of affordable plan options for 2018. Passing a proper appropriation for cost-sharing reduction payments would resolve a major uncertainty for the market, but that would take bipartisan cooperation.
Although it is important, resolving this funding problem is only a patch on the ACA that does not address more fundamental problems. It would be a mistake to assume that this fix is all that is needed to move health policy onto a more stable bipartisan foundation. The ACA was passed in 2010 without any Republican votes. The parties need to engage in a negotiation over more important aspects of the health system. Only then will the parties, and especially the Republicans, believe they have been given a fair opportunity to participate in the policymaking process.
The good news is that agreement might be easier to achieve than some imagine. When the Democratic Party embraced the ACA, it endorsed a system of private insurance competition and consumer choice. The Republican Party should acknowledge this embrace and use it as an opportunity to build a bipartisan consensus around strengthening market discipline to lower costs and improve the options available to consumers. That perspective might be enough to allow both parties to get past the stalemate that has made bipartisan cooperation impossible in recent years.