Now that Senate Republicans have failed to agree on any health-care bill, is it feasible for a bipartisan majority to enact health-care reform? The Senate will hold health-care hearings in early September, while a bipartisan coalition in the House has put forth six incremental proposals.
The key to bipartisan reform is to avoid the hot-button political issues like Medicaid and single-payer. Instead, Congress should adopt narrower amendments to the Affordable Care Act ( ACA ), which would stabilize the health-care insurance system and constrain the premium increases for patients.
Here’s my evaluation of the six health-care proposals by the House coalition, followed by five more proposals in the same reformist spirit, and my recommendations:
House coalition proposals
1. Stabilizing exchanges: President Donald Trump is threatening to cut off federal reimbursements to insurance companies, which reduce copayments and deductibles for low-income policy holders at health-care exchanges. Due to these threats, plus other uncertainties, some insurers are sharply raising premiums or leaving exchanges.
In a sensible response, the coalition proposes to guarantee these reimbursements as part of the appropriations process. This guarantee would eliminate the ongoing litigation about the Administration’s authority to provide these reimbursements and subject them to Congressional oversight.
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2. Small employers: The coalition proposes to require employers to offer health benefits if they have 500 full-time employees (FTEs), versus 50 FTEs under the ACA. This proposal goes in the right direction by reducing burdens on small employers. But the lower limit should be 200 or more FTEs, since 98% of firms meeting this threshold already offer health-care benefits to their employees.
The House coalition also proposes to define FTEs as employees who work at least 40 hours per week, versus 30 hours per week in the ACA. This is a sound proposal that would combat the tendency of some employers to reduce the hours of their current employees.
3. High-cost patients: Almost half of U.S. health-care spending is devoted to the 5% of Americans with the highest costs. These include patients with severe chronic conditions and elderly patients ineligible for premium subsidies. To help states reduce patient premiums and insurance losses on this 5%, the coalition would establish a federal stability fund.
Such a fund is sensible if based on the reinsurance design in Medicare Part D. Some risk of loss should be retained by the insurers (15%) and the patients (5%), so they have an incentive to hold down costs.
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4. State waivers: The coalition proposes that states be given clearer guidelines to obtain administrative waivers for innovative Exchange policies, as permitted by the ACA. Except a majority of senators would not agree to state waivers allowing insurers to reject patients with pre-existing conditions or charge them high premiums. Conservative legislators have also advocated state waivers for policies that do not cover mental health or maternity services. However, these two services together constitute only 5% of annual per-capita spending by insurers.
A much larger and growing category on insurer spending is the 22% devoted to prescription drugs. The federal government is currently prohibited from negotiating drug prices for Medicare patients. Yet removing this prohibition is supported by more than 80% of Americans, including 68% of Republicans. Accordingly, Congress should remove this prohibition and then extend Medicare’s negotiated prices on prescription drugs to insurance policies on Exchanges.
5. Crossing state lines: To promote competition, the ACA permits cross-state sales of health-care policies in states that have joined regional compacts. Nevertheless, this has not led to cross-state sales. In response, the House coalition proposes loosening the rules to encourage the effectiveness of regional compacts.
Some Republicans have further proposed that, if a health insurance policy is approved by any one state, the insurer should automatically be permitted to sell that policy nationwide. Unfortunately, this proposal would probably lead to a race to the bottom, as small states vie to offer the most lenient regulations. A better approach would be to require all states to establish an expedited approval process (for example, within 60 days) for any health insurance policy previously approved by another state.
6. ACA taxes: The ACA included three new taxes plus the so-called Cadillac tax. The coalition has said it would eliminate the 2.3% tax on medical devices because this has bipartisan support and it is often passed on to consumers.
The coalition would implicitly keep the other two ACA taxes to avoid creating large deficits or rewarding high-income taxpayers. Under the ACA, taxpayers with annual earnings of more than $200,000 for an individual, and $250,000 if married, pay a 0.9% surcharge on their Medicaid payroll taxes above those amounts. In addition, individuals and couples with adjusted gross income above these same thresholds pay a 3.8% surcharge on a portion of their investment income.
Other incremental proposals:
7. Late enrollment: Insurers are extremely concerned about the individuals who sign up for Exchange policies after they become ill. But the recent House bill goes too far by imposing a 30% penalty on anyone buying a health-care policy with a gap in coverage of 63 days or more.
The ACA allows open enrollment in only one designated period each year, except for “special enrollments.” The Obama Administration had already issued regulations limiting special enrollments to a specified major life event unrelated to illness — such as marriage or divorce, loss of a job, loss of health insurance, or a move to another state or county. Congress should wait to see the impact of Trump’s tougher enforcement policies — requiring documentation from a third party within 30 days of any such life event.
8. Young adults: High participation by young adults is needed to lower the aggregate risk of the exchange pool and thereby constrain premium growth. The most direct strategy would be to offer an additional tax credit for lower-income adults — for example, an additional $50 per month for such adults between the ages of 19 and 30, with decreasing amounts between the ages of 30 and 35. Such a credit would cost approximately $4 billion in 2018.
The House bill took an indirect approach, allowing premiums that are five times more for the highest-risk patients versus three times under the ACA. This change would have lowered premium for younger enrollees and increased premiums for older enrollees. But this change would be more complicated and would cost more than $11 billion in 2018.
9. Expanded HSAs: Contributions to Health Savings Accounts (HSAs) are excluded from income, and distributions from HSAs are not taxable if used for qualified medical expenses. As a result, HSAs could be a highly tax-efficient mechanism for paying exchange policies with high deductibles.
The annual deductibles for individuals with bronze and silver policies, the two exchange policies with the lowest premiums, average more than $6,000 and $3,500 respectively. However, the 2016 rules of the Obama Administration created several conflicts between the requirements for HSAs and those for high-deductible plans on exchanges. A simple solution would be to make all bronze and silver policies on exchanges automatically eligible for use in combination with HSAs.
10. Revised Cadillac tax: The “Cadillac tax” imposes a 40% excise tax only on total premiums (paid by employers and employees) exceeding specified levels starting in 2020 — approximately $30,000 for families and $11,000 for individuals in 2020, increasing by the CPI annually thereafter. Although the Cadillac tax is politically unpopular, it discourages high-cost plans and should be continued — with significant revisions.
First, the excise tax on premiums above specified levels should be much lower, such as 20% or even 15%. Second, the thresholds for the Cadillac tax should be increased in states where average health-care costs exceed the national average. For example, if Alaska’s health-care costs exceed the national average by 25%, premiums there would be subject to the Cadillac tax only to the extent they exceed $37,500 in 2020 (the standard $30,000 increased by 25%).
Insurers must sign contracts for 2018 health-care plans by September 27, so Congress needs to act quickly.
11. Independent Payment Advisory Board: The ACA created the Independent Payment Advisory Board (IPAB), a 15-member panel of appointed officials, in order to constrain the undue growth of Medicare costs. If Medicare costs increase by more than a specified target rate, the IPAB must submit recommendations to reduce Medicare costs. Then Congress has one year either to reject those recommendations by a three-fifths vote, or to enact alternatives with similar cost reductions. If Congress does neither, then the recommendations automatically become effective.
The IPAB is strongly opposed by elected legislators, who believe this panel is an unaccountable arm of the executive branch, with huge powers that infringe on their legislative prerogatives. In fact, the IPAB’s mandate has not yet been triggered by rising Medicare costs and no members of the Board have been appointed. It would be easy for legislators to include a provision abolishing the IPAB.
In sum, Congress can enact bipartisan health-care reform if it avoids broad, ideological issues, and focuses on narrow practical measures like these 11 proposals. Insurers must sign contracts for 2018 health-care plans by September 27, so Congress needs to act quickly.
Robert C. Pozen is a senior lecturer at MIT Sloan School of Management. He is also an independent director of Medtronic, a large medical device company. This is a condensed version of an article published on Health Affairs Blog.