After the Senate Republicans repeatedly failed to obtain a majority for any health care bill, a bipartisan effort at health care reform has emerged in the House. The effort is led by the so-called Problem Solvers, a group of 43 Representatives, divided roughly equally between Democrats and Republicans.
The legislative goals of this bipartisan group are short-term and sensible: to stabilize the state insurance exchanges, reduce the burdens on small employers, and mitigate the impact of higher premiums on individuals. While avoiding the over-heated politics of revamping Medicaid, the group wants to accomplish its goals without adding to the projected federal deficit.
The bipartisan achievement of these legislative goals is critical to the viability of the current health care system. The Congressional Budget Office has declared that, if President Trump cut off the reimbursements to insurers for subsidies to low-income policy holders, most premiums for these policies would rise by up to 20 percent and the federal budget deficit would rise by almost $200 billion in the next decade.
In this post, I first evaluate the proposals of the Problem Solvers to amend the Affordable Care Act (ACA). Second, I offer additional proposals that I view as consistent with group’s goals.
The Proposals Of The Problem Solvers
Stabilizing The State Insurance Exchanges
President Trump is threatening to cut off federal reimbursements to insurance companies that reduce copayments and deductibles for low-income policy holders in state exchanges and federally facilitated exchanges (collectively Exchanges), as required by the ACA. Due to these threats, plus other uncertainties, some insurance companies are sharply raising premiums or pulling out of certain Exchanges.
In a sensible response, the Problem Solvers propose to expressly 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. It also would not expand projected federal deficits, since these reimbursements are already included in the budget baseline.
Reducing Health Care Burdens On Small Employers
The Problem Solvers have proposed to require employers to offer health benefits (or pay a penalty) only if they have 500 full-time employees—or more precisely 5,000 full-time equivalents (FTEs)—rather than the 50 FTEs specified under the ACA. This proposal goes in the right direction by reducing burdens on small employers, though a lower threshold such as 200 FTEs may be more appropriate since 98 percent of firms with 200 or more employees already offer health care benefits to their employees.
The Problem Solvers have also proposed to restrict the definition of FTEs to employees who work at least 40 hours per week, as opposed to 30 hours per week in the ACA. This is a sound proposal that would eliminate the possible incentive for employers to reduce hours worked by some of their current employees.
Helping Reduce The Premiums Of High-Cost Patients
Despite the ACA’s protections for pre-existing conditions, a small group of very ill or elderly patients will face relatively high premiums—for example, patients with severe chronic conditions and middle-income elderly people not eligible for premium subsidies. Almost half of US health care spending is reportedly devoted to the 5 percent of Americans with the highest costs. To help states reduce patient premiums and insurance losses on this 5 percent, the Problem Solvers would establish a federal stability fund—one version of the Senate GOP legislation devoted $50 billion over four years to such a fund.
Congress should consider a stability fund a form of federal reinsurance, allowing insurers offering Exchange policies to cede very expensive patients to the federal government. However, based on the reinsurance design in Medicare Part D, some risk of loss should be retained by the insurers (15 percent) and the patients (5 percent), so they have an incentive to hold down costs. To further constrain costs, Congress should also require insurers offering exchange policies to establish a treatment plan for all patients with chronic illnesses.
State Waivers: Focusing On Where the Money Is
The Problem Solvers propose that states be given clearer guidelines enabling them to obtain administrative waivers for innovative Exchange policies. The ACA already allows federal agencies to grant broad waivers to states with innovative Exchange policies if they provide their residents with reasonable access to high-quality and affordable health care, equivalent to what the ACA would provide. A majority of Senators would not agree to state waivers allowing insurers to reject patients with pre-existing conditions or charge them very high premiums.
Conservative legislators have supported state waivers allowing insurers to issue policies that do not cover mental health or maternity services. However, these two services together constitute only 5 percent of annual per capita spending by insurers; a much larger and growing category of insurer spending is the 22 percent devoted to prescription drugs. Under current law, the federal government is prohibited from negotiating drug prices for Medicare patients. Removing this prohibition is supported by over 80 percent of Americans including 68 percent of Republicans. Therefore, Congress should remove this prohibition, and then it should extend Medicare’s negotiated prices on prescription drugs to insurance policies on the Exchanges.
Crossing State Lines: Avoiding A Race To The Bottom
To encourage competition and reduce premiums, the ACA permits cross-state sales of health care policies in states that have joined regional compacts. Nevertheless, despite a few compacts, this part of the ACA has not led to such sales. In response, the Problem Solvers would loosen the rules and make technical changes to encourage the growth and effectiveness of regional compacts.
Some Republicans have further proposed that, if a health insurance policy meets the regulations of 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 insurance regulations. A better approach, consistent with the traditional state role in insurance regulation, would be to require all states to establish an expedited approval process (e.g., within 60 days) for any health insurance policy previously approved by another state.
Keeping Most Taxes In The ACA
The ACA included three new taxes plus the Cadillac tax. The Problem Solvers propose to eliminate the 2.3 percent tax on medical devices because it has bipartisan support and a policy rationale. As the leaders of the Problem Solvers explained: “[It] is often passed onto consumers and reduces funds for research and development.”
The Problem Solvers implicitly keep the two ACA taxes on high-income taxpayers for sound economic and political reasons — to avoid creating large deficits and rewarding the wealthy. Under the ACA, these taxpayers current pay the 1.45 percent Medicare payroll tax on earnings up to $200,000 for an individual and $250,000 if married; they pay another 0.9 percent in payroll taxes on earnings above those amounts. In addition, individuals and couples with adjusted gross income above these same thresholds pay a 3.8 percent surcharge on a portion of their investment income.
Other Proposals Consistent With Goals Of Problem Solvers
Preventing Abuses Of The Enrollment Process
Insurers are very concerned about the individuals who sign up for Exchange policies only after they become ill. The recent House bill would have imposed a 30 percent penalty on anyone buying a health care policy with a gap in coverage of 63 days or more. Although this is a legitimate concern, Congress should wait to see if the new enforcement procedures laid out by the Trump administration are effective.
The ACA already allows open enrollment in only one designated period each year. The concern is that the ACA permits “special enrollment” at other times. The Obama Administration had already issued regulations limiting special enrollment 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. Although such life events were supposed to be verified by documentation, the enforcement procedures just became a lot tougher — requiring documentation from a third party within 30 days of any such life event.
Providing Health Care Coverage In ‘Bare’ Counties
Even with guaranteed reimbursement payments and limited special enrollments, there will be sparsely populated counties where a risk arises that no insurance company will offer health care policies on the Exchange. In these “bare” counties, subsidized health care policies would not usually be available to individuals or families, unless they were covered by their employer, Medicaid, or Medicare.
In every US county, by contrast, the Federal Employees Benefits Program has health care policies offered by multiple insurance companies. Congress should require the largest insurer from this program in any “bare” county to offer one qualifying silver policy on the local Exchange. To mitigate costs, Congress should suspend the ACA’s 2 percent tax on premiums paid to insurance companies for these policies.
Encouraging Higher Participation By Young Adults
If more companies are removed from the employer mandate, there will be more young and healthy adults eligible to purchase policies from the Exchanges. High participation by these young adults is needed to lower the aggregate risk of the Exchange Pool and thereby constrain premium growth. Two strategies have been evaluated. The most direct strategy would be to offer an additional tax credit for lower-income adults — for example, an additional $50 per month for adults between the ages of 19 and 30, with decreasing amounts for adults between the ages of 30 and 35. That credit would cost approximately $4 billion in 2018.
The House GOP bill took an indirect approach: it would have increased the maximum allowable ratio of premiums charged to the oldest adults relative to those charged to the youngest adults to five-to-one, from the current three-to-one under the ACA. This change would have lowered premiums for enrollees below the age of 47 who tend to be healthier, and raised the premiums of enrollees above that age who tend to be higher risk. But this change would cost over $11 billion in 2018, mainly because older policy holders with lower incomes would receive higher subsidies to partially offset their higher premiums.
Coordinating Exchange Policies With HSA Requirements
Another strategy to reduce the effective costs of Exchange policies would be to coordinate them better with the requirements of Health Savings Accounts (HSAs), which may be used only in connection with high-deductible health care plans. The contributions to HSAs are excluded from income, and the distributions from HSAs are not taxable if used for qualified medical expenses. As a result, HSAs could be a very tax efficient mechanism for many holders of Exchange policies to pay their deductibles instead of paying them out of pocket.
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, 2016 rules from the Obama Administration created several conflicts between the requirements for HSAs and those for high-deductible plans on Exchanges. Both Senate and House Republicans strongly favor a substantial expansion of HSAs. So a simple solution would be to make all bronze and silver policies on the Exchanges automatically eligible for use in combination with HSAs.
Restructuring The Cadillac Tax for High Cost Plans
The Cadillac tax is intended to rein in the costs of overly generous plans, with low copayments and deductibles as well as broad provider networks. Specifically, this tax imposes a 40 percent excise tax on total premiums (paid by employers and employees) exceeding specified levels starting in 2020: approximately $30,000 for families and $11,000 for individuals, increasing by the consumer price index (CPI) every year thereafter.
Although the Cadillac tax is politically unpopular, it does discourage 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 15 or 20 percent. 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 percent, 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 percent).
Abolishing The Independent Payment Advisory Board (IPAB)
The ACA introduced the idea of an IPAB, a 15-member panel of appointed officials, to constrain the undue growth of Medicare costs. But the IPAB becomes operative only if Medicare costs increase by more than a specified target rate for a five-year period as determined by the Center for Medicare and Medicaid Services’ actuaries. If that rate is exceeded, the IPAB submits to Congress recommended measures 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, the recommendations automatically become effective.
The IPAB is strongly opposed by elected legislators, who believe it is an unaccountable arm of the executive branch with huge powers that infringe on their legislative prerogatives. Earlier this year, a bill to abolish the IPAB was co-sponsored by 233 Representatives, including Democrats as well as Republicans. In fact, the IPAB’s mandate has not yet been triggered by the rise in Medicare costs and no members of the Board have yet been appointed. Thus, to make a legislative package more attractive to both parties, it would be easy to include a provision abolishing the IPAB.
A Doable Bipartisan Path Forward
The Problem Solvers have made a great start toward health care legislation that can be supported by both parties. This bipartisan package should be modestly expanded to address “bare” counties, prescription drugs, a revised Cadillac tax, and more flexible HSAs. Although most Republicans and Democrats would prefer much broader reforms, this bipartisan package would substantially improve the current health care system in sensible ways.
The author is an independent director of Medtronic, a large medical device firm.