A good friend of mine, Eric Xiao, wrote this post in hopes of offering three substantive changes to improve Obamacare. Health care will certainly be a major policy debate for the 115th Congress and President-elect Donald Trump’s administration, and Eric’s suggestions are worth a read. He graduated from Yale in 2016 with a degree in political science and a focus on health care in particular. Check out his Twitter for more health care analysis!
When the Patient Protection and Affordable Care Act of 2010 was signed into law, many (correctly) predicted that it would become an unsustainable burden on and an ineffective fix for this country’s ailing healthcare system. From Trump’s erasing of state insurance lines to Sanders’s ‘Medicare for All’ system to the Republican Congress’s CARE Act, many have put forth their own replacements for the ACA, each claiming that their law would swoop in and save American health care from the brink of disaster.
To be fair, the creators of these replacement plans deserve a certain amount of credit for crafting proposals that are comprehensive and sophisticated. But unfortunately, what makes these plans so appealing is also their tragic flaw. You see, the reason why everyone could predict that the ACA would fail is because every major reform law fails in some way. Every landmark piece of legislation has major flaws, and if our solution to these shortcomings is always ‘pass a new landmark piece of legislation’, we will be stuck in an endless sequence of replacing each imperfect law with a new, equally imperfect law. This is the approach of those who are churning out hundred-page ACA replacement proposals day by day, and it will never achieve any good in the long term.
Instead, let us pinpoint the exact parts of the ACA that make it unsustainable, and attempt to fix those before dumping the law altogether. Of course, these ‘repairs’ to the law will not revolutionize health care as we know it, but we need to curb our idealism and admit that no single law can. Strong health systems are built and maintained incrementally. Sustaining them involves diving into details and technicalities, a strategy that is not as flashy as creating the next ‘big’ piece of legislation, but is bound to be more effective. So before we spend years of deliberation and billions of dollars on another major healthcare law that will be just as flawed as the ACA, consider making the following three reforms to the ACA as it currently stands..
1) Lower the Actuarial Value Threshold
The ACA requires that every insurance plan have an Actuarial Value (AV) of 60%. That means that at minimum, every plan must cover at least 60% of the costs of covered benefits under that plan. Setting the AV at such a high level prevents insurers from offering low-premium plans that are more affordable and more suited to healthy patients, as well as low-income patients. Currently, patients earning up to 250% of the Federal Poverty Level ($29,700) receive government assistance to help pay out-of-pocket health costs, and patients earning up to 400% FPL ($47,500) have their monthly premiums capped at anywhere between 2% and 9.5%. Unfortunately, the out-of-pocket maximum for those at the 250% mark is still over $7,000 per year and those at the 400% FPL mark still can pay over $4000 annually in premiums, without any additional assistance for out-of-pocket costs. These sums are crippling the middle class, and are also increasing federal spending as insurers raise their premiums to meet the AV requirements.
To be fair, this minimum AV threshold was imposed in good will, with the intention of rooting out useless plans that do not cover any services and are effectively scams. But empirically, we have only observed that this AV requirement has raised premiums across the board, and at an alarming rate. Premiums have increased every year since the ACA’s implementation in 2014, with a national average rate of increase of 24% from 2016 to 2017.
As a result, we should strike a deal with insurers in which they agree to introduce low-premium plans into the market in exchange for a lowering of the AV threshold. This is not to say that we should set the bar so low that we start seeing plans with 5% or 10% AV, but setting the bar at 60% is too high of a standard. Especially with the rise of Health Savings Accounts and other funds to help pay deductibles and other out-of-pocket expenses, there is no reason to expect every insurance plan to cover such a high percentage of total covered benefits (which includes many unnecessary services as well as rare services that are quite expensive). In order to relieve the financial burden on patients as well as insurers, this threshold should be lowered or adjusted so that it only refers to basic health services, such as office visits and common prescriptions.
2) Scale Back Guaranteed Issue Coverage
It is unlikely that any democrat or republican wants to return to the days of insurers kicking patients off of their plans or denying their claims whenever they fell sick, but the current state of guaranteed issue coverage is unsustainable. Under the ACA, patients enrolling in insurance plans cannot be charged more for pre-existing health conditions, health status, or claims history. That is to say, if Patient A incurs $50,000 of medical costs per year and Patient B incurs $500 of medical costs per year, Patient A cannot even be charged a penny more by his/her insurer for needing more care than Patient B. So if unhealthy, higher-cost patients cannot be charged more than healthy, low-cost patients, the only real solution for the insurer is to (you guessed it) charge everyone an equal, and high, premium.
Of course, it would be inhumane to charge higher-cost patients premiums that are 5 or 10 times those of healthier patients, but not being able to charge even a 10% higher premium for patients needing 10000% more care is also unreasonable. We should therefore amend the ACA to allow insurers to increase premiums for high-cost patients by a percentage proportional to the care they need annually, relative to the regional average for each insurer. For example, Insurer A would be able to charge a patient X% more in premiums if their annual medical costs are Y% higher than Insurer A’s per-patient average for that geographic region.
This percentage increase for high-cost patients should have a hard cap to prevent insurers from overpricing their plans, and insurers should also contractually agree to lower premiums for low-cost patients. The details of such proposals will vary between insurer, but a move in this general direction is necessary for the health insurance industry, which has suffered devastating losses across the board since the ACA’s implementation. Otherwise, insurers will continue pulling out of state markets (45 states have fewer than 5 insurers with at least 5% market share in the individual marketplace) and patients looking to enroll in plans will be left with barely any choices.
So what about the high-cost patients who struggle to pay the increased premiums? With the lowering of premiums for millions of low-cost patients, government assistance for those premiums will also decrease. Those savings can be used to better assist low-income, high-cost patients.
3) Overhaul the Employer Mandate
The ACA’s employer mandate requires that every employer with 50 or more full-time employees must offer at least 95% of employees a health insurance plan that meets minimum coverage standards. Again, a policy that was crafted with patients’ best interests in mind, but one that has failed patients and employers alike in practice. The employer mandate has two key problems that must be fixed for it to be a sustainable policy.
First is the issue of requiring a company to go from insuring 0% to 95% of its workforce once it reaches 50 full-time employees. This is a huge investment, and when faced with the requirement of buying insurance for employees, employers are forced to delay or even forgo hiring new full-time employees, which stifles the small business economy. Companies with 55 or 65 full-time employees are not going to be able to afford health insurance for their employees any more than companies with 49 employees can. But at the same time, letting companies not offer insurance to any employees puts a greater financial burden on those employees, as having to shop in the individual market for insurance almost always results in higher premiums.
To lessen the burden on small businesses that are only slightly above the 50 FTE threshold, the mandate should be amended such that the percentage of employees that must be offered health insurance starts at a low threshold and increases with the number of employees at the company. For example, companies with 55 or 60 employees may only need to offer insurance to 15 or 20% of them. This way, companies will be able to expand their businesses and create more jobs without being slammed by a hefty insurance bill at the 50 FTE threshold. At the same time, we can still keep some form of the mandate so that companies with the means to comfortably afford insurance can be required to do so.
The second problem with the employer mandate is that it requires employers to offer their own health insurance plans, which they buy from an insurer of their choice, instead of allowing employees to shop for plans themselves. Unfortunately, there is no ‘one-size-fits-all’ plan that is appropriate for all employees. Inevitably, some portion of employees at every company will be stuck with a plan that does not suit them well. The solution here is simple: why not allow employers to offer employees a monthly stipend to shop in the individual marketplace in place of the employer-provided plan? And we can require that the stipend be at least equal to the employer’s cost of an employer-provided plan, since the amount that employees pay to employers may be different from the amount that employers pay to insurers. Under this proposed policy, if an employer is paying (or was going to pay) $200 monthly per employee, then that employee’s stipend must be at least $200.