Understanding Some Republicans’ Ideas for Health Care Reform
President elect Trump and the Republicans are saying their plan will be better, cheaper and cover more people than the Affordable Care Act. There is not yet a coherent plan, but there are disparate elements being discussed by Republicans that could be put forward; such as block grants, expenditure caps, vouchers, Exchanges, refundable tax credits, tax deductibility, carrots and sticks for enrollment, high risk pools, multi-state purchasing, underwriting reforms, high deductible plans, health savings accounts, limited benefits, and increased out of pocket. The vision is tied to increased consumer exposure to the costs of health care – i.e. higher copays, higher deductibles – and reductions in federal health spending. The mantras may become de-regulate, de-federalize and privatize.
One recurrent theme is block grants of the Medicaid program. This would simply give states a flat amount per poor person and allow states to design the program as they see fit. All the federal rules and regulations setting the upper and lower bounds of the program would be eliminated. States would have a clean slate with less money. Beneficiaries, plans and providers would have no federal rules protecting their coverage, their access to care, payment and reimbursement for care. No one has yet decided or even proposed the amount of funding, the formulas for allocating it or the growth rates, if any in the block grant. Formulas could favor the states that have been most parsimonious in covering the poor or those that have been most aggressive. This could provide a budgetary windfall for states that do very little or a financial straight jacket on those states that have done a lot and would like to do more. One immediate question is whether the federal coverage expansion funds are included in the allotment. Including these funds could ameliorate the opposition of the expansion states at the risk of alienating those Governors and state legislatures that have been most hard line in rejecting Medicaid coverage expansion – think Texas.
An expenditure cap on Medicaid is an alternative that has been part of past discussions. This would retain the federal rules on eligibility, services and provider reimbursements, but limit the growth rates in federal spending at for example the Consumer Price Index. This could give states some additional flexibility in designing their programs to fit within the new cap. Overtime, this would straight-jacket the states that seek to expand and/or need to expand due to changing demographics, economic circumstances and state budgetary variability. It could be designed as a per capita cap, which would allow states to grow and shrink their programs with the ups and downs of the economy. It could have countercyclical elements that increase and decrease as the unemployment rates go up and down.
Vouchers would be used in the Medicare program in the future; beneficiaries would have a fixed amount that grows only with inflation to select a private health plan. Over a third of California’s beneficiaries already do this under Medicare Part C. Under this proposal, all future beneficiaries would have vouchers; they would no longer have access to the traditional Medicare fee for service program. This would entail the need to create new more efficient marketplaces serving seniors and the disabled in many states.
Exchanges would be repealed for individuals and adopted for Medicare eligibles. Exchanges could be the way to create new competitive marketplaces for seniors and the disabled. One of the key decisions is whether to locate these Exchanges in states or at the federal level. State exchanges are far closer to the people and plans they select and thus more responsive; however while California’s Exchange has been eminently successful, some other state Exchanges have failed and defaulted to federal administration. Another key question is whether they negotiate with the plans on price as California does or whether they simply display the prices offered by the plans with little or no negotiation to assure that the prices are competitive, efficient and fair to the plan and subscriber. In smaller states, there is a real risk of adverse selection of the plans being offered in Exchanges and the need for effective risk adjustment mechanisms. In some states, there are natural monopolies, created oligopolies or duopolies that are not conducive to competitive pricing and negotiations.
Refundable tax credits are the hallmark of the ACA. They are based on subscriber income and adjust for differential prices for age, family size and geography; they phase out at 400% of FPL. They would be repealed by Republicans, The Republican ideas are a flat tax credit, which is adjusted for age variations and family size but not for geography or income. In other words they are far more useful for the higher income individuals and not so much for low, and moderate-income individuals. They are more useful in states and communities with low premiums than in states and communities with high insurance premiums.
Tax deductibility would be expanded to all individuals in the individual market; it already exists for the self-employed. Tax deductibility is of little use to those in low income tax brackets and of increasing value to higher income individuals in higher tax brackets.
Carrots and sticks for guaranteed issue enrollment in the individual market. The ACA has guaranteed issue regardless of medical condition -- an element that President elect Trump has stated he wishes to preserve. One idea is to preserve guaranteed issue in the individual market regardless of pre-existing condition only for those who remain continuously enrolled. If you drop your coverage at any point (e.g. cannot afford it), you lose your rights to guaranteed issue regardless of your medical condition. Another idea is a one time one off, auto-enrollment in the individual market tied to a tax credit with the right to opt out in which case you forfeit your rights of guaranteed issue regardless of your medical condition. Essentially these are fine concepts for higher income, well educated and highly aware individuals who can afford to be steadily enrolled in the individual market; for the unwary, mentally ill or undereducated or low and moderate-income consumers, they would set inescapable traps.
The natural tendency is to buy individual insurance only when you need it or to upgrade your policy and your coverage when you get sick or become pregnant. The tax credits and individual mandate under the ACA were part of the interlocking policies with guaranteed issue, annual open enrollment and premium subsidies to assure a healthy and competitive individual market. Repealing the mandate and the subsidies without also repealing guaranteed issue and no pre-existing condition exclusions simply will not work.
High-risk pools for the medically uninsurable. These have already been tried in many states, including California; typically they are underfunded and have long wait lists, are priced well above market rates such that only higher income individuals can benefit and have annual and lifetime caps and restrictions on benefits so that those who need the most care ultimately find it will not be covered.
Multi-state purchasing. The concept is that consumers can buy coverage from any licensed insurance carrier anywhere in the country rather than only those licensed to do business in their own state on the theory that it would increase price competition and de-regulate the markets. This is a slick maneuver to avoid the tougher licensing and enforcement of consumer protections in certain states by basing insurance companies in those states with the weakest consumer protections and then selling these under-regulated products nationwide.
Underwriting reforms. These are rules governing how insurance is sold: for example, issuance, pre-existing condition exclusions, renewal, rating, medical loss ratios, age and medical condition. The ACA provides annual open enrollment with no pre-existing condition exclusions, guaranteed issue and renewal, age rating band of 3/1, no variations based on medical condition, and requires that 80% of the premium be spent on patient’s medical care. Republicans are discussing 5/1 or 6/1 rate bands such that a 64 year old would spend five or six times as much for their premiums as 20 year olds. They have not decided on any of the underwriting reforms; underwriting reforms will require 60 votes to repeal.
Limited benefits. The ACA guaranteed coverage of ten essential health benefits. Republicans have said this is too many, but have not yet decided which ones should be excluded: prevention, treatment of mental illness, prenatal care and delivery, hospitals, prescription drugs, doctors, rehabilitation services after a heart attack, stroke or accident.
High deductible plans: The ACA requires that at a minimum, plans pay for 60% of the cost of care – i.e. you pay 40%, the plan pays 60%. The ACA also authorizes catastrophic coverage at the option of young people or persons with financial hardship. Republicans have not decided what type of high deductible, limited benefit plan they would like to authorize.
Health Savings Accounts: Republicans are very interested in the concept of tax advantaged Health Savings Accounts. This is already a growing trend in the private market, and they can work well for individuals who are low risk, reasonably affluent and well educated. There is no evidence they work well for individuals with serious illnesses, who account for the bulk of health spending.
None of the plan elements being discussed bode well for low-income consumers, the uninsured or the Medicaid population. The time is now for Republicans to coalesce around a particular approach or approaches, put it forward for analysis and debate and allow the American public to assess whether it moves the nation’s health system in the direction they want it to go. President elect Trump says that repeal and replace must occur simultaneously and seamlessly.
In my view they should look to the ACA as a building block, not a stumbling block, and put forward a plan that builds on its many successes and corrects the flaws in a coherent way that the affected individuals can easily understand and readily use.
Prepared by: Lucien Wulsin
Dated: January 11, 2017