January 25, 2017
President Donald J. Trump
The White House
1600 Pennsylvania Ave.
Washington DC 20500
Re: Affordable Care Act
Dear President Trump,
We urge you to build upon rather than repeal the Affordable Care Act. It is the most important advance in health coverage since Medicare and Medicaid were adopted in the mid 60’s. We agree with you on the need to cover every American, the need to reduce escalating prescription drug prices and to further reduce deductibles.
The Affordable Care Act has many irreplaceable virtues and some readily fixable flaws to achieve your goals. Some of the virtues are readily apparent such as the reduction in the numbers of uninsured by far more than half here in California and the development of far more affordable coverage for low, moderate and middle income Californians through the Exchanges (Covered California). The Medi-Cal expansion is working very well in California, and there is no good reason for the profound health risk and disruption entailed in a federal block grant for over 70 million Americans. Other virtues are an across the board slow down in per capita health spending and a change in the conduct of plans in the individual marketplace which previously sought to redline those with medical conditions ranging from cancer and diabetes to pregnancy and mental illness and which now pay for their coverage and treatment. California counties, community clinics, local hospitals, community physicians and local health plans have benefitted greatly from the expansion in coverage, and many have now turned to improving patients’ health and health outcomes in ways that were unprecedented and indeed impossible to achieve under the market conditions prevailing prior to the passage of the Affordable Care Act. The structure and financing of the ACA is basically sound, if well-administered, as it has been in our state. The ACA has been operating at and contributing a surplus to the federal budget.
You now have the awesome responsibility and opportunity to frame and eventually decide the next steps in health reform. I’m sure you are well aware that discontinuing coverage for 25 million Americans with ACA coverage is simply untenable – about 5 million Californians would lose coverage. It would wreak unimaginable havoc on the patients and their families, on their providers, their health plans, and the low and moderate-income local communities from the Canadian border to the Mexican border. Therefore we urge that you fix some of the flaws you have identified to achieve your stated goals.
Fixing the flaws Flaw #1 Drug pricing: Spiraling drug prices are impacting both private insurance premiums, and the federal Medicare budget. The legislative expansion in Medicare prescription drugs coverage tied the hands of the federal government in setting or negotiating drug prices. As you have suggested, using the negotiating powers of the federal government can and will help curb the cost impacts of rising drug prices on Medicare, its seniors and disabled. This approach will require Congressional approval as the legislation enacting the Medicare Part D expansion forbad the federal government from negotiating with pharmaceutical manufacturers to establish drug prices.
Federal negotiations for Medicare drug prices will not help individuals and small employers who must pay for rising private insurance premiums due to rising drug prices. Competitive markets are important and can have impacts in health care in certain contexts, but alone they cannot slow price rises for those with natural monopoly and oligopoly powers. Federal and state government will need to use anti-trust enforcement and/or regulatory controls to tackle those with market monopolies and oligopolies who are raising health prices uncontrollably. These pricing problems are not limited to drug companies, some plans and hospitals are also jacking up their prices due to the natural monopolies and oligopolies they enjoy, and these market abuses need to be corrected.
Flaw #2, Covering every American: the ACA has been in effect for three years, it has already cut the nation’s uninsured rate in half. It’s time to finish the job and get to true universal coverage. In California half of the remaining uninsured are eligible for either Medicaid or Covered California; education and outreach are very important; they need continuing funding and support from your Administration. One promising Republican idea is auto-enrollment of every uninsured American with the opportunity to opt out. This could be particularly effective if accompanied by an adequate refundable tax credit for coverage for every uninsured American as proposed by some Republicans.
We want to emphasize that the opportunity to purchase unaffordable coverage is not coverage. For the average American family working at a minimum wage the cost of family coverage exceeds their wages. That is why the ACA’s Medicaid expansion and the income adjusted, refundable tax credits for premium assistance are so important. They have played and should continue to play the critically important role in assuring affordability. They are critical to building affordable coverage for every American.
Flaw 3, high deductibles. High deductibles are a severe barrier to patients, particularly those with low, moderate and middle incomes, accessing effective care. The ACA gives individuals the choices of buying coverage with actuarial values of as low as 60% (50% for those under 30 or with financial hardship). This means the plans pay 60% of expected medical costs and the patient pays 40%. The trade-off is lower monthly premiums for an individual but higher copays and deductibles when they seek care. The ACA offers individuals a refundable tax credit to reduce their copays and deductibles; this is an option for each qualified individual in the individual market, it is not a requirement. Cost sharing assistance phases down and out at 250% of the federal poverty level (a bit less than $30,000 for an individual). To reduce high deductibles, that tax credit could be increased and expanded to help individuals and families with annual incomes up to 400% of FPL ($47,250 for an individual) access plan coverage with lower deductibles.
Health savings accounts are not a solution for low and moderate-income Americans because they are not in a tax bracket where these approaches make any sense. Health savings accounts could make some sense for higher income Americans who are in high marginal tax brackets where these approaches can create meaningful incentives.
Guaranteed issue, the individual mandate and adverse selection in the individual marketplace. The ACA combined guaranteed issue for all regardless of medical condition, with premium assistance to assure coverage is affordable, and an individual responsibility to purchase coverage rather than being a free rider on the coverage of others. The individual mandate has been a lightning rod for opposition to the ACA. Yet if primarily those with serious medical conditions purchase individual coverage and the healthy do not, a death spiral could occur as premiums rise to reflect the higher risk and fewer individuals purchasing coverage. The individual market has functioned well in California with low year over year price increases and competitive markets in most counties (other than the smallest rural counties where there is no basis for a competitive market). In some other states where local lawmakers were opposed to the ACA, the individual market functioning may have been less effective than in California and while those ACA subscribers with premium assistance are cushioned from price shocks, those with higher incomes are not. We would urge several fixes: first expand premium assistance to all suffering financial hardship, and second extend coverage to all who pay the tax penalty. These would provide a healthier age and health status mix in the individual market.
Expanding premium assistance: We suggest that you retain the ACA’s refundable tax credits that are working well and then build on them with a base or minimum tax credit for every individual purchasing in the individual market. The target for higher income uninsured and individually insured should be to assure that none pay more than 8% of income for their coverage while at the lower income ranges, individuals should pay no more than 2% of income for their coverage.
Some Americans have chosen to pay the tax penalty rather than enrolling in coverage, thus leaving themselves uninsured and vulnerable to medical bankruptcy when illness or accidents happen. We suggest that they receive coverage equivalent to their tax contribution plus a tax credit. Thus if they paid a tax penalty of $695, they would receive coverage valued at $695. This could be combined with a refundable tax credit (e.g. $2500) to assure better coverage. While this would not purchase much coverage for some, it would assure they receive a benefit equaling their contribution and favorable tax treatment comparable to all others.
Thank you for your consideration of these suggestions. We encourage you to continue your goals of assuring affordable coverage for every American.
Lucien Wulsin Jr.
Retired Executive Director
Insure the Uninsured Project