By James C. Capretta
Thursday, January 12, 2017
Republicans have their best opportunity in a generation
to enact a reform plan for health care that moves decisively toward a
market-based approach, with far less reliance on federal regulation and
control. A reform plan of this kind would represent a dramatic break from
decades of policymaking and would be a major component of an effort to rein in
the sprawling federal welfare state.
To succeed in this effort, however, House and Senate
Republicans, as well as the incoming Trump administration, must dispense with
wishful thinking. There is no plan for replacing the Affordable Care Act (ACA)
that is without political controversy. Whatever they do will involve
trade-offs, and in some cases they will be attacked by their political
opponents for doing what is necessary but perhaps unpopular.
Further, there is no silver bullet for reforming health
care that will solve all the existing problems. Health-care policy is
complicated and does not lend itself to simple solutions. What’s needed most of
all is the discipline of a well-functioning marketplace. Getting there will
require many changes, in public insurance, employer plans, Health Savings
Accounts (HSAs), and the individual insurance market. While Medicare changes
can be addressed separately from other reforms, it will not be possible to
replace the main provisions of the ACA in incremental, piecemeal bills, as has
been suggested by some in Congress. An effective ACA replacement plan will need
to ensure that changes in Medicaid, the individual insurance market, and
employer-sponsored plans work well together to provide insurance options for
the entire non-elderly population. That will happen only if these changes are
made in one coherent reform plan so that interactions among various provisions
can be understood and anticipated.
Republicans must also drop their ambivalence about
embracing the goal of providing a ready and reliable pathway to insurance for
all Americans. It should be self-evident, and not at all controversial to
acknowledge, that health insurance is a necessity of modern life. Only the very
affluent can afford to pay the cost of treating many forms of cancer without
health insurance, and no one is immune from cancer, or a costly accident for
that matter. Moreover, households with low incomes will never be able to pay
the premiums for health insurance without governmental assistance.
The GOP must accept these realities and address them
head-on in a replacement plan. In fact, Republicans should endeavor to have
more Americans enrolled in health insurance that provides protection against
high medical expenses than would have occurred in the future under the ACA.
That’s not an impossible task. Despite all the talk of “universal coverage,”
there were still around 29 million people in the United States without health
insurance in 2015, and there’s no prospect of that number dropping
significantly in the future. It should be possible for Republicans to provide
access to affordable insurance to all Americans, and to put a plan in place
that results in actual enrollment in insurance that is at least comparable to
what has occurred under the ACA, if not better.
In addition to providing reliable and affordable
insurance, the GOP must take steps to inject more cost discipline into both the
insurance and the medical-care markets. Many important changes are needed to
create the conditions for higher-quality and lower-cost care. Most importantly,
consumers need to have strong incentives to seek out low-cost, high-value
options, especially through organized systems of care.
To reach these goals, and to prevent unnecessary disruption
to the insurance arrangements that are in place today, Republicans should
incorporate the following key concepts in their replacement plan:
Grandfathering of
existing ACA coverage. Low-income households that are now enrolled in
ACA-subsidized coverage or in Medicaid due the ACA’s expansion of that program
should be allowed to stay in the coverage they now have indefinitely, with
continuation of their existing subsidies. Over time, these households will
naturally cycle off of this coverage and into whatever structure is put in
place by the replacement plan.
Acceptance and
clarification of Medicaid’s role as the safety-net insurance program.
Medicaid is badly in need of reform. Today’s federal matching system for paying
program costs distorts decision-making by state and federal officials and
undermines political accountability at both levels of government. But
Republicans must also understand that there is no alternative to Medicaid, or
something like it, for providing health insurance to the lowest-income
households in the United States. The GOP should seek to reach a compromise
among the states, and with Democrats, on the level of income below which
households in all states would be eligible for insurance coverage. That
compromise level would likely fall somewhere between the level established in
the ACA (138 percent of the federal poverty line) and the levels prevalent
before 2010.
Tax credits for
households above Medicaid eligibility without access to employer coverage.
It will not be possible to provide reliable access to affordable health
insurance without providing refundable tax credits to persons not eligible for
Medicaid or employer coverage. These credits are essential to making a
Republican plan workable and effective. It is a matter of fairness as well.
Employer plans enjoy a large tax subsidy; the GOP should ensure that people who
buy insurance on their own enjoy a comparable tax break. Further, it is likely
going to be necessary to provide a larger credit to households with incomes
just above the Medicaid eligibility level.
An upper limit on
the tax preference for employer plans. The ACA imposed a poorly designed 40
percent excise tax — the so-called “Cadillac tax” — on employer plans with high
premiums. The GOP should replace this tax with a more rational upper limit on
the tax preference for employer-paid premiums. The Cadillac tax is flawed in
large part because it does not differentiate between high- and low-wage earners
(the tax is the same percentage regardless of the wage level of the workers).
Placing an upper limit on the amount of premiums that can be excluded from the
taxable compensation of workers would be more progressive because high-wage
earners pay taxes at a higher rate than low-wage earners and thus would pay
more on any premiums above the threshold amount. Replacing the Cadillac tax
with an effective alternative is also crucial for generating the revenue needed
to finance a refundable tax credit for households without access to employer
coverage.
Promotion of
more-flexible Health Savings Accounts. HSAs are an essential tool in the
promotion of a market-based health system. Insurance should provide financial
protection for major expenses; HSAs provide a tax-preferred vehicle for
families to set aside resources to pay for expenses not covered by insurance. A
GOP replacement plan should encourage all working-age households to have an HSA
by providing a one-time tax credit to taxpayers who have or establish one in
2017 (the credit amount, perhaps $1,000, would be deposited into the taxpayers’
HSAs). It should also encourage more employers to make HSAs a part of their
benefit offerings by exempting some portion of contributions to them from the
upper limit on employer-sponsored health care. Finally, the GOP plan must make
the use of HSAs far more flexible. They should not be restricted to purchasing
individual health services and products; it should be possible for account
holders to buy access to well-defined packages of medical services directly
from organized systems of care for predetermined prices without classifying the
payment as an insurance premium.
Auto-enrollment in
health insurance. Many Americans who remain uninsured under the ACA are
eligible either for the law’s premium credits for health insurance or else for
employer coverage. Some portion of the population also would remain uninsured
under a GOP replacement plan, even though all Americans would have access to
some kind of coverage. Republicans should seek to reduce the number of
“eligible but not enrolled” Americans by aggressively pursuing auto-enrollment
mechanisms. Employers would be encouraged to place workers into coverage and
then allow those workers to opt out if they want. Similarly, using tax and
other data, states should place tax-credit-eligible households into default
insurance plans if those households fail to make a selection of insurance on
their own using their federal tax credits. These default plans would require no
insurance premium from the enrollees because the deductibles for these plans
would be adjusted so that the premiums for coverage would exactly equal the
credits. These default plans should also be made available to anyone who would
like to get catastrophic insurance protection with no additional premium above
the tax-credit amount.
In addition to these concepts, there’s one more crucial
ingredient to a successful replacement effort: bipartisanship. The Obama
administration made it all but impossible for Republicans to support the ACA by
insisting on parameters for the legislation that the GOP could never agree to
(such as large tax increases on households to pay for much of the added
spending). The GOP should not make the same mistake. Republicans should go out
of their way to make their replacement plan acceptable to as many Democrats as
possible, especially in the Senate. Embracing the goal of ready access to
coverage for all Americans should go a long way toward making that happen.
Bipartisan support for whatever is assembled is the best way, and probably the
only way, to ensure that what passes in 2017 is accepted by the public in a way
that the ACA never was.
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