In the State of the Union, President Obama told Republican Members of Congress to stop holding votes to repeal the ACA and start proposing propose alternative ideas for health reform. In response, House Majority Leader Eric Cantor promised a vote in the House of Representatives in 2014 on a Republican alternative to the ACA. There were few specifics about what this alternative would entail.
Both of us would have preferred for this conversation to have happened over the past three years – before the ACA exchanges had gone into effect. While we agree with the President’s sentiment that the Republican’s quixotic efforts to repeal the ACA have been, at best, a distraction, it is disingenuous to suggest that there are not many existing ideas that would greatly improve the efficacy of the Affordable Care Act. Yet Representative Cantor’s comments make us wonder if any of those ideas are forthcoming from his side of the Congressional aisle.
It is not as if Republicans lack ideas for health reform. At least one of us is a Republican (the other waffles too much) and in the past three months we have offered numerous concrete proposals. So we thought we would take this opportunity to provide a “Republican” response to the President’s call.
In their blanket criticisms, Congressional Republicans have often failed to grasp that if you distill the ACA down to its most basic elements, perhaps its most important feature is the introduction of competition in private health insurance through the creation of exchanges. This is, at its core, a Republican idea, and unfettered by additional regulations, could lead to real innovation and cost savings. But the President, like most Democrats, appears to intrinsically distrust markets, and the exchanges are burdened by too many regulations. Here is just a partial list of those regulations, followed by our proposals to improve competition in the ACA:
1) Employers are mandated to continue offering health insurance
2) There is an exceptionally rich minimum benefit package
3) The ACA prohibits catastrophic health plans for the majority of enrollees
4) The ACA continues the tax subsidy for employer provided health benefits
Proposal 1: Repeal the employer mandate
In addition to being the largest expansion to of public health insurance since the Great Society programs of Lyndon Johnson, the ACA creates a realistic alternative to the system of employer provided health insurance that has dominated the American health insurance system since the 1940’s. In a prior blog we discussed at length the problems that employer-sponsored insurance creates for workers. The ACA has new regulations governing non-group insurance that should partially reduce these problems, yet still attempts to force employers to continue to offer employer provided benefits. Why add layers of new regulations to perpetuate this system when a more obvious and simpler solution is available? Allow all employers to opt out of offering coverage if they believe it is the right business decision. In all likelihood, employers would instead offer subsidies for purchases on the exchange (either through earmarked payments or higher wages). Not only would this unburden employers of a responsibility that they should never have borne, it would also greatly expand enrollments in the exchanges, leading to more stable risk pools and more affordable premiums.
Proposal 2: Scale back the minimum benefit package
As we have recently written, mandating exceptionally rich and homogenous coverage across all plans limits the ability of these plans to innovate on plan design. First, it prevents individuals from opting out of coverage for certain services or to at least choosing less generous cost sharing for things such as mental health coverage. Second, it limits the ability of insurers to tailor coverage to control the costs of services that provide uncertain benefits, such as robotic surgery or proton beam therapy. These mandates come at a time when academics and practitioners alike are experimenting with Value Based Insurance Design – creative alternatives to the traditional structures of deductibles and copayments. The ACA stops such innovation in its tracks. Any realistic alternative to the ACA should begin by reducing regulatory hurdles that allow insurers to innovate on the design of benefit packages. If we are concerned about the potential for cream skimming by plans offering less generous benefits, we can modify and extend existing reinsurance programs.
Proposal 3: Repeal the prohibition on catastrophic health plans and, if proposal 4 is not feasible, provide a level tax playing field for high deductible plans
Perhaps the biggest innovation in insurance design in the last ten years has been the high deductible health plan, coupled with Health Savings Accounts. (HSAs are accounts that allow for tax-free expenditures on health services and are meant to level the tax playing field versus more expensive, traditional insurance plans.) Currently, only individuals under the age of 30 or who have a hardship exemption are allowed to purchase high deductible plans in the exchanges. However, even those who are lucky enough to be allowed to buy these plans cannot use the ACA tax subsidies for lower income individuals for their premiums. This makes absolutely no sense. We propose that individuals purchasing high deductible plans receive the same tax subsidy as individuals purchasing plans for the “Silver” tier of the exchange, with any subsidy that is greater than their premium to be placed in qualified Health Savings Account. If we are unable to repeal the tax deductibility of employer provided insurance, expenditures from this account should be tax free. However, if we do level the tax playing field expenditures from this account should be taxed but limited to medical services. After age 65, any remaining balance in this account could continue to be used for health services not covered by Medicare or converted into an annuity for retirement spending.
Proposal 4: Level the tax playing field
Nearly all economists agree that the tax subsidy for employer sponsored insurance is inefficient, because more expensive plans enjoy larger subsidies, and regressive, because it disproportionately benefits the rich. Talk about having the worst of both worlds. We realize that it is probably easier to repeal the ACA than it would be to repeal the tax subsidy – a benefit that is currently supported by both big business and organized labor. But we are compelled to renew the call; here is a chance for Republicans to prove themselves as the voices of reason on economic policy. Couple this repeal with a reduction on marginal tax rates for all Americans, and we have a win/win/win for economic growth, reducing health spending, and increasing equity. Beyond this, the ACA continues a decades-long curiosity in the tax code: employer-sponsored health insurance enjoys the full tax subsidy, but insurance purchased by individuals receives a partial subsidy at best. These parts are the ACA are fighting against each other. We should also note that this change in tax policy is really just an expansion of the “Cadillac Tax” already included in the ACA.
So you see, it is possible for Republicans to offer concrete and realistic proposals for health reform. Now if only we had the email address for the President’s Blackberry …