CBO Provides A Roadmap For Improving AHCA
By Joseph Antos and James Capretta, American Enterprise Institute (AEI)
Health Affairs Blog, April 4, 2017
The future of the American Health Care Act (AHCA), the GOP-drafted plan to repeal and replace the Affordable Care Act (ACA), is unclear after the bill was pulled before the House of Representatives could vote on it. But the debate over the ACA and proposals to replace several of its key provisions is unlikely to remain off the national agenda permanently.
The best place to start is with the cost estimate of (AHCA) produced by the Congressional Budget Office (CBO).
Trump administration officials, some members of Congress, and assorted commentators have criticized CBO for this estimate, arguing that it is a fundamentally inaccurate assessment of what would occur if AHCA passed. This criticism is misplaced. While some of CBO’s assumptions are indeed questionable, there is little doubt that the agency’s bottom line assessment is basically correct: The bill, as currently structured, would trigger a rise in premiums in the short-run, a sharp increase in the number of people without insurance over the next two years, and then also a steady increase in the number of uninsured Americans over the following eight years.
Instead of trying to discredit this finding, the authors of the legislation would be better off fixing the bill. CBO’s estimate provides a roadmap for what needs to be done to improve the chances the bill will produce the results its authors intend.
Changing the ACA’s insurance rules in a coherent and systematic manner in AHCA was difficult because the proposal’s sponsors were trying to pass the measure using the budget reconciliation process.
AHCA is thus an awkward proposal. It effectively eliminates the individual mandate while leaving in place the ACA’s rules prohibiting the use of health status in setting premiums or determining what is covered by insurance. The authors of the measure propose “continuous coverage protection” as a substitute for the individual mandate. Under that provision, insurers would charge a one-year, 30 percent surcharge on premiums to anyone who has experienced more than a two-month break in their insurance coverage.
This penalty is far too weak to work. A young, healthy consumer experiencing a break in coverage has a strong incentive to stay uninsured as long as possible. Once he decides to purchase health insurance, the consumer will be required to pay a 30 percent surcharge on his premium for one year. After that, the consumer will once again pay without penalty the same community rate as everyone else of the same age and gender.
AHCA also substitutes less generous age-based credits for the income-adjusted subsidies of the ACA for lower-income households, and repeals enhanced funding to the states for the Medicaid expansion population. As a result, younger and healthier consumers would have less of an incentive to buy coverage.
That is a recipe for even more adverse selection, driving up premiums for those who remain insured through the individual market.
* Higher Financial Penalties For Failure To Maintain Coverage
The AHCA approach is an attempt to replace governmental force with personal responsibility. Under AHCA, no one is required to have insurance, but there are financial consequences for choosing to remain uninsured. However, rather than an arbitrary fixed surcharge, the penalty should be commensurate with the added costs imposed on the health system when such people decide not to buy insurance. For example, the penalty could include a premium surcharge that increases with time out of the market, and a waiting period could be imposed before benefits are paid. Such an approach would eliminate the perverse incentive of a fixed penalty that encourages individuals to remain uninsured, avoiding premium payments, for as long as possible.
* The ‘No-Premium’ Health Insurance Option And Automatic Enrollment
Another factor reducing CBO’s estimate of the AHCA’s take-up of insurance is some people’s unwillingness to pay a premium that is larger than the value of their credit. A comprehensive revision of AHCA could broaden the types of plans offered by insurers to include at least one plan available with a premium exactly equal to the credit. Such a plan would provide protection against catastrophic losses without requiring first-dollar coverage for routine expenses. To further improve insurance take-up, AHCA should allow states to automatically enroll uninsured individuals into “no-premium” plans, with an option to change plans or opt out entirely.
* A Compromise On Medicaid Eligibility Within A Reformed Program
A new uniform national income standard could be set at a level that would free up resources to provide stronger federal support for all state Medicaid programs. Non-expansion states would not be required to expand their Medicaid eligibility to the new standard, but they would receive additional funding through a block grant. Expansion states would likely phase down their programs to the new income standard. In addition, states would be given more control over the program, allowing them to operate Medicaid in ways that promote individual responsibility and ease the transition to private health coverage.
* Additional Support For Low-Income Households Above Medicaid Eligibility
Subsidies ranging from $2,000 to $4,000 per person are not sufficient to make non-group insurance affordable for many with low incomes. AHCA should be revised to provide additional support for these families.
Instead of condemning or ignoring CBO, congressional leaders would be well-advised to take full advantage of the agency’s analytic expertise to make the needed adjustments to the AHCA plan. That will ensure all sides are better prepared for serious debate when health policy again moves back onto center stage.
By Don McCanne, M.D.
Trying to tweak the lousy AHCA model to make it work better is not a rational approach when more fundamental policy defects are ignored.
Worrying about keeping down spending through the federal budget doesn’t make much sense when it is total spending on health care, public and private, that is important. Federal health care spending is more efficient than spending through private insurers. In fact, eliminating private insurers reduces the profound administrative waste of both the private insurers and the burden they place on health care providers. Thus increasing the federal health care budget in this manner would produce an even greater offset in private spending. That savings could then be used to pay for the uninsured and for the excess cost sharing of the underinsured.
Inducing “personal responsibility” in health care spending is code language of conservatives for erecting financial barriers to health care – a terrible policy choice. The financing system should encourage, not discourage, access to beneficial health care services. The administrators can make better decisions than an uninformed public on what care is detrimental and should not be covered.
We already know what happens when Medicaid decisions are turned over to the states, and often it is not good for patients in need. Besides, Medicaid has a welfare stigma and would continue to be underfunded. It would be far better to cover everyone under the same comprehensive program that ensures access for everyone to all essential health care services.
Even continuing with ACA is a mistake because no matter how many tweaks are applied, we will continue to perpetuate the uninsured, underinsured, narrow networks, and excessive cost sharing (to slow premium increases to protect the private insurers instead of patients). These policies are detrimental to patients.
The policies we need are an efficient, publicly-administered universal risk pool, equitable funding based on ability to pay, removal of financial barriers to care, and free selection of health care providers. These policies benefit patients, and the models that have been constructed and are in use in some other nations would provide much better value for our health care spending.
Besides, a majority of the population now understands the superiority of single payer, including many Trump supporters. The nation is now ready for a single payer, improved Medicare for all.
By Don McCanne, M.D.
Although the ACA was an improvement, it still has fundamental structural defects that prevent us from achieving the goals of true universality, affordability, equity, efficiency and access, no matter how much it is tweaked. The Republican AHCA proposal was merely another set of tweaks that went in the wrong direction, and we would have fallen further behind in the goals of reform.
Joseph Antos and James Capretta understand policy well, but they have saddled themselves with the conservative ideology professing that much of the responsibility for containing health care costs should be placed in the hands of the patient-consumer. Models to do that do reduce government spending on health care, but at today’s very high costs they impair access to beneficial health care services because of the lack of affordability of the patient’s out-of-pocket component of the spending.
Some conservatives recognize that low-income individuals need greater government support, as do Antos and Capretta, but their consumer-directed models also place too much of a financial burden on America’s workforce and their families. Also their insistence on using private insurance plans in the marketplace perpetuates the profound administrative waste that uniquely characterizes the American health care financing system, and perpetuates the deleterious tools of the private insurance industry such as sky-high deductibles and ultra-narrow provider networks.
Look specifically at the policies that Antos and Capretta consider to be beneficial. They would assess a large, progressive premium penalty after an interval of being uninsured once that individual decides to purchase insurance – a clear disincentive to bringing the uninsured into the market when policies should be designed instead to be certain everyone is always covered, not to mention that the additional penalty would make the premium unaffordable for most individuals. They would create optional plans with premiums equivalent to the government credit – an approach only made possible by further increasing deductibles and other cost sharing to truly unaffordable levels, not only perpetuating but expanding the flawed policy of offering almost worthless coverage in order to make premiums affordable. They would reduce the federal support of and privatize the Medicaid program while increasing “individual responsibility” through out-of-pocket payments that Medicaid beneficiaries simply do not have (except for the insulting token payments promoted by Pence and Verma simply to satisfy their own conservative ideological preferences).
Antos and Capretta do not reject the principle of government spending since they recommend it for low- and middle-income individuals and families. But they are quite willing to sacrifice the efficiencies and equity of a single payer system simply to include conservative ideology that places individual responsibility over social solidarity. Other nations have shown that publicly administered single payer tools are capable of slowing the increase in health care spending in a patient-friendly manner. Requiring excess cost sharing and taking away provider choice certainly are not patient-friendly.
Forget trying to tweak AHCA by placing conservative principles above patient service. Also forget trying to tweak ACA by placing the concepts of incrementalism and supposed political feasibility above patient service. Let’s go for the model that places patient service first – a well designed, single payer national health program – an improved Medicare for all.