By Chris W. Durkin, RHU, REBC, President and CEO of FBC Insurance, Benefits & Consulting
President Donald Trump has taken the first real step in replacing Obamacare. The question is, with what?
In order to understand where we go from here, I suggest we take a broader look at where we have been in the last 8 years. The Affordable Care Act was the biggest piece of healthcare legislation since Medicare was enacted in 1965. To start thinking about an Obamacare replacement plan, we'll need to review Obamacare itself.
Whether you were in favor of it or not, the Affordable Care Act accomplished five major changes in our U.S. healthcare infrastructure:
#1. Medicaid Expansion
The ACA expanded Medicaid by allowing states to accept large amounts of federal tax dollars in exchange for increasing eligibility for Medicaid recipients from 100% to 138% of the Federal Poverty Level, a measurement of income and family size.
100% of the FPL is $11,880 per year for a single person, while 138% is $16,400. Obviously, this is a big change. More than half of the 20 million new enrollees since the ACA’s inception were covered as a result of the Medicaid expansion.
#2. Scaled Tax Subsidy
The ACA created, for the first time, a scaled tax subsidy for those between 138-400% of the FPL. A subsidy is different than a tax credit in that it is available simultaneously to pay health insurance premiums with. There's no waiting until you file your taxes.
This works for low wage earners with limited tax liability more than a tax credit would. This is an important nuance that Republicans have been missing for years in their proposals. We'll have to see if an their Obamacare replacement plan addresses this or not.
#3. No more health underwriting
The ACA eliminated health questions and pre-existing condition limitations, which are valid but unpopular insurance company controls to measure risk. Instead, the ACA made coverage available during open enrollment periods for anyone, regardless of health risk.
The loss of these controls is a primary reason rates have increased so dramatically. Under the Republican Obamacare replacement plan, we probably won’t go back to health underwriting, but it is important to recognize the financial impact of this change.
#4. Minimum essential coverages
The ACA mandated that all policies meet a federal requirement of coverage features. Not all of thees are desired and have actually made the ground level of coverage considerably more expensive for everyone. This was like making the first floor of every elevator start on floor number 3.
What got left out here is the importance of states controlling what they do and don’t want to pay for with their tax dollars. Letting states decide on what they want to pay for is critical moving forward for any Obamacare replacement plan.
#5. Individual and employer penalties
Finally, the ACA imposed both individual and employer penalties for not having or (in the case of employers) not offering coverage. As has been widely talked about, the individual penalties are inadequate to motivate everyone to purchase coverage.
In addition, the employer penalties are easily avoided and were ill-conceived. So much so that next to none of the $60 billion in projected employer funding for the law materialized through the penalties.
So what now?
In the coming months, Republicans will likely roll out an Obamacare replacement plan.
Simply undoing the law without recognizing how its impact has changed us would be foolish, so let me offer my suggestions of what we can and should do next:
#1. Give block grants to states to merge ACA subsidies with Medicaid
Each state presently administers its own Medicaid program, and they are different in funding, network requirements, and coverage. Giving states block grants would enable them to design what works best in their state and be responsible for making it work for their budget.
We should incorporate the scaled subsidies of the ACA into a further upward revision of eligibility for Medicaid recipients. Or, in other words, make each state’s Medicaid program reach into the 400% of the FPL by allowing those who qualify to purchase discounted Medicaid plans as the inverse of receiving a subsidy.
This will create much greater control on plan cost but may result in a lack of choice among recipients. In my mind, this is exactly the kind of appropriate cost control we need: tax-supported plans residing in a fixed budget with the option of a broader market available for purchase.
This move is our next wise evolution.
#2. Create tax-funded high-risk pools
Requiring insurance carriers to give up health questions and pre-existing condition limitations is an overdue change we should not retreat from. However, we do need to allow insurance carriers some room to innovate and make a profit so we can continue to have a competitive, free enterprise system.
We should identify a dollar limit of $1,000,000 per person as the cap of what an insurance carrier should bear as a risk and then transfer responsibility to the tax base after that. Actuaries may debate this number, but the idea is sound and will give carriers the adequate room to design plans at differing price points.
We may eventually evolve into a tax-supported base health plan for all, but we are not ready for it yet.
#3. Continue to allow health insurance as an employer-provided benefit
Health insurance as a perk at work is a positive connection for our economy and provides an education conduit for our younger workforce. In fact, it presently works very well for those 49% of Americans who are covered at work.
Recognizing that an additional 36% are covered by a public program like Medicare or Medicaid, and 7% by individual plans, I don’t see that we are ready to change the majority’s coverage for the 9% who were not covered in 2015 (source: KFF.org).
We don’t want to miss that employers play a critical role in innovating healthcare benefits and controlling costs by incentivizing employees with wellness plans and a variety of consumer-driven plan options. The very nature of a fully tax-supported healthcare system invites abuse and corruption. As I've written about before, I don’t believe the United States is ready for a national health care system any time soon.
#4. Remove compliance burdens for employers
The plethora of compliance and reporting burdens imposed on employers have been a significant drag on productivity without the intended result of creating a funding source for tax dollars. In a dynamic economy, offering a robust health plan as part of a competitive compensation plan is good business, and good business leads to profits and economic growth.
However, the stifling reporting requirements imposed on businesses have been a disaster with only one result: creating a drain on resources which otherwise could have been used to generate revenue. We should do away with W-2 and ACA reporting requirements and their outgrowths, which are far too numerous to mention here.
#5. Retain tax penalties for individuals
Sadly, there will be many who disagree with me here, but if we can choose to not buy health insurance without a consequence, there will just be too many who wait until they need it before they buy it. This runs contrary to the simple math required to cover any risk: In order to adequately cover any risk, you must receive a fair spread of the risk and adequate money to bear the risk.
It is the price needed if we all want good rates for insurance. This is fundamental.
There are many more details to consider than just those I have mentioned here, but I hope providing this outline encourages dialogue that will lead us to a thoughtful solution to structuring our nation’s healthcare financing system.
Thank you for reading! We'll keep you updated on future changes to our healthcare financing system as the Obamacare replacement plan is debuted.
Learn more about FBC Insurance, Benefits & Consulting, and what sets us apart as Affordable Care Act experts.