The Supreme Court’s decision in King v. Burwell preserves federal health care subsidies under the Affordable Care Act (ACA) for Americans who reside in states that have opted not to create their own health insurance exchanges. In so doing, it removes an immediate uncertainty for those who would have been left without coverage if the federal exchanges had been declared unconstitutional. But it leaves untouched a more basic problem. The ACA’s reliance on mandatory participation in exchanges as the only way to obtain a health insurance subsidy is fundamentally flawed.
The ACA – popularly known as “Obamacare” – has been an important step forward toward an admirable goal: providing access to health insurance for all Americans. But like many reforms generated by the political process, the ACA is problematic. King v. Burwell pointed at but did not directly challenge the ACA’s most essential weakness: Government-mandated participation in health insurance exchanges as a precondition to receiving a subsidy is not the best or most effective means of achieving its goal of expanded access to health coverage.
Recommendations for fundamental changes to the ACA were recently published by The Conference Board’s Committee for Economic Development (CED), of which I am a member. I believe they represent the way forward for the ACA. The executive summary can be viewed here and the report can be viewed here.
The recommendations are designed to result in a better, more accessible, more affordable health care system. The focus is on how best to strike a balance between government and marketplace forces in order to draw on the strengths of each.
There are several problems with the ACA’s reliance on means-based inclusion criteria and mandatory participation in exchanges – the complexity of the exchange mechanism, and the potential for income-based subsidies to become a disincentive to earn if insurance rates escalate for those beyond the income threshold.
But the central problem is this: attaching a subsidy to the enrollment mechanism, as opposed to the consumer, is an ineffective way of finding and enrolling uninsured individuals and of bringing consumer purchasing discipline to the health care market. Consumer choice is limited to the narrow range of government-designed plans, and health insurers have little less incentive to develop new forms of coverage that might be more effective and more cost-effective.
What is the alternative? The CED has recommended several changes. The most important is to replace the ACA’s income-conditioned premium subsidies with a “fixed dollar” refundable tax credit. This would be available to all Americans, with no income-based limitation.
With the credit available to all, there would be no need for the unnecessary individual and employer mandates. Instead, individuals would use their credits to “shop” for coverage in which private exchanges and insurance sellers would compete with public exchanges, serving all individuals. The employer’s role would be more flexible – a firm could buy coverage for its employees (using the credits they assign to it), or could join private multi-employer exchanges, or could let employees keep their credits and do their own purchasing, much as employees today can buy their own car insurance. This last option would be especially appealing to small businesses.
Such market mechanisms would drive innovation (as plans compete to offer better coverage at lower cost), while offering individuals a wider array of choices.
The CED’s recommendations do not eliminate regulation. While plans could adjust premiums for risk, they would not be allowed to refuse coverage to any consumers, or to charge higher premiums for pre-existing conditions. Plans that care for more costly risks would be rewarded, but every American would have access to coverage and would have a comprehensive market of eager insurers appropriately pursuing them as a customer.
Can such a system work in practice? We know that it can, because it already does. The Medicare Advantage program provides a model for balancing market forces with appropriate regulation. In Medicare Advantage, every citizen 65 and older that meets the criteria has in essence a government account with a monthly premium. Individuals can stay in Medicare, or can opt to purchase any one of several Medicare Advantage plans, all pre-approved to meet government standards. The plans have an incentive to find these people, get them enrolled, and offer them better and more comprehensive coverage than in Medicare. The program is popular with seniors and rewards insurers – all thanks to market forces with appropriate regulatory guidance.
The flaws in the ACA are understandable if you consider its history – the bill was not bipartisan but was a compromise that reflected a combination of Democratic controlled House of Representatives’ and Senate interests and perspectives. Then too, it was never really a final form bill – many of the provisions were placeholders that were meant to be polished, but as a result of political circumstances (Scott Brown’s election to replace the late Senator Ted Kennedy), the provisional bill was accepted as final.
Thus the ACA represents a good start that has helped millions of Americans, but not the best solution. The Supreme Court’s decision in King v. Burwell could have eliminated coverage for millions of Americans in the states that have “opted out.” But even with the coverage left intact, the inefficiencies remain. In the ACA lack of market forces is a structural flaw, and to meet its goals, it’s clear that it must move toward greater balance between government and market forces. The CED’s recommendations should be studied and implemented in a thoughtful, bipartisan way. They show the path to a better, healthier ACA.