Private Score of Burr, Coburn, Hatch Plan

Brad Flansbaum sent me a link to a private score of PCARE, the reform plan released on Monday by Republican Sens. Burr, Coburn, and Hatch. I don’t know the Center for Health and the Economy, though I do know several members of their advisory board and many of you will as well. I don’t have my own simulation model to be able to verify these sorts of results, and the CBO is the final word, but I will just assume that a group that has Uwe and Holtz-Eakin on the Board must be somewhat credible. There is much to be learned here, even if you assume this to be an overly optimistic score.

First off, lets just say that the rage machine that has been perfected to argue against the ACA could get plenty cranked up from the these results. There is a breathless Americans for Prosperity Ad running in North Carolina talking about a nice lady losing her doctor in an Obamacare plan, in health policy speak, due to the rise of the narrow network. Yep, this score says PCARE will have a slight increase in persons covered by 2023 compared to the ACA, but most of that arises from a shift of people into narrow network plans.

ScreenHunter_05 Jan. 30 09.02

Now narrow network plans don’t bother me one bit (I thought everyone wanted to reduce costs!), but the ad machine that is trying to give the Republicans the Senate in 2014 is demagouging something that is a feature and not a bug of the plan put forth by Republican Sens. Burr, Coburn, Hatch. They achieve coverage expansions via an increase in individual based coverage (up 30% by 2023) at the expense of employer sponsored coverage (down 2% by 2023) and Medicaid (down 11% by 2023). What impact does this shift have on access? They calculate a “Provider Access Index” that identifies the degree to which persons insured by different options can pick the providers they want and they say:

With respect to patient’s access to their providers of choice, the CARE Act is expected to achieve similar access to current law, based on the H&E Provider Access Index (PAI).[6] The proposal is projected to reduce the average PAI in the individual market, due to an influx of consumers enrolling in low-cost narrow network plans. However, that reduction is offset by a reduced reliance on Medicaid to insure the low-income population.

On premiums, the analysis says they will be generally lower in the non employer market, but most of the decline is among individuals and not families.

By 2023, the proposal is expected to yield substantially lower premiums than current law in individual insurance product categories with savings of 2 – 11 percent for single policies. H&E predicts that family policies will see a modest decrease ranging from 0.3 – 1 percent.

On the overall federal budget, they expect a 10 year reduction as compared to current law (ACA), a reduction of about $1.5 Trillion over 10 years. This is actually consistent with the co-sponors saying the plan will be “roughly revenue neutral” because of how large the federal budget is from 2014-2023 ($46.7 Trillion, see p. 8), the appropriate denominator to have in mind. For example, CBO’s budget forecast over the same period was reduced by ~$618 Billion just from their February, 2013 to June, 2013 estimates! It is illustrative to look at the components of the estimated deficit reduction from passage of PCARE over the 10 year window:

ScreenHunter_08 Jan. 30 09.49

Yep, most of the action is achieved by the capping of the tax exclusion of employer sponsored health insurance. You know what this would be called if this (good in my opinion) policy were to replace the cadillac tax in the ACA? A Trillion dollar tax increase (Ah-Trill-Yun! with scary music in the background). The Medicaid changes which will result in blood on the floor debate yield around $150 Billion in savings over 10 years, and the savings from medical malpractice reform are essentially a rounding error in the context of the 10 year federal budget.

So, this score says that PCARE will achieve similar levels of insurance coverage as the ACA by 2023, and will result in a reduction of the federal budget as compared to the ACA, primarily by shifting people into narrow network private insurance plans, and increasing taxes of persons with generous employer sponsored health insurance. It doesn’t analyze the generosity of benefits covered (at least that I can tell, but they had to make assumptions), nor does it identify the impact on out of pocket costs that will result in these coverage levels; these are important items to understand, especially given that there are no proposals about transitioning to different models of care and the like.

Taking a look back in time through the lens of this proposal, I can’t help but thinking that Sens. Burr and Coburn missed a big opportunity in January 2010, by not throwing Sen. Olympia Snowe a lifeline (remember, she voted for ACA out of the Senate Finance Committee), which would likely have brought along Sen. Collins. Those four together could have gotten a lot once Scott Brown was elected. Instead they choose full opposition, and gross over-statements in their arguments against the ACA, especially given the proposal they now put forth. In the end, they helped to create and exacerbate the political culture that will make it so hard for their proposal to be given the subtle, and nuanced listen that it deserves.

Update: I am trying to get details of the model, assumptions and the like. I have requested it officially for the site that put out the score. I have also been talking on twitter with members of the Advisory Board. I think the model is an update of Steve Parente’s model (old one, paper likely behind new one). Will confirm/clarify as I get info.

Update 2: I confirmed that Steve Parente did the simulation. Here is a pdf of the paper linked above Parente.hesr_12036 behind the model, published in HSR. However, it is based on ACA uptake after SCOTUS ruling, so I am still trying to understand PCARE assumptions; Steve and I are going to talk.

Update 3: Loren Adler has 7 important questions/points in his twitter timeline about detail gaps in the private score. I have conversed quickly with Steve Parente via email, but don’t have enough yet to clarify. I will likely do so in another post when I understand more.

Burr, Coburn, Hatch Reform Plan

Republican Senators Richard Burr, Tom Coburn and Orrin Hatch released “The Patient Choice, Affordability, Responsibility, and Empowerment Act” today. I am going to call it PCARE. A few quick thoughts/highlights as I am running today (more later):

  • It acknowledges gravity, while making changes. While PCARE talks of repeal of the ACA, it locks in a good deal of the structure of the ACA, and addresses changes from that new status quo. For example, no lifetime limits (sec 201) is retained from the ACA, as is keeping people up to 26 on their parents health insurance, while the current 3-to-1 age banding premium regulation is replaced with 5-to-1 (now a 64 year old could not be charged more than 3 times what a 20 something could be charged;now they could be charged 5 times as much). Winner 20-somethings, loser 60-somethings. Eventually they say they plan to allow States to set these rules with a looser federal touch, meaning a state could decide to stick with the 3-to-1 premium banding by age, for example. I want to hear more about guaranteed renewability and related insurance market regulations as the 2nd full paragraph of page 2 is a bit slippery. For example, it contains this quote: “Insurance companies would also be banned from making unfair coverage terminations of health coverage.” (emphasis mine). What might “fair” ones be?
  • Continuous coverage provisions could provide lots of incentive for people to sign up. Section 202 seeks (I think) to replace the ban on pre-existing conditions as a forever standard with an “everyone has a chance to come in once” and then continuous coverage provides you with protection once you do so. This is more along some of the earlier individual mandate logic of responsibility.
  • Subsidies to buy private insurance (or health care directly) are pared back to 300% of poverty level. Down from the 400% of poverty max in the ACA, and the credit could be used to pay directly for health care under PCARE. They have dropped the Patients’ Choice Act flat tax credit for singles and families and gone to an age banded structure, with the table below being for those at 200% of poverty.

ScreenHunter_02 Jan. 27 14.31

Duke’s employer sponsored plan costs about $1,450 per month, so the tax credit for my age ($6,600) is less than half of that. At my income there would be no subsidy (as with the ACA), but the no subsidy level now will be around $35,000 for singles, and $65,000 for families. These credits will finance catastrophic levels of coverage compared to what most now have, but of course advocating catastrophic coverage with people paying more is a policy approach. Lets see if they own up to what this will purchase. I would love to see a comparison of OOP and premiums of what these subsidies will finance as compared to the ACA. However, this could mute some of the incentive to move out of employer sponsored coverage to exchanges that tax treatment of ESI changes proposed will kick off (see below). [update: a data driven comparison really is needed; Larry Levitt via twitter was pointing out many details will have to be clarified to allow this].

  • Transition to capped Medicaid amounts given to States. The Medicaid section (301, p. 5-6) covers lots of complicated territory and many more details are needed. However, I am going to grant the benefit of the doubt and say lets talk more about this. The parts of what they write that I like include acknowledging the distinct “sub programs” within Medicaid and the fact that they are not the same and do not have the same needs. The part I like the least is that for the dual eligibles and the disabled, the acute care financing stays the same, while providing a capped amount for the long term care costs of such persons to be given to the States, with the States retaining the responsibility for the remainder of the long term care. This locks in the two-payers problem with these sickest people in the nation, while shifting LTC burden to states. I am willing to listen here, but would rather Medicare federalize the acute care side of the duals if they want to shift LTC responsibility to states (there is lots of policy in that last sentence, I will clarify later).
  • Medical Malpractice reform. This is not a great place for federal intervention, and that has always been a problem for Republicans. However, their writing about it puts back in play a piece that has always been one of the political stepping stones to a health reform deal (I wrote this in 2009). The latest issue of Health Affairs has lots on Medical Malpractice, an issue that went nearly completely away for several years, which was a sign Republicans didn’t want a deal. It coming back means some of them want one. I included Medical Malpractice and patient safety (two sides of the same coin) in my white paper on N.C. Health Reform that I put out two weeks ago. Most of the action here will be state level.
  • Title VIII of PCA is dead. This makes me sad.What a strange chapter of health reform was the appearance of unelected boards in a Republican bill one month before the first version of HR3200 was passed out of the Commerce committee, and then unelected boards became such a rallying cry for Republican opposition to the ACA. It was also hilarious how none of the sponsors would own up to it being their idea, but I digress.
  • Cap the tax exclusion of ESI at 65% of an average plan’s costs and grow at CPI+1%. Sign me up; let’s replace the caddy tax in the ACA with this. I’ve written about this over and over. Keep in mind that this will be quite dislocating for employer sponsored health insurance. That is where I want to go down the road, but 3-5 Million people with cancelled indy policies just about ground health reform to a halt in November/December with an assist from a screwed up website. 165 Million people have employer sponsored health insurance, most of them have no idea that get tax free income from it, but all of them will be sure that they deserve it, once they find out they are going to lose some of it.
  • Sponsors/Politics. Interestingly, Bur and Coburn lost Paul Ryan and Devin Nunes in the House as co-sponsors (these 4 co-sponsored the Patients’ Choice Act). Burr and Coburn introduced the Seniors Choice Act in 2012, and those Medicare-specific reforms are not contained in today’s-released PCARE. Do they still support Seniors Choice Act? Senator Hatch last year introduced his own bill with a mix of things (his Medicaid ideas seem to have come through most clearly in PCARE). My political analysis goes two ways on this. First, if members of the House co-sponsor then people like me say mark up the bill and get a CBO score since they control the House, and they don’t want to do that (and Dems aren’t going to mark this in the Senate). It is a definite advantage to have a plan that is not subjected to such scrutiny. At the same time, when there is a deal someday, it seems almost certain to pop out of the Senate, just like the fiscal cliff deal did. Not sure when that will be, but this is a step towards that day, and I welcome it.

Sen Burr talking about his health plan

Here is a 16 minute video of Senator Burr being interviewed by David Crabtree and Renee Chou talking about his recent health reform plan. On the whole, a great deal of word salad transpires.

One point to highlight. From around 10:30-13:30 minute mark they discuss the tax treatment of employer sponsored insurance. Senator Burr correctly responds that capping the tax exclusion of ESI and the cadillac tax are policies with similar intent. However, the key question is what is the level or magnitude of the change Senator Burr proposes.

He invokes a private score of his plan showing savings of over $1 Trillion as compared to the ACA. That is consistent with the original proposal put forth. However, they backed off within 36 hours of release as conservatives got upset realizing that the $1.4 Trillion savings came primarily from what is a $1.1 Trillion tax increase (capping the tax exclusion at 65% of an average plans cost) on those with employer sponsored health insurance (I think it is a good policy and have long called for such). Now they characterize it as capping the tax exclusion at 65% of high cost plans. These sentences sound very similar but have very different implications. The revised language (65% of the cost of high cost plans) has still never been scored.

Essentially Senator Burr is using the original score that contains a very aggressive policy that conservatives hated because it is a tax increase, while using language that is quite different in impact and an impact more akin to the Cadillac tax.

Just a bit of insight into how difficult it will be for conservatives to marshall votes for any health reform proposal that is consequential.

This link contains 12 posts I have written about this newest and Senator Burr’s other health plans if  you want to know more.

Study on ACA projections in North Carolina

Steve Parente has an op-ed (full study) that paints a gloomy Obamacare picture for North Carolina, beginning in 2017. The op-ed is a bit hyperbolic and breathless for my taste, but it’s on the opinion page, so to each his own. It is important to look for things that need to be fixed/improved/altered in the ACA, and considering projections, and how they actually perform as compared to the unfolding reality is a worthwhile exercise. A few quick thoughts:

  • Why does he say things will get bad in 2017? The so-called risk corridors end (think of these as a “net” preventing insurance companies from losing too much, but also a ceiling to limit how much profit they can earn). Parente says without them, premiums will spike and plans will be unaffordable due to “structural problems” with the law.
  • Do other federal programs use risk corridors? Yes. Medicare Part D plans (private prescription drug plans subsidized by government + premiums), brought into being by the Medicare Modernization Act of 2003 (coverage started in 2006) still have risk corridors today, and they are never scheduled to go away.
  • Why do the risk corridors in the ACA go away in 2017? The idea was that if you got a large enough risk pool for individual private insurance coverage (and cover many others via Medicaid expansion), you wouldn’t need them. If his numbers are correct, it could signal an issue(s) that need to be addressed.
  • Could the risk corridors be extended beyond 2017? Sure. See Medicare Part D. It would be an easy fix….I am not sure that it will be needed. We need to see more years of enrollment data, and do need to constantly be asking how the ACA can be improved. [one post with some ideas]
  • A pet peeve. Anytime someone provides you with numerators, and not denominators, be wary. He does this throughout the piece, be it the increase in premiums, the number of insured, uninsured, etc. To put all of these figures in proper context requires the denominator (for example, the total population of the state; I could dig them all up but don’t have the time). Similarly, you need to compare all of these metrics to trends before the law, and what would happen to them  if you did away with the law, if you are interested in the impact of the ACA. You could also compare ACA projections to a different law that might be passed. Steve was involved in the private score of the Coburn-Burr-Hatch reform (12 posts) that I have called the most comprehensive “replace” plan. I would note that Steve never did update the private score (so far as I know) of CBH after the sponsors backed off on their aggressive changes in the tax treatment of ESI that was the key to the deficit reduction in the above linked private score.

My biggest question about Steve’s study that is behind his op-ed is how well did his model predict the actual ACA signups in North Carolina this year? He could easily run this simulation using the assumptions and methods he is using to project into the future. How well his model has already worked would be useful to know in thinking through what his projections might mean for the future.

Burwell Nomination: Faint echoes of a deal post ’14?

President Obama has nominated Sylvia Burwell to replace Kathleen Sebelius as Secretary of HHS. Burwell is the Director of the Office of Management and Budget and is noted for relatively good relations with Congressional Republicans. She is the type of person who could help broker a deal for modifications of the ACA after the 2014 election.

Changes to the ACA at some point are as inevitable as water seeking the lowest point when poured out of a glass. The question is when the politics allow the first deal that can improve the policy? In any sane system, we would have already revisited multiple things, but Republicans have heretofore chosen complete opposition. That may still be their best 2014 election strategy, but they are in dangerous territory of rendering themselves to be post-policy in the most important and difficult long run issue facing our country.

As easy and perhaps as effective as repeal blah blah blah is for 2014, I will be shocked if it is anything but a disaster for Republicans in 2016. A smart Republican nominee would want Congressional Republicans and the White House to reach a deal on some modifications. Hillary Clinton likely wouldn’t mind, and the Big Dog certainly would not. And Burwell is a signal that the POTUS wants this as well.

What are some relatively simple modifications?

  • Replace the individual mandate with auto enroll procedures plus open enrollment with underwriting allowed if you don’t come in during the enrollment period as proposed by the Coburn-Burr-Hatch policy put out in January 2014.
  • Smooth the “cliff” effect of the ACA exchange subsidy structure by allowing persons with incomes above 400% of poverty to deduct their health insurance premiums. Most people get federal subsidy for their health insurance. We need a rationalization of the amounts and circumstances, but that will take time. This would be a placeholder and would reduce worries about employment effects of high implicit marginal tax rates from the subsidy cliff (that Coburn-Burr-Hatch shares).
  • Replace the cadillac tax with a capping of the tax exlcusion. Coburn-Burr-Hatch initially proposed quite an aggressive cap level, then backed off, but the private score has never been updated. So, they talk up one score, but another policy. In any event, not sure of the level, but capping the tax exclusion of ESI is a better policy because it signals the change to the person getting the now unlimited subsidy–people like me with good employer sponsored health insurance.

More complicated, but places I could see a deal going.

  • Provide more routinized state flexibility for states to do a variety of things with the low income portion of Medicaid. States can get waivers and the like as Arkansas is doing for a privatized Medicaid expansion, but this process could be made easier. I would want to be very cautious with changes in the dual eligible and long term disabled portions of Medicaid. We need a way to get the South to participate fully in health reform.
  • Decide what the maximum deductible should be, and create a “copper” level plan that might even simply be financial protection. Such a plan could even be what States auto enroll persons into. I would be open to an explicitly different max deductible amount by age (more for younger, less for older) and seek to get as close to universal coverage as we could. There are quite high deductibles in allowed in ACA plans now.

Eventually there will be a deal, just like water flows to the low point. The question is when will the politics be right for some of the things above?

More on implicit taxes and the counterfactual

Austin Frakt has a nice post discussing the ways in which Obamacare provides labor market tax relief, responding to Casey Mulligan’s latest post discussing the labor market taxes that it imposes. I have blogged several times about Casey’s work painstakingly documenting the impacts of the ACA on the labor market, and noting the tradeoffs at work in any mean’s tested program. I agree with Austin that Casey misses some of the impacts when someone leaves employment, such as foregoing the subsidy that comes from the tax exclusion of Employer Sponsored Health Insurance which is a subsidy no less than an exchange tax credit.

I commented on Casey’s work at the UNC Tax Symposium back in January (here are my slides as discussant UNCtaxconference.1.18.14) and also noted that he had left out a subsidy in his calculations that is foregone when someone leaves employer sponsored insurance to go onto the exchange.

ScreenHunter_01 Feb. 27 08.55

Austin has identified some other things that comprise the counterfactual to which the ACA is correctly compared. What I most would like to see from Casey’s framework is some simulations that go beyond what he finds objectionable in the ACA, toward what else we might do as a country regarding health reform given the consensus that the status quo prior to the ACA is unacceptable. Here is what I suggested at the conference in January:

ScreenHunter_02 Feb. 27 09.06

A demonstration of how different means of structuring and financing insurance subsidies impacts the labor market would be a very useful set of analyses, particularly if the same framework was applied to the nascent Burr-Coburn-Hatch PCARE proposal. While the exact magnitudes are unclear, the PCARE proposal will increase the marginal labor income tax rate for a variety of reasons, but most clearly because it provides tax credits between 100%-300% of poverty only. There is a private score of PCARE that doesn’t address Casey’s focus, but the numbers haven’t been updated since they backed off their original plan to end the tax exclusion of ESI (meaning what is called “miswording” by conservatives who were mad about what they viewed as taxing health plans was what was done in the private score, and that attribute of the score does almost all of the deficit reduction work in the score).

Casey’s framework is a useful one that highlights the impact of policy on marginal tax rates of labor income. The framework could usefully be added to macro level financing and insurance coverage impacts that are generally the focus of legislation scores. Lets shine the bright lights everywhere, and in a consistent fashion, and identify the alternatives so that we can do what you do when you engage in policy: make tradeoffs.

More on the flexibility of Basic Health Plan

Andrew Sprung has a well done, longish piece on the future of the ACA that quoted me (accurately) at length, based on an interview we did after the release of the Coburn, Burr Hatch health reform plan.

Andrew has a follow up piece focusing on my comments about trying to expand health insurance coverage in the South, and my proposed use of section 1331 (Basic Health Plan) of the ACA, that figures prominently in my white paper on health reform in North Carolina Don Taylor NC Health Reform Proposal 1 14 14.

The essence of my suggestion is to create a Basic Health Plan option for persons from 0-200% of poverty in North Carolina, who could purchase private health coverage from a traditional insurer such as BCBS NC, or directly from integrated delivery systems like UNC, Duke or ECU and/or Community Care North Carolina (CCNC), in lieu of a traditional Medicaid expansion. It is a plan to expand health insurance coverage for relatively low income people using private insurance as the coverage vehicle instead of Medicaid.

Andrew makes a good point that more left leaning states could try to use a BHP in the opposite direction (he suggests seek a waiver up to 400% of FPL and have it be a choice on an exchange; I’m not sure it would be granted out of worries that it would destabilize the exchange, but who knows, in a strong exchange why not have another, lower cost option?). The existence of the Basic Health Plan option and the more expansive exchange waiver options that begin in 2017 points out that for all the rhetoric of top-down health reform, state flexibility is a feature, and not a bug of the ACA. Vermont has long said they intend to seek “single payer” for their state in 2017 (I put it in quotes because what they really intend to do is use multiple payers to put together true universal coverage in the State), but perhaps the BHP means they could start moving in that direction sooner. On balance, I suspect the Southern States have more leverage than do the eager adopters to try something different, since their default is not expanding Medicaid and this is not a good outcome from the Administrations perspective. It also highlights the vast differences in the politics of health reform and the ACA across states–politicians in Vermont want to use the language of single payer, while many in the South are averse to an increased role for Medicaid.

How N.C. Could Expand Insurance Coverage via the Basic Health Plan

In my white paper on health reform in North Carolina, I suggested that we could use authority granted under Section 1331 of the ACA to develop a Basic Health Plan (BHP) through which we could greatly expand health insurance coverage for persons between 0 and 200% of poverty . This BHP could achieve health insurance expansion without adding persons to the traditional Medicaid program, and newly covered persons could enroll in plans offered on the state’s Health Insurance Exchange. Several clarifying points, responding to questions I have received, and due to my looking more closely at the final rules for BHP (more on proposed financing of BHP).

  • In my white paper Don Taylor NC Health Reform Proposal 1 14 14, I proposed that North Carolina should set up its own exchange. However, the BHP option under Section 1331 can be implemented even with a federally run exchange, I have learned.
  • The BHP allows for persons who are not eligible for Medicaid, but who make less than 200% of poverty to receive coverage via a BHP. Under the initial ACA, this would have meant persons from 133%-200% of the federal poverty level (FPL), but in North Carolina we have not expanded Medicaid, so that means all childless adults, for example, from 0-200% FPL meet this definition (as do parents with a job from 49%-200% of FPL, and those without one from 39%-200% FPL).
  • The financing that a state would receive for a BHP is 95% of the premium tax credits and 95% of the cost share subsidies for the second lowest cost silver plan in an individual’s geographic area, to which individuals would be entitled based on their income. Even though premium tax credits are not available to persons making less than 100% of the FPL, the BHP financing rule put out of December 23, 2013 identifies income cells for calculation of how much premium money states may receive per capita, for a BHP. The figures include persons from 0-50% FPL, as well as 51-100% (see p. 77404, in Federal Register, first column). This means that North Carolina could develop a BHP for those not eligible for Medicaid without seeking a Medicaid waiver (I said in my white paper we’d need one. Update: a few writing with reasons why they think a waiver would be needed below 100% poverty; it is possible. The key is to develop an idea and then ask HHS; they want to get to yes). The premium amount that could be paid by the household is capped at 2.0% of modified adjusted gross income from 0-133% of poverty; essentially extending the exchange rules downward to 0% for purposes of the BHP; see top p. 77408). However, if the State wanted to move beyond the newly covered–for example, seek to move those currently covered by Medicaid into a BHP down the road, I am fairly certain this would require a Medicaid waiver.
  • Offerors of BHP coverage to individuals can include a private insurance company (like BCBS NC, Coventry, or any other), or a network of providers (for example, CCNC working in conjunction with other providers to deliver the full benefit package, or a large integrated delivery system like UNC Health Care, ECU/Vidant, Duke Health System, Carolinas Medical, etc; See page 59128, right column in Federal Register). Providers or insurers would not have to offer coverage in all counties, allowing a geographically relevant approach.
  • States are eligible for planning grants to assist with implementation issues related to the ACA and health exchanges. Simply taking such a grant does not mean you have to follow through with a BHP, or set up an exchange, but some may feel that taking a planning grant is a politically charged signal they do not wish to send. North Carolina could create a non governmental health reform planning group that could receive such financing, and these monies could be used to answer the questions that the executive branch, legislative branch and stakeholders in North Carolina would have about a BHP and/or other reform activities. This would help provide good information to drive our decisions.
  • There are several aspects of what I propose that dovetail nicely with the reform plan proposed by Senator Burr on January 27, 2014. First, his proposal of a per capita Medicaid cap for those below 100% of poverty (to grow at CPI + 1% point) is reminiscent of the BHP providing 95% of the premium and cost share subsidies that would flow to individuals one at a time, meaning the federal government would spend less if we did a BHP than they would by default if each BHP person otherwise got covered. Further, this is proposing to expand coverage via private insurance or private providers taking on the insurance function, and not the traditional Medicaid program. Finally, Senator Burr proposed allowing States to auto-enroll persons (sec 204, page 4) who are eligible for a tax credit (in his proposal from 100%-300% of poverty) into the lowest cost plan in their county, with them having a right to change plans if they wish. Auto-enrollment is a great idea that Senator Burr pioneered with his 2009 Patients’ Choice Act, and I suggested in my white paper that North Carolina should seek auto-enroll authority within our BHP.
  • What are the downsides of a BHP? The BHP likely does not make sense for a State with an exchange (whether state or federal run) that has lots of competition and relatively low premiums, because you would worry about destabilizing the exchange. North Carolina has low competition (only BCBS NC sells in all 100 counties, and only one other insurer sells at all) and relatively high premiums, so the BHP may be the most realistic means of jump starting competition and choice in the State.

North Carolina could enroll 350,000-500,000 North Carolinians into private insurance in 2015 or 2016 by using the flexibility provided in section 1331 of the ACA to create a Basic Health Plan, and it is an approach that I think we should strongly consider.

Republican Plan of the Future: Medicare Part E + Gap Insurance

Andrew Sprung points out Kaiser’s piece on the development of “gap” insurance for the large ACA deductibles, especially in Bronze plans. This weeks health reform discussion has turned to the labor market changes (some good, some bad, but magnitude up from initial CBO) from the ACA. However, last week the most comprehensive Republican proposal to date, put forth by Burr, Coburn, Hatch will also increase marginal tax rates on labor income due to means tested benefits and a very large change in the tax treatment of employer sponsored health insurance. Back to this week, Republicans are scorching the Earth over which they last week hoped to plant the seeds of future policy.

Some day a reform minded Republican will propose something like what I did in my book:

  • federally guaranteed catastrophic coverage implemented via Medicare
  • gap insurance sold in state-based exchanges

Democrats get universal coverage, Republicans get catastrophic (and Dems realize lots of folks in exchanges have big deductibles now). If we are going to heighten focus on the impact of means tested programs on labor market outcomes, a universal benefit should have a lower marginal tax rate increase than either ACA or the Republican alternative. You could adopt Sens. Burr, Coburn and Hatch’s “come in now” or face underwriting for the gap insurance and be rid of the individual mandate that everyone hates. Republicans could counter that they’d rather go back to the Patients’ Choice Act flat tax credits, which will also reduce labor market distortion, and I agree that it would. However, think through the mechanims that Martin Feldstein, for example, proposed for universal catastrophic insurance implemented via a private mechanism, which is the what could be bought by the magnitude of tax credits proposed in the PCA. Whole lotta health policy in there, the details of which will be exceedingly difficult.

By contrast, Medicare part E would simple, and less labor market distortion. Now, it would almost certainly lead to an unwinding of the employer sponsored insurance market, especially if we follow our Republican friends (and I think we should) toward more aggressive changes in the tax treatment of employer sponsored insurance. But realize, we are in the mess we are in now in large part because the employer sponsored insurance link is breaking down as a predictable source of coverage, while providing others (like me) with excellent policies, while we have creeped up on a consensus that this old status quo is unacceptable.

I will go out on a limb. If Hillary Clinton becomes President, and we are muddling through health reform as we will be, a Republican will run for their Presidential nomination in 2020 on something like what I have suggested.

Employment, Health Insurance and Income Based Subsidies

The CBO Budget Outlook (2014-24) is out today, and much of the focus is on their revised estimate of the ACA’s impact on the labor market (Appendix C, pp. 118-27). CBO is projecting that “the ACA will cause a reduction of roughly 1 percent in aggregate labor compensation over the 2017-2024 period, compared with what it would have been otherwise” (p. 117). This is basically CBO’s estimate of the impact of the marginal tax rate on labor income created by the various policy structures of the ACA that Casey Mulligan has written about. As I wrote in this post, you get less of something if you tax it, so if that is not your goal (it is with tobacco taxes, for example) then you are left to decide whether the reduction is worth achieving an alternative goal(s). That can be a difficult question to answer, because you are trading off important things–labor market participation, rates of uninsured, and the system reform provisions of the ACA.

Is reduced labor market participation a sign that we should move away from the structure of the ACA? If yes, to where?

Republican Senators Burr, Coburn and Hatch introduced their health reform proposal PCARE last week to much fanfare (this contains links to my previous four posts on PCARE). Many Republicans were understandably glad that key leaders in their party had finally taken this step of offering a coherent health reform strategy. While the focus last week was on what PCARE would do to the tax treatment of employer sponsored health insurance and coverage rates, the CBO report should prompt those who are critical of the ACA’s labor market impacts to ask how PCARE would impact the marginal tax rate of labor? I asked Casey Mulligan on twitter last Saturday about this:

ScreenHunter_01 Feb. 04 14.14

Casey answered:

ScreenHunter_02 Feb. 04 14.17

While the numbers haven’t been run yet, Casey says that the marginal tax rate of labor income in PCARE will be similar to those in the ACA. Why is this? It is primarily because PCARE provides tax credits from 100% to 300% of poverty (the ACA goes from 100% to 400%).

The intuition of wanting to target and not waste precious resources that leads us to design means tested programs creates higher marginal tax rates on labor income. This reduces incentive to work more hours, and you get results like what CBO predicts for labor compensation (Casey predicts even higher impacts than does CBO). Casey expects a similar impact from PCARE, because of its means tested subsidy structure (it is worth remembering that it was the income based means test structure of tax credits in the ACA [Table 1, p. 48]  that created the largest work disincentive in Casey’s paper, not the employer mandate). The Republican reform plan PCARE shares this means tested structure.

Where does that leave us?

  • A consensus that the pre-ACA status quo is not acceptable
  • An expectation that the ACA will reduce work incentives
  • Strong reason to believe (someone needs to run the numbers) that the leading Republican alternative, PCARE, will do the same

It is relatively easy to sketch a distant health reform approach, be it left, right or center, if you can control all of the variables. However, you cannot control them all, and we can only begin to transition from where we are now. If we decide that minimizing negative work incentives is paramount, then means tested subsidies are a bad idea, and some sort of universal approach, or flat financing mechamism seems warranted; but that will undermine employer sponsored insurance rapidly if flat subsidies are large, or lead to concerns about what can be bought with them if they are small (The Patients’ Choice Act from 2009 had flat subsidies, that were small as compared to the cost of insurance).

If we decide that we want to minimize crowd out of employer sponsored health insurance and to minimize disruption, then that favors means tested subsidies, while seeking ways to keep employer sponsored health insurance as stable as possible (employer mandates). However, today we are worrying about the impact on the labor market of the ACA, that does just these things.

I am drawn to the question “how do you want your children (or grand children) to get health insurance in 20 years?” I think that a distant system in which employment is not a means of obtaining health insurance would be a better way to do it, and could lead to more risk taking in the economy. And the ACA as eventually modified in some way by the Republican PCARE proposal can be the first steps to this, assuming near continuous tweaking for the rest of my life. The alternatives to this muddled through approach strike me as politically impossible (big bang single payer, ESI level of flat subsidy provided to everyone), or are unknown to me.

Update: I am unsure of the magnitude of the disincentive effect of ACA v. PCARE (meaning, which one is more disruptive to labor market). Someone needs to run the numbers, and I have suggested to Doug Holtz-Eakin and Steve Parente that if they did this in a dispassionate manner, it would be a great service to the debate. I think the density of workers from 100-300% of poverty v 100-400% is important, and am also uncertain of how the high risk pool structure in PCARE and the tax treatment changes proposed in PCARE will impact these calculations.