What Will Republicans do w ACA if they Clean Sweep?

Andrew Sprung asks wonks to weigh in on some questions regarding what Republicans will do with the ACA if they win the White House and both houses of Congress in 2016. He assumes that outright repeal then would be too disruptive, so wonders about many changes to sabotage the ACA. I have long been writing that both sides need a health reform deal, at least in part because some day Republicans will have all branches of government again, even if not in 2016. Brief answers to the questions Andrew poses:

Back to my reporting project: let me make it open source here. Wonks, politicos, and other interested parties: what do you think of the feasibility and likely effects of possible future Republican drives to, for example

1) repeal the individual mandate.

They could repeal the individual mandate and replace it with the auto-enroll procedures envisioned by Paul Ryan’s Patients’ Choice Act, which was originally released May 20, 2009, about one month before the first version of HR3200 was passed out of the Commerce Committee. In fact, in 2011 I was wondering whether auto-enroll procedures might be a better risk pooling mechanism than the existing mandate, making this an obvious place for a deal if we ever got back to the policy.

2) Deregulate the exchanges , e.g., perhaps by a) abolishing the 3-to-1 age rating cap;

Sure they could get rid of 3-to-1. But, which way would they go? In my Duke provided insurance there is straight community rating and I don’t hear people complaining about it; 28 year old Assistant Professor pays same premium as a 64 year old. They could let the age rating go up, say to 5-to-1. It is possible that the 3-to-1 is not optimal, but it is unclear to me the preferred change. But keep in mind that 165 Million have employer sponsored insurance that is typically straight community rated.

b) repealing the ban on lifetime and annual caps;

This is imaginable, but with all the rhetoric of preferring more catastrophic coverage (more exposure up front), then it doesn’t really follow to then truncate the back end. Of course, the traditional Medicare program has benefit limits and caps, and no cap of out of pocket expenditures. I would be interested in seeing the relative impact of no lifetime limits, no pre-existing conditions/guaranteed renewal, benefit mandates, etc on premiums. I suspect this change will be judged as not worth it by Republicans and the insurance industry when the time comes for Republicans to drive the train.

c) allowing exclusions for services such as mental health or childbirth;

I could imagine a move toward providing catastrophic insurance that focused on defining the financial size of the deductible before insurance kicked in, and essentially bypassing the question of benefits by covering everything that was not experimental, for example. My guess is that this would sound better to my Republican friends the more theoretical it was, and that prenatal care and childbirth would end up being preferenced before a deductible was met once they had to pass legislation (update: or issue rule changes). Back to my employer sponsored plan at Duke: the benefits are the same for everyone, so plenty of people “who can’t have a baby” are cross subsidizing those who plan to do so. And not to belabor the obvious that seems to be lost in lots of discussions of this issue, but it takes two to make a baby (we professors can figure out these complicated things). Maybe men could take out fertility liability insurance if Republicans decided that all maternity/labor costs should be assigned to the woman having the baby?

d) allowing sales across state lines (in concert with eliminating or drastically reducing federal coverage guidelines); or by other means.

I think if you live in Manhattan and call up Blue Cross Blue Shield of Arkansas, they will be fine selling you a policy, so long as you come to Arkansas to use health care. Premiums are determined by benefits, contracts to provide care and the health risk of the insured. This is a much better applause line at a political rally than a policy, which will become clear once someone tries to write the legislation necessary to bring this about.

3) Foster adverse selection within the exchanges by deregulating plans sold outside them, e.g., repealing the requirement that insurers put all customers within a given state in one risk pool.

I have written positively about the Patients’ Choice Act, and think that it is the most comprehensive Republican plan put forth. Its biggest flaw (they could change this) is allowing tax credits to flow in and outside of exchanges, but altering pre-existing conditions inside them only. This won’t work and will lead to death spiral. Again, committing to the details, passing it through the Commerce Committee, CBO weighing in, etc. will likely be quite a shock for Republicans. They just don’t have experience in doing this. It is hard.

4) Reduce subsidies (“we can’t afford them”…).

Maybe so. But, then premium shock. There definitely could be some changing of the subsidy level to try and smooth out the impact of the existing subsidy structure on marginal labor income tax rates. Of course doing this will increase the cost of the bill. The goldilocks principle “its juuuuuust right” is elusive. Again, it is hard to get this correct.

5) Reduce federal reimbursement for Medicaid expansion; block-grant Medicaid.

The biggest block to a block grant that is simply designed to limit federal costs and say “tag, you’re it” to states will be all 50 Governors, regardless of party. There are some more nuanced policies that focus on the different “parts” of the Medicaid program that I would actually support over the long run (more state responsibility for acute care insurance for states, federalizing the cost of the dual eligibles). I suggest this as a long term strategy in North Carolina. The focus of health reform is now in the States, and I suspect that will continue.

update: I fixed some typos and clarified a few things.

Taxes and Tradeoffs

I got several interesting emails about my post on Casey Mulligan’s paper on the impact of the ACA on labor markets, so I thought I would elaborate a bit.

If you tax something, you get less of it. So, there are only two reasons I can think of to levy a tax.

  • you want less of something (excise taxes on tobacco)
  • you want to raise money to redistribute via government to obtain an outcome that markets didn’t reach

The second point means there is always a tradeoff. Is the outcome I seek (increased health insurance coverage, a larger military, minimum social security benefit for the elderly, interstate highway system, cancer research, etc) worth the distortion or inefficiency that I will inevitably create by taxing and redistributing money worth it? Note that I am saying that every dollar of government spending is inherently redistributional. If not, there must be a tax that is levied and then returned in the exact share to those who paid it. I don’t think such a tax/spending pattern exists. This doesn’t mean you cannot dispute the legitimacy of a given tax or of a spending priority, but that first and foremost that is an argument that the distributional outcome to be obtained by governmental redistribution is not worth it, not that it is redistributional.

Casey Mulligan focuses on the marginal tax rate of labor income, and says that the labor market will not return to pre-crash levels until we lower this marginal rate. His work shows an increase in this tax rate due to the expansion of unemployment insurance during the economic crisis, and from the provision of subsidy to purchase health insurance in the ACA; all of this on top of the explicit tax code. At the conference, Casey noted that doesn’t mean that extending unemployment insurance is necessarily the wrong policy at a given point. This surprised me given my reading of his blogging, but it showed that he was engaging in the tradeoff; something could be warranted in the short run, that exacerbates a longer run concern. There is plenty of art involved in getting questions like this right.

What would be useful for policy making would be to take the detailed data/programming machinery that Casey has assembled and model different means of financing health insurance coverage expansions, and showing how they may differentially impact the marginal labor income tax rate. In particular, quantifying the degree to which the intuition in creating a policy like the ACA “we have to reduce the cost of subsidy” actually increases the impact on incentives for full time or part time work. What is the crossover point at which more subsidy is worth it when evaluating the policy from a labor market perspective?

Asking these questions and being interested in the answers doesn’t mean that you you to buy into the degree to which labor market behavior will be changed due to the ACA. The predictions from Casey’s paper should be made, but in the end, that is an empirical question that we should have more information on in the coming months and years.

update: I forgot I wrote this in November.

Premiums higher where less competition: what can be done?

Austin Frakt links to Peter Gosselin who provides the following analysis of premiums by number of insurers in States with federally run marketplaces; they are lower with more competition:

Plenty of caveats and this is an early look, but it shows higher premiums in States like North Carolina with little competition among insurance companies. This is an old story in North Carolina, where only two insurers are selling plans in the marketplaces, and only Blue Cross Blue Shield is selling in all 100 counties.

A couple of thoughts:

  • This shows the limits of what the ACA can do in a short period; in States with a dominant insurer prior to the ACA (like BCBS NC, with about 75% of group sales, and 90% of individual ones), they are likely to have a similar situation afterwards.
  • While N.C. certainly has little competition among insurance companies, there is some evidence that too many choices leads to sub-optimal consumer choices, at least for Medicare Advantage beneficiaries, especially those with cognitive limits. We certainly don’t have too many insurance companies selling plans, but a state-run exchange could take a closer look at the optimal number of plans; a quick look shows BCBS NC offering 24 plans in my zip code in Durham for family coverage when I put in our information. Duke University’s employer provided insurance, by comparison, provides only 4 choices of plan.
  • Health insurance premiums in North Carolina’s federally run marketplace are almost certainly higher due to the decision of the State not to expand Medicaid, which keeps cost shifting a larger concern. There is likely both an actual impact of this, as well as what I would call a “negotiating impact” of this in which an insurer will appeal to this issue to justify higher rates (as will providers when negotiating rates with said insurer). I’d love to see a precise estimate here, but I don’t have one to offer.
  • What can be done? One answer is to incentivize new insurers to enter the North Carolina marketplace. I am not really sure how to do this. Another possibility it to add a public option that is based on ability to set prices, most simply achieved via Medicare. This could be especially important in more rural parts of the State where developing a provider network from which to bid in the exchange would be particularly hard for newcomer companies. Note: I don’t think a public option is worth doing sans rate setting, at least to start. Another, more distant possibility (meaning it would require modification of the ACA) is that in some States that appear to have a “natural monopoly” or maybe just a few sellers of insurance, they could come to be viewed like public utilities and therefore have rates regulated, presumably by a more robust state-based exchange mechanism.

I am not sure what the health system will look like in 10 years, but the move ahead with the ACA is the event that broke the logjam that was the status quo.

Reinsurance, expanding coverage and the search for a deal

Slammed with project deadlines so light on the blogging….but wanted to point to Reihan Salam’s interesting and useful post about different approaches to reinsurance/federal guarantees to help move toward universal coverage. He points out that there are a fair number of liberal/progressive types who have embraced models of trying to get universal, catastrophic coverage with various mixes of public and private payers. Such a proposal is central to my book. Further, here is a series I did on the federal flood insurance program, that highlights some potential lessons and/or the usefulness of this model to inform the possible use of federal reinsurance/backstopping of some sort.

I see lots of issues in Obamacare that could be improved and addressed within the parameters of the law, and there are lots of alternatives and ideas. I especially want to highlight Reihan’s highlight of Gene Steuerle’s critique of the ACA and of Republican critiques of the law as well. Federalizing the dual eligibles and moving over time to buying low income persons into private insurance is a worthy goal on many fronts,and would remove one of the “tranches” as Gene calls them.

There is some convergence from right and left on key issues if you focus on the policy, and if we can at least start from a goal of providing everyone with some level of predictable coverage. The stumble is the politics….we have to figure that out. By that I mean I am open to and even prefer large changes to Obamacare as should be clear from my book. However, these steps need to be negotiated and enacted from the basis of the existing law. I just don’t see how it is politically feasible for the first step to be a repeal of Obamacare without clarity of what comes in its place.

The next step is the election. Somehow we have to get to the point after that where good policy also becomes good politics.

update: revised wording.

The Conservative case for the ACA

is the title of an op-ed in the New York Times by J.D. Kleinke of the American Enterprise Institute. If you have read my blogging or my book, you will know that I basically agree with him–the political rhetoric around Obamacare never matched the policy reality.

Some predictable push back from Capretta, and Cannon. I like both of these guys personally, and think they have some good thoughts and ideas. However, the opposition to Obamacare, driven in part by them, has always been oversold on policy terms and has been mostly about politics. What would be useful would be for them to be clearer about what they would do instead. In fairness, Jim Capretta has written a fairly complete vision of what a replace of Obamacare would look like, and Michael and colleagues at Cato have an ebook on reform options.

The biggest problem with their replace plans is the lack of 218 members of the House and 60 in the Senate that will vote for their ideas after voting to repeal Obamacare, presumably after a Republican clean sweep this fall. If the President wins re-election and the hope of repeal becomes a fantasy, I think there will be a deal to move ahead on health reform, wrapped up in an overall deal on the tax code, etc. in the next Congress. My book gives my version of such a deal. Here is the big idea of my proposed deal.

update: fixed a link.

Health reform and the election

Greg Sargent noting that in spite of the Affordable Care Act not being overly popular as a whole, focus on health reform during the election could be helpful to the President.

I would agree and go even a bit further, and say that avoiding health reform discussion since passage of the law has enabled Republicans to get away with only being clear about what they are against, and let them off the hook from offering a coherent alternative. The more discussion about health reform during the election the better. If Republicans move toward a plan that attempts to substantially address coverage, cost and quality, it will start to look an awful lot like what they have been against. If they don’t offer a comprehensive plan, then they will have no answer to one of the key issues facing our country.

The Affordable Care Act was a good step because it was a step; we desperately need to take the next one and find some set of health reform policies that we will actually TRY. It will take both sides to do this, and an important step is to smoke Republicans out on what they are really for (if anything). This is a time where the Rove playbook–go on offense around a presumed weakness–should be co-opted by the President, both for policy and political reasons.