How to Make Health Insurance Affordable and Attractive: Lessons for the Senate

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By John C. Goodman 

Originally posted at Forbes, June 2017

A big problem with the health bill currently before the Senate is that very few low-income people would purchase any plan, according to the Congressional Budget Office.

Unlike the House version, the Senate bill caps the amount of premium for someone at the poverty level at 2.4% of income. In theory, this means that a family of three coming off Medicaid would face a premium of less than $500 for private coverage.  But since the deductible would exceed $6,000, this is like not having health insurance at all for a young, healthy family.

How can we make health insurance affordable and attractive at the same time for these families?

Before there was Obamacare, many employers provided low-wage employees with “mini med” health insurance plans. Some of these provided coverage for as little as a couple of thousand dollars of medical bills. A more typical plan had limits somewhere between $10,000 and $50,000. None of them covered truly catastrophic expenses.

One of the goals of the Affordable Care Act was to force employers to provide more robust coverage – by fining them if they didn’t and fining the employees if they turned down the employer’s offer. The result? The percentage of workers with garden variety coverage has barely budged and (although exact statistics aren’t available) the number of employees with mini med plans may have actually increased.

The minimum offer the law requires is a bronze plan with a deductible of $7,150 and an employee contribution equal to 9.5 percent of salary. If employees want to cover their families, they may face a deductible of $14,300 and be asked to pay the entire additional premium out of their own pockets. As Andy Puzder (the former CEO of CKE Foods) and I have explained, only a handful of employees accept these offers. (See here and here.) But they get the employer off the hook.

If they turn down the offer, employees are not entitled to obtain subsidies in the Obamacare exchanges and they face potential fines next April 15th. To avoid those tax penalties, some employers are offering a different kind of mini med plan. These plans cover all preventive care with no deductible or copayment and no annual or lifetime limit – the law’s “minimum essential benefits.” They also provide coverage for diabetes, cancer, heart disease and other chronic conditions – but with limits that can still be only a few thousand dollars.

So here is the strange lay of the land. There are almost 30 million people with no insurance at all because they cannot afford the full package of Obamacare benefits in the individual market, even with subsides. Those who get unsubsidized coverage at work have found a loophole. But it’s one that leaves them with very skimpy coverage.

Here is something even stranger: all Republicans have to do to curry voter favor is improve this state of affairs. Yet, they can’t seem to get that done.

The “repeal and replace” bill that passed the House of Representatives in the spring would give states the ability to let health plans in the individual market avoid covering certain chronic conditions or charge higher premiums to new enrollees who have them. This has led to a slew of newspaper articles focusing on the “victims of TrumpCare.”

When someone asks, “What happens to me if I have diabetes?” Republicans apparently have no sure answer. They are vulnerable to the charge that they may make things worse.

Here is a better way – one that uses the mini med approach, but makes the coverage more generous. Keep Obamacare’s full package of benefits (including substance abuse, maternity care, etc.), offer a tax credit that is the same for both individual and group insurance and allow health plans to compete to provide as much coverage for these benefits as they can.

According to a Milliman study, you should be able to buy $10,000 of coverage for a premium equal to about half of what individuals now pay for a Silver plan. For $25,000 of coverage, you will pay about two-thirds. The tax credits in some Republican proposals would allow everyone to be in this range without any additional expense. This coverage does not have sky-high deductibles. It will cover 90 to 95 percent of everything that is likely to happen.

This approach would give almost everyone access to a minimum amount of insurance, instead of saddling some with overly-generous coverage while leaving others with no insurance at all. People could always increase their coverage limits by paying more.

Premiums for Silver plans are twice what they were in 2013 according to a recent government study. The main reason is that group plans are sending so many high-cost patients to the individual market. If a small premium tax were imposed on group insurance to offset the extra expense of this migration (a type of risk pool insurance), the cost of coverage in the individual market would be much lower. In that case, a Republican tax credit might buy $250,000 of coverage.

When health insurance costs no more than the government’s tax credit, automatic enrollment – with the option to opt out — becomes easy. We could require employers to automatically enroll their employees as a condition of claiming the credit. Since 85 percent of the uninsured are connected to the workplace, universal coverage would become a realistic goal. This is something Pete sessions, Bill Cassidy and I pointed out in a previous Health Affairs Blog post.

This approach would be even more attractive if families were given complete protection for their income and assets up to the limit of their coverage. So, if the family has a million-dollar premature baby and they have $50,000 of coverage, the hospital could not garnish their wages so long as they earn $50,000 or less. This would give low- and moderate-income families the same kind of financial protection high income families have. As the family moves up the income ladder, their coverage limits could be increased.

Finally, this approach could be easily integrated with policy changes that allow employers to purchase portable insurance – that travels with workers from job to job and in and out of the labor market. The problem of pre-existing conditions mainly arises when individuals transition from an employer plan to the individual market. But under Obama administration policy, employers faced fines as high as $100 per employee per day for buying individually owned insurance for their employees. The only exception is for employers with fewer than 50 employees, courtesy of the 21st Century Cures Act.

The prohibition on portable insurance may have made sense, given radically different tax subsidies in the individual and group markets. But under this proposal, the tax subsidy would be equalized. With a level tax playing field, portable insurance should be encouraged. It’s the best solution there is to the problem of pre-existing conditions.

That still leaves the problem of paying for the million-dollar baby. But it’s increasingly obvious that the best way to do that is through a better designed safety net, rather than by forcing families to buy insurance that is inappropriate for their income and health status.

This article was originally posted at Forbes on June 29, 2017.