Good Enough Heath Care Legislation for 2017

There is a lot of hand wringing and concern over the correct order and the details of repeal and replace for the Affordable Care Act (ACA) and various related budget issues.  Even now, the GOP House Plan for repeal and replace is being derided as Obamacare Lite.  The base wonders if the Congressional leaders are wavering in their commitment to repeal the entire ACA.  When they knew Obama would veto it, the Congressional Republicans  had no trouble voting unanimously for repeal.  When they were running for election, they had no problem promising to repeal every word of it.

Now, suddenly they have cold feet.  They want to replace it as soon as they repeal it.  We do not yet know the details of that replacement – promised in phases two and three -- but I am betting it will be long, intricate, and hard to understand.  They don’t want anyone to think they are being cruel or unsympathetic to anyone benefiting from the ACA subsidies.  But this is the wrong approach.

I suggest that it is actually fairly easy to handle this problem in a conservative way while minimizing political risk and maximizing political gain for the Trump administration and the Republican Party.  As suggested by the title, it is useful to separate the functional issues from the budgetary ones.  So much has been written about the ACA that I will take it for granted that the reader is reasonably familiar with its main features and the arguments surrounding them.  I will not try to provide a systematic discussion of these features.

Even so, there are troubling hints that Congressional Republicans are wavering.  They fear that any adverse consequences of repeal will be blamed on them.  They want the comfort of a full replacement in place before they vote to repeal.  There is even talk of repair instead of repeal.  This would be an error.  They have been promising full repeal for years now.  It would be a betrayal of their core constituency to do otherwise.  There is a safe path to do so.

I start with a brief analysis of the current law.  I am one of the crazy people who actually read the law before it passed.  That was not the final version.  It got longer and more complicated, but I read the penultimate version or maybe it was the antepenultimate version.  You get the idea.  There are many terrible features.  The worst one is the Independent Payment Advisory Board (IPAB, aka death panel).  The many rules and codicils are so intertwined with each other and with older laws that the only way to make a clean break is to repeal the entire Affordable Care Act as of a date certain, say in 2018 or 2019.  With that in mind, the first step is straightforward.

Step 1: Repeal the ACA -- Every word of it.

Remember we are replacing a multi-million word monstrosity of legislation and regulation.  Let’s be sure the replacement avoids the attempt to micromanage everything with rules that no human being could fully comprehend.  To simplify the discussion break up the replacement into two broad categories:

  • Insurance Rules
  • Government Subsidies and Taxes. 

Three big features never should be replaced, namely the IPAB, the individual mandate to buy insurance, and the employer mandate to provide insurance.  These are incompatible with a free society.

Step 2: Insurance Rules

States should retain the right to regulate insurance policies sold only within their borders.  Create a new category of medical insurance that can be sold nationwide without regard to individual state requirements.  There would be some requirements on such policies.  For easy reference, call eligible policies “conforming policies.”  There are numbers of very popular and not so popular features in the ACA that various interest groups would like to see retained.  The biggest one is coverage of pre-existing conditions on newly issued policies. 

I propose that at or near the time of repeal of the ACA, just a few provisions be required to qualify as a conforming policy.  Whenever a provision is placed on allowable policies, a complex set of rules is needed to even define the implementation of risk pools and premiums to describe compliance.  These rules should be made as simple as possible, but must be dealt with by whoever writes the legislation.  Once a policy is conforming, additional features may be offered as optional add-ons.  With that in mind, here are a few suggestions for the list of conformance rules:

  1. Once Insured, Always Insured (OIAI): As long as premiums are paid, the policy cannot be cancelled due to illness or financial hardship nor can any cap on coverage be imposed.  Functionally, this amounts to unlimited catastrophic coverage.  Renewal from year to year is guaranteed at the same premium as members of the original risk pool.  If that risk pool is based on employment, and if the insured leaves that pool, then enrollment in a substantially similar pool is guaranteed with no increase of premiums.
  2. Family Policy Coverage (FPC): Family policies must cover all immediate family members who have not yet reached their 27th birthday. 
  3. Pre-Existing Conditions (PEC): Premium categories may not depend on pre-existing conditions.  Now OIAI and FPC are the core of PEC.  The adverse selection problem remains to be dealt with.  There should be no formal mandate to purchase insurance, but the option to buy insurance with no penalty for pre-existing conditions should probably expire at some age, say 30, a bit like a call option on stocks.
  4. National Marketplace (NM): As long as a policy conforms to the national standards set out here, it may be sold anywhere in the country.  States may not block such sales.
  5. Equal Tax Treatment (ETT): Employers do not have to offer subsidized health insurance, but if they do, the tax deductibility to the employer must be the same as to an individual policy purchaser.
  6. Financial Hardship Insurance (FHI): To be conforming, a policy must include a provision for paying premiums and/or deductibles in extenuating circumstances.  Details need to be worked out and a federal subsidy may have to be part of the final rules.

It should be left open for Congress to impose additional requirements on conforming policies.  There might be certain procedures or treatments that are mandated be included with or without an allowable deductible fee.  The point is that this is not meant to be a complete health care bill, but only enough to calm fears of a coverage vacuum while more final features are hammered out.

Step 3: Government Subsidies and Taxes

The ACA is loaded with complicated rules and formulas to give nearly everyone without a six-figure income a subsidy to buy health insurance.  It also gives subsidies to states for Medicaid.  Ignore CBO and OMB projections.  Nobody really knows just how much these add up to or how much they distort the pricing mechanism of the free market.  Nevertheless, there is overwhelming public support for some level of subsidy.  In that sense, the left’s call for single-payer is seductive.  However, history has taught that free markets lead to better outcomes.  Since premiums will have to get some government subsidy, Congress should strive for a simple voucher or tax credit to accomplish this.  For now, the details of the middle class subsidies and Medicaid expansion should be left open.  The beauty of this approach is that with repeal of the ACA and implementation of the rules for conforming policies, there will be a new status quo.

A robust debate should ensue.  Since the new status quo after repeal of the ACA will be no subsidies, it will behoove the Democrats to cooperate in designing a mutually acceptable solution.  There are some middle class subsidies built in the ACA and these should largely be preserved, not because it is sound policy, but alas, it is hard to take away a benefit from your core constituency, namely working people.  That is a crass political fact, but a fact nonetheless

If liberals want any input into the final rules, they will have to bargain in good faith (to steal a popular labor meme).  This is a good general strategy which can be used to set new norms in government for years to come.

Of course others may have priorities different from the ones I have listed.  This is not an attempt to design a take-it-or-leave-it solution -- just an example of how Congress could proceed with very simple, transparent rules.

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