Published December 21, 2015
Nine colleagues and I recently released a report entitled “Improving Health and Health Care: An Agenda for Reform.” This is a comprehensive plan to replace the Affordable Care Act (ACA), reform Medicaid and Medicare, and promote enrollment in Health Savings Accounts.
The main features of the plan are discussed in summary fashion elsewhere and are intended to reorient U.S. health care away from bureaucratic micromanagement and toward consumer and patient preferences. These will be familiar to those who have followed health-care debates over the years. But the plan also includes some elements that are less familiar and worthy of some additional attention. Here are four.
1. Allow a state option for default enrollment in health insurance.
Like many who seek to replace the ACA, we propose a federal tax credit for those who do not have access to an employer-sponsored insurance plan. We also encourage its use — not through an individual mandate, but by offering “continuous coverage protection,” meaning insurers can’t hike premiums or change coverage provisions on customers who have gotten sick if those customers have stayed enrolled in insurance.
We believe the credit would be used extensively, but as with other federal tax provisions and benefit programs, take-up would be less than 100 percent for a variety of reasons. To address this, we would allow states to provide default insurance plans to those who fail to enroll. Enrollees in these plans would owe no premium; the plans would receive only the value of the enrollees’ tax credits, which otherwise would go unused. The insurance plans would be allowed to adjust their deductibles as necessary to ensure premiums for the coverage exactly matched the credits.
States would of course inform residents of their enrollment in these plans and give them to the opportunity to switch to another eligible insurance product. Further, persons assigned to a default insurance plan would be under no obligation to remain insured. They could drop coverage at any time. But it is unlikely that many people would opt to disenroll. These plans would give them financial protection against catastrophic medical expenses at no direct cost to themselves.
2. Recognize Medicaid’s two parts.
There are two very different populations enrolled in Medicaid. First, there are the able-bodied adults and their children who sign up for much the same reason that other working-age people enroll in employer plans: to secure access to physicians and facilities for their primary- and acute-care needs. The other major group is the disabled and poor elderly. Medicaid pays for this population’s long-term care expenses in addition to medical-care costs.
Although most of Medicaid’s enrollees are able-bodied adults and children, costs in the program are highly concentrated in services provided to the disabled and elderly. Medicaid is badly in need of reform, but the types of changes that will work for the part of Medicaid serving the able-bodied are very different from those that will work for the disabled and the elderly.
We recommend explicitly recognizing this reality in the way the federal government provides financial support for the program. We propose to scrap today’s state-specific matching program — where the federal government pays a certain percentage of each state’s Medicaid costs, no matter how much the state chooses to spend, which encourages cost escalation — and replace it with fixed, per-person payments to the states based on historical spending patterns for the program’s two population groups. States would have maximum flexibility to implement reforms without federal interference.
3. Provide a revamped Medicare integrated-care option.
The ACA created Medicare Accountable Care Organizations (ACOs) with the hope that these new entities would bring greater efficiency to the traditional Medicare program through “managed care.” The hope is that ACOs will cut costs by stopping the provision of unnecessary services that add costs but do not improve the health of patients. But the ACO experience has been a disappointment. A basic problem is the lack of real beneficiary engagement. Medicare enrollees do not explicit choose to get their care through an ACO. Rather, they are assigned to ACOs by the Medicare bureaucracy based on their use of physician services. The bureaucracy reviews claims data and assigns to an ACO all beneficiaries whose primary physician has agreed to join one. This approach has made it all but impossible for ACOs to operate like real managed-care plans, with clear networks of providers and incentives for beneficiaries to seek in-network care.
We recommend scrapping the ACO model and replacing it with a more flexible integrated-care strategy. Beneficiaries would be given the opportunity each year to enroll in a Medicare integrated-care plan, and would get reduced Part B premiums if the plan’s rates were below what would be charged in unmanaged “fee-for-service” (FFS) Medicare. Moreover, beneficiaries joining such a plan would be allowed to secure expansive “Medigap” coverage to address any cost-sharing required at the point of service. (For beneficiaries remaining in unmanaged FFS, we would not ban Medigap plans entirely, but we would prohibit them from completely eliminating cost-sharing.)
This revised approach to integrated care in Medicare would foster more competition and innovation by relying on beneficiary choice rather than regulation.
4. Promote enrollment in health savings accounts (HSAs).
HSAs — contributions to which are tax-free — have become a popular option in the employer setting because they provide financial incentives to be judicious in the use of resources. But enrollment in HSAs is limited because contributions are allowed only when a person is enrolled in a high-deductible insurance plan. We recommend scrapping this requirement to allow all American to build HSA reserves they can draw on when they need them. We also recommend providing a financial incentive to seniors to maintain a large balance in their HSAs into retirement, to provide protection against the high cost of nursing-home care. As a reward for boosting their balances above a threshold during their working years, seniors (above age 74) would be allowed to withdraw excess amounts tax-free, up to a limit.
It is possible that the 2016 election will open up new possibilities for revisiting existing health-care policy. But that opportunity will be lost if proponents of market-based reforms have no tangible plans to present and implement. Now is the time to prepare a robust, market-based agenda that can be implemented if the opportunity does in fact presents itself after the election. Our plan, with the ideas presented here and many others, was prepared in the hope in might be useful in developing just such an agenda.
James C. Capretta is a senior fellow at the Ethics and Public Policy Center and a visiting fellow at the American Enterprise Institute.