My Seven-Step Replacement Plan for the Affordable Care Act

On Friday, December 14, 2018, a Texas federal judge ruled that the Affordable Care Act (ACA) is unconstitutional. The ruling is expected to be appealed and many, myself included, expect this to head to the Supreme Court. It would be the third time the Court would hear a case related to the ACA and those who oppose the law are hoping that the third time’s a charm.

While the ACA remains in place for the foreseeable future, we need accept that overturning the ACA is a real possibility. This is not like the other 70-odd attempts to chunk the law. The majority of the previous attempts amounted to Republican grandstanding to stir their base and remind voters where the party stood on the issue of Obamacare. We get it. Republicans don’t like it.

What’s different now is a result of the 2017 Tax Cuts and Jobs Act. Part of the legislation eliminated the tax penalty that Americans are required to pay if they do not have health insurance (known as the Individual Mandate). It’s still against the law to not have health insurance, but there’s no financial penalty if you don’t.

Back in 2012, the Supreme Court upheld the Individual Mandate on the grounds that Congress was empowered to tax its citizens (National Federation of Independent Business v. Sebelius). Now that there’s no tax associated with the mandate, some are arguing that the entire law is invalid. In its simplified form, this is the rationale used by 20 state attorneys general when they filed suit deeming the law unconstitutional. The ruling on Friday was a major validation of their lawsuit’s claim.

If the Supreme Court overturns the Affordable Care Act, what do we do? Well, I have some ideas.

1. Remove individuals who have recurring, high cost medical needs from the general insurance pool. About five percent of Americans account for half our health care costs. One reason insurers set rates so high is out of concern that very high cost individuals may sign up for their plans. If these individuals are managed separately, rates for the general population should go down.

Funding for very sick, high cost individuals should be provided by the individuals themselves and through public funding. They should be managed through a system that accommodates their special needs, not rolled in with everyone else and shifted around, year-over-year. Such an approach cannot take a longitudinal perspective on their health and give them the more personalized care needed to help address major health care needs.

2. Require insurers to offer terms of three years, not one. Insurers rely on healthy members to offset the costs of unhealthy members. One of the problems of encouraging individuals to switch insurance each year is that it raises the risk that any one insurer will enroll an individual with a serious health condition for any particular year. Assuming such a scenario happens, that same individual who was very sick one year may have very low health care costs the next few years. If that member switches insurers, the new insurer gets all the upside of insuring the member, but none of the downside that the initial insurer sustained. If insurers were required to offer plans with longer terms, especially for younger individuals, they should be able to lower rates.

3. Tax employer-sponsored health insurance. Half of Americans get their health insurance through their employer. Employer-sponsored health insurance is an untaxed benefit that is one of America’s greatest entitlements. One estimate identified $260 billion in untaxed income that could be reaped by the government if this benefit were taxed. Given our growing deficit and rising interest rates on our debt, America needs all the money we can get.

4. Mandate that the employer-sponsored health insurance subsidy be provided as a cash benefit to employees. Doing so ensures that there is much more transparency related to an employee’s true income. Consider a father of six, compared to a single male working at the same firm. The father’s entire family is covered by the employer, making his true income much higher than that of the single male’s. That inequity needs to be eliminated. In addition, employees should be required to use this cash payment towards health care expenses – either buying insurance or paying out of pocket for health care services.

5. Require employers to offer part-time employees a prorated insurance benefit. A good portion of Medicaid enrollees are employed, but they work part-time jobs that don’t provide them health insurance. Providing a prorated insurance payment would allow some Medicaid enrollees with multiple jobs to cobble together enough money to pay for their own insurance and shift them off the entitlement program altogether.

6. Bring back the individual mandate…somehow. Americans are required to have car insurance in case of an accident. The same logic applies to health insurance. All Americans should be required to have some level of insurance, even if it’s just for catastrophic care. Individuals who do not have insurance and wind up with significant health care needs wind up costing other Americans millions of dollars in indirect subsidies. It’s simply irresponsible not to have health insurance.

7. Leave the prohibition against insurers denying coverage due to pre-existing conditions in place – for now. The mid-term elections made clear that Americans are concerned about losing insurance and/or skyrocketing rates if insurers are able to incorporate a potential enrollee’s pre-existing condition when applying for coverage. But what exactly is a “pre-existing condition”? According to the Centers for Medicare and Medicaid (CMS), “A “pre-existing condition” is a health condition that exists before someone applies for or enrolls in a new health insurance policy.” That’s the vaguest explanation I could imagine, which is part of the problem. It leaves open the door for almost anything to be a pre-existing condition.

In fact, CMS goes further and estimates that between 19 to 50% of non-elderly (i.e. not qualified for Medicare) Americans have a pre-existing condition. Again, it’s a vague assessment, which makes me wonder whether obesity is considered a pre-existing condition. One would think it should be, given its correlative relationship to almost every major chronic disease, from cancer, to diabetes to heart disease. Now consider that about 70% of the American population is either overweight or obese. We’ve gotten to the point where the majority of the population is uninsurable.

No doubt healthy individuals are subsidizing the health care costs for those who are not healthy. But America is a democracy. And until we can shift more of the population into habits that promote healthier lives, we have to yield to the majority needs. And the majority of Americans are, unfortunately, unhealthy.

These are a few ideas that could lower rates for health insurance for the majority of Americans while maintaining some of the Affordable Care Act’s most popular attributes. But much more work needs to be done. We need to address skyrocketing pharmaceutical prices, indecipherable hospital prices and most importantly, work to make Americans healthy again.

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