Health Insurance For All, The American Way

Introduction

Since the Civil War ended in 1865, every American generation has produced an economy that has expanded opportunity for the generation that followed—until today. Millennials are drowning in student debt and struggling with rising costs of living.

The biggest driver of rising costs of living is health care. While the Affordable Care Act was billed as the final brick in the edifice of universal coverage, 25 million Americans still lack health insurance. Tens of millions more have coverage, but struggle to pay their premiums, out-of-pocket costs, and other health care bills.

And it is Millennials, Generation Z, and the generations to come who will be forced to pay for the tens of trillions of dollars in debt that older generations have piled upon them. This problem highlights the central flaw in Sen. Bernie Sanders’ “Medicare for All” plan, which would increase federal spending by $32 trillion over ten years, without reducing the underlying cost of U.S. health care. Spending the money of tomorrow’s generations—in order to paper over the high cost of today’s health care—would only compound the problems we face.

Some conservatives, on the other hand, oppose subsidizing coverage for the working poor, while accepting a regressive U.S. system that subsidizes coverage for the wealthy: through the exclusion from taxation of employer-based coverage, and through generous subsidies for wealthy retirees enrolled in Medicare.

The more principled approach is to achieve affordable health care for every generation: not only the generations living today, but also the generations of the future.

This requires us to do three things at once: (1) make health insurance affordable for the remaining uninsured; (2) ensure that coverage is more affordable for those already insured; and (3) make our public health care commitments permanently fiscally sustainable for the generations to come.

The failure of partisan approaches to health reform

In 2017, Republicans attempted to “repeal and replace” the Affordable Care Act with a system that would have increased the number of Americans without health insurance. While there were aspects of the GOP reform bills that were salutary, Republicans’ ambivalence toward making health insurance affordable for every American ultimately sank their bill.

A growing number of Democrats have responded to Republicans’ calls to repeal Obamacare by embracing a government-run, single-payer health care system in which 180 million Americans with private health insurance would see their plans abolished, and replaced by one in which Americans would no longer have the right to choose their health insurance plan.

Health reform need not be a zero-sum partisan game. Indeed, the most sustainable approach to health reform would advance both conservative and progressive goals at the same time: ensuring that every American can afford health insurance, in a market-based system embracing the conservative values of private choice and fiscal sustainability.

This bipartisan framework would leave us with a uniquely American approach to universal coverage, one that preserves the role of choice, competition, and innovation in health care, while also guaranteeing that costly medical bills will no longer force Americans into bankruptcy.

Who are the remaining uninsured?

There are two principal estimates of the number of U.S. residents who are uninsured: the Census Bureau’s Current Population Survey, which estimates there were 29 million residents without health insurance in 2017; and the Congressional Budget Office, which estimates that 32 million will lack coverage in 2019. Drawing from Census data, a group of researchers from the Urban Institute led by Linda Blumberg estimate that 30 million U.S. residents were uninsured in 2017.

One might assume that the remaining uninsured require additional subsidies to purchase coverage. But the Urban group estimates that only a small minority of the remaining uninsured fit that description. 18 million—three-fifths of the total—are already eligible for enough assistance, in theory, to make health coverage affordable:

• 7.5 million uninsured (25 percent of the total) are eligible for Medicaid or the Children’s Health Insurance Program (CHIP), which are essentially free to enrollees;
• 3.1 million uninsured (10 percent of the total) are eligible for exchange subsidies through the Affordable Care Act and have incomes below 200 percent of the Federal Poverty Level, entitling them to heavily subsidized individual-market coverage, in which their out-of-pocket premium costs are capped at between 2 percent and 6.3 percent of household income;
• 4.4 million uninsured (15 percent of the total) are eligible for exchange subsidies through the Affordable Care Act and have incomes between 200 and 400 percent of the Federal Poverty Level, entitling them to moderately subsidized individual-market coverage, with their share of premium costs capped at between 6.3 percent and 8.05 percent of household income; and
• 2.7 million uninsured (9 percent of the total) received an offer of affordable coverage from their employers, defined as coverage for which the worker’s direct out-of-pocket premium costs are less than 9.56 percent of his household income.

An estimated 4.9 million—16 percent of the total—are residing in the U.S. illegally, and are therefore ineligible for most public assistance. That leaves two remaining categories:

• 4.7 million uninsured (16 percent of the total) do not have an offer of employer-sponsored coverage but earn too much to be eligible for ACA subsidies; and
• 2.8 million uninsured (9 percent of the total) whose incomes are below the Federal Poverty Level but live in states that have not expanded Medicaid as prescribed by the ACA, and are not eligible for the pre-ACA Medicaid program.

Targeted reforms for each uninsured segment

Segmenting the uninsured market in this way leads us to several observations and proposals:

1. Lowering premiums in the individual and employer markets will make coverage more affordable for key uninsured populations. We review several ways to do this in our companion proposal, Bringing Private Health Insurance Into the 21st Century, most notably integrating high risk pools into the individual market through reinsurance. Part II of our broader plan, Medicare Advantage for All, considers ways to further lower premiums by reducing hospital and pharmaceutical prices. All of these reforms should substantially help the 41 percent of the uninsured who participate in the individual market but choose not to buy coverage.
2. Create more affordable options in the individual market, such as Copper plans, and enable tax credits to be used to purchase them. In this way, uninsured individuals have more options available to them with no premium net of subsidies.
3. Allow uninsured Americans with affordable offers of employer coverage to enroll in the individual market. Many of those who choose not to accept employer-sponsored coverage may be eligible for tax credits to purchase more affordable coverage in the individual market. They should be allowed to do so. Fiscally, this should be a neutral trade, as the value of the ACA’s premium tax credits is roughly equal to the value of the exclusion from taxation of employer-sponsored insurance. Over time, the tax exclusion for employer-sponsored coverage should be converted into an employer-funded health reimbursement account that workers can use to buy their own coverage on the individual market.
4. Enable states to auto-enroll those eligible for low- or zero-premium coverage. Most U.S. residents eligible for substantial premium and cost-sharing subsidies, such as those with incomes below 250 percent of the Federal Poverty Level, should have a plan available to them with a zero or near-zero premium, especially if this reform is paired with Copper plans.
5. Enable employers to auto-enroll workers into employer-sponsored coverage. Employers should be allowed to auto-enroll workers into their employer-sponsored plans, provided that the workers have the ability to opt out, and that the worker certifies he does not have health coverage through another source.
6. Give states the option to expand coverage through individually-purchased private insurance, instead of Medicaid. Health outcomes on Medicaid are no better than those for individuals without insurance. Private coverage, on the other hand, does improve health outcomes. States should be empowered to expand coverage through the individual market instead of Medicaid.
7. Consider lifting the 400% FPL cap on individual market tax credits, if the increased spending can be fully offset elsewhere. A key group of remaining uninsured are those whose incomes are above 400 percent of the Federal Poverty Level, A number of reforms in Medicare Advantage for All could be deployed for the fiscal offset.

More affordable coverage for those who already have it

While much of the public debate about health care focuses on the uninsured, an more significant problem is that so many Americans with health insurance are struggling to afford their premiums and out-of-pocket costs, along with the taxes they pay to fund others’ coverage. If the cost of U.S. health care continues to rise faster than wages, more Americans will be uninsured in the future.

Here, the goal should be to modernize and improve the program that delivers health insurance to the majority of adults in America: employer-sponsored insurance, or ESI. As discussed above, there are two principal ways to reduce the cost of employer-sponsored coverage:

1. Give workers the freedom to choose their own coverage. In Bringing Private Health Insurance Into the 21st Century, we propose allowing employers to fund health reimbursement accounts that could be used to purchase coverage on the individual market. Furthermore, we propose requiring that, in the future, newly incorporated businesses fund HRAs for the purpose of purchasing individual coverage, instead of employer-sponsored group coverage. This approach would grandfather all existing businesses that sponsor group coverage, but over time, as the startups of the future mature, working Americans would transition into a consumer-driven individual market for health insurance. As workers control their own health care dollars, they will drive cost savings throughout the system.
2. Reduce the underlying cost of health care. In Improving Hospital Competition and The Competition Prescription, we propose a series of reforms aimed at tackling two of the biggest drivers of rising health care prices: hospital care and prescription drugs. Both drivers share a common trait: they involve the abuse of monopoly power by private entities to raise prices beyond sustainable levels.

A fiscally sustainable system for future generations

One of the central flaws in today’s U.S. health care system is that today’s enrollees in public programs—in particular, Medicare and Medicaid—are funded by placing claims on the wages of future generations. Approaches to universal coverage that subsidize insurance for today’s Americans, by miring future generations in debt, is not a sustainable system.

As we discuss in Medicare Advantage: A Platform for Affordable Health Reform, today’s Medicare beneficiaries receive 3 to 4 times the benefits than they paid in taxes. The Medicare hospital trust fund is slated to become insolvent by 2026. Medicare and Medicaid represent tens of trillions in unfunded liabilities that future generations will be forced to pay.

Solving this problem does not require increasing costs for seniors enrolled in Medicare today. Rather, it requires to reduce the underlying cost of delivering health insurance to the elderly, through competitive bidding and consumer-driven innovation in the management of elderly care. Such an approach, if designed carefully, could be a win-win: lower premiums and out-of-pocket costs for seniors, and lower spending on Medicare for rising generations.

It is also important to phase out government subsidies for those who manifestly do not need them: retirees with lifetime earnings above $10 million. Middle-class and lower-income Americans should not be asked to pay higher taxes so that the wealthiest seniors—those who can afford to buy their own coverage—receive government-funded insurance.

Congress should also consider ways to replace Medicaid-based coverage for able-bodied adults with consumer-driven, private coverage in the individual health insurance market. As we note in Bringing Private Health Insurance Into the 21st Century, private coverage would improve health outcomes for current Medicaid enrollees, who would enjoy broader and more continuous access to primary care physicians and provider networks.

Reducing the cost of individual market coverage, through the reforms described above, makes it fiscally feasible to integrate current Medicaid enrollees into the individual market. Importantly, under the Affordable Care Act, individual market subsidies are highly fiscally sustainable, because their growth over the long term is tied to consumer inflation rather than runaway health care inflation. The inflation cap on subsidies, in turn, forces insurers, providers, and drug companies to keep their products and services affordable.

This is the key to making our existing public health care programs fiscally sustainable in the future: ensuring that the U.S. economy—and therefore tax revenues—grow at a faster rate than government spending on health care. This is what economists mean when they talk about “bending down the health care cost curve.”

Conclusion

The United States is very close to joining the rest of the industrialized world in achieving universal coverage. But it is far away from its wealthy peers in terms of the affordability of health care for Americans living today, and for the generations that are yet to come.

The good news is that the reforms we need to solve these problems are within our reach. We can achieve both the progressive goal of universal coverage and the conservative goal of a fiscally sustainable, market-based health care system. Read on to learn more.

While we consider the bipartisan path to reform, we must eschew another, more dangerous bipartisan approach: the status quo. The status quo is beloved by those who benefit from the $3 trillion a year Americans spend on health care. Overcoming that status quo will take true leadership from both parties.