Introduction:
The ACA reduced the number of people without health insurance coverage by creating state exchange health insurance markets and expanding Medicaid coverage. The Biden Administration expanded the premium tax credit for state exchange insurance and facilitated additional continuous Medicaid coverage. However, the Biden-era reforms will lapse.
The enhanced premium tax credit will remain in place through 2025. A Covid-era program facilitating continuous Medicaid coverage expired April 1, 2023.
Many health insurance and health care problems persist. Some appear to be worsening.
Cost sharing, including deductibles, maximum allowable out-of-pocket limits, and coinsurance rates, for people with comprehensive health insurance coverage has increased for decades.
People with employer-based health insurance are still susceptible to a loss of health insurance coverage, increased premiums, and additional out-of-pocket costs during job transitions. Loss of coverage and increase uninsured costs will still routinely rise during recessions.
Middle-income adults with state-exchange insurance still pay substantially higher premiums than middle-income adults with employer-based health insurance.
Workers at firms with relatively few health insurance options are usually ineligible for the premium tax credit for state exchange insurance and are often locked into a policy that is not best suited for their needs. (The Biden administration did eliminate the family glitch impacting the affordability of family-plan state-exchange policies. However, many families with an offer of employer-based insurance are still precluded from claiming the premium tax credit for state-exchange policies even when the state-exchange policy is superior to the employer-based policy.)
Many households unable to afford comprehensive health insurance have purchased short-term junk insurance policies that leave them de-facto uninsured and exposed to high medical expenditures.
Despite passage of the no-surprises act many households are still receiving bills from out-of-network providers, especially out-of-network specialists at in-network facilities.
Many narrow-network health insurance plans do not provide sufficient access to top hospitals or specialists.
The memo outlines potential policy responses to these health insurance problems. A more in-depth discussion of the problems and proposed solutions can be found in A 2024 Health Care Reform Proposal available at Kindle.
Potential 2024 Health Care Policy Proposals:
Proposal One: Modify Rules Governing Health Savings Accounts and Flexible Savings Accounts to mitigate problems associated with higher cost sharing between insurance companies and households.
Issues: Health plan deductibles and other forms of cost sharing between insurance companies and households have been increasing for the last two decades. Many low-income and middle-income people either cannot afford to fund their health savings account or can only fund the health savings account by reducing contributions to their retirement accounts. The growth of out-of-pocket health care expenses has resulted in higher levels of medical debt, has caused some people to reduce savings for retirement to fund health savings accounts or flexible savings accounts and has resulted in many people foregoing necessary medical procedures and drug regimens.
Potential Solutions:
Many of the problems associated with the use of high-deductible health plans, health savings accounts and flexible savings accounts can be remedied with changes to tax rules. Proposed changes include:
- Expand eligibility for contributions to health savings accounts to people with health plans that have modest deductibles and other forms of cost sharing including high coinsurance rates and high deductibles.
- Replace the deductibility of contributions to health savings accounts with a tax credit to better assist low-income and middle-income households. Alternatively, provide a tax credit for contributions to health savings accounts for low-income households and deductibility of contributions for households with income greater than a specific threshold.
- Modify rules governing unused funds in flexible savings accounts to allow individuals to transfer some unused fund to an Individual Retirement Account or a 401(k) plan.
Proposed changes to rules governing high-deductible plans and health savings accounts could improve health outcomes and financial security and could increase retirement savings.
Proposal Two: Modify rules governing the premium tax credit for state-exchange insurance and the employer mandate to maintain continuous health insurance coverage during job transitions and to reduce disparities in health insurance outcomes and costs.
Issues: The existence of separate employer-based and state-exchange health insurance markets causes disruptions in coverage during job transitions and disparities in health insurance costs and outcomes. Three issues need to be addressed.
- Most people with employer-based insurance must find new health insurance or experience a disruption in coverage during a job transition. Loss of health coverage is always high during economic downturns.
- Middle-income young adults with state-exchange health insurance pay substantially more in health insurance premiums than a similarly situated middle-income young adult with employer-based coverage.
- Many people with employer-based coverage are ineligible for the premium tax credit for state exchange health insurance even if the employer-based plan is not the best plan for the household.
Proposed Solutions:
- Allow employers to contribute to the purchase of state-exchange health insurance instead of purchasing employer-based health insurance.
- Allow for conversion of employer-based insurance to state-exchange insurance when employees are being laid off.
- Create a new tax credit covering part of the cost of state-exchange insurance for workers at small firms with income less than 400 percent of the federal poverty line.
- Maintain a premium tax credit that limits workers share of premiums to 8.5 percent of income.
- Modify the employer mandate to guarantee a minimum subsidy of premiums by large employers. The combination of the new tax credit and the employer subsidy will pay the entire health insurance premium for most households. Some low-income households would be eligible for additional assistance through the premium tax credit.
Proposal Three: Outlaw most short-term health insurance policies and create a new private/public low-cost health insurance option.
Issues: A 2019 Trump Administration rule expanded the use of short-term health plans which did not cover essential health benefits. Many problems are associated with the use of short-term health plans.
Short-term health insurance plans provide extremely limited coverage. Common problems include – (1) Denials of benefits for life-saving procedures (2) Strict limits on reimbursements for hospital stays, surgeries and for doctors. (3) Denial of benefits by requiring extensive documentation after a procedure has been conducted. Short-term health plans often lack coverage for pharmaceutical benefits, maternity benefits, and mental health services. People with short-term health plans can often not obtain needed health services or have large financial exposures if they become ill.
Insurance companies are allowed to deny short-term coverage to people with pre-existing conditions and to base premiums on the health status of the individual. As a result, the existence of the short-term market undermines the state-exchange markets.
Potential Solutions:
- Abolish all health plans that do not provide coverage for essential health benefits as defined by the ACA.
- Create a new lower-cost health plan that imposes an annual health expenditure limit.
- Allow automatic enrollment in Medicaid for people with the new low-cost plan that meet the annual limit.
- Limit enrollment in the new low-cost health plan to people who cannot afford current state exchange plans with no annual limits.
The combination of private insurance with an annual limit with public insurance coverage above the limit could in principle be applied to all workers. Such an approach would lower costs and provide universal coverage while maintaining private control over health decisions.
Proposal Four: Create additional regulations to limit surprise medical bills and assure that insurance companies provide adequate provider networks.
Issues: Increasingly, health insurance and employers are attempting to reduce health expenditures by limiting access to providers. Many health insurance policies impose higher deductibles and higher cost-sharing for out-of-network services. HMOS prevent consumers from ever going out-of-network. (This approach is in many ways unique to the health insurance and health care industries. In most instance, competition is increased, and prices decreased when consumers have access to many service or good providers.)
Consumers with a narrow-network health plan are most likely to experience a surprise medical bill when they are forced to go outside their network for emergency services or when they go to an in-network facility that hires out-of-network providers. A recently enacted no-surprises law attempts to reduce unexpected costs when consumers are forced to go out-of-network.
The no-surprises law does not fully address issues caused by narrow-network health plans.
- The no-surprises law allows consumers to waive their rights to an in-network provider at facilities that offer both in-network and out-of-network providers. It is often difficult to obtain timely non-emergency service without hiring at least on out-of-network provider.
- Health care facilities often enter and exit a network. In some part of an in-network facility could be out-of-network. (I recent found that the hospital scheduled to give a biannual heart stress test was inside the network, but the radiology department was outside the network.)
- The responsibility of determining whether a network is inside or outside of the network lies on the individual consumer, not the insurance company or the provider. Sometimes information obtained from the insurance company or the provider about network status is incomplete or not up to date.
- Some people with narrow-network plans often have a hard time obtaining access to specialists. This problem is most severe for extremely narrow specialties and in rural areas.
- Many narrow-network plans do not offer access to top hospitals, especially cancer hospitals.
Proposed Solutions:
- Create rules requiring insurance companies to provide reimbursement to all providers working at in-network facilities.
- Create and enforce additional network adequacy regulations.
- Require insurance companies to cover expenses for all providers working at an in-network facility.
- Expand dispute resolution rules under the no-surprises act to cover all out-network situations, especially those involving use of specialists.
- Create an insurance subsidy for high-cost health expenditures couple with a requirement that insurance companies provide greater access to top hospitals and specialists.
The recently enacted No-surprises law had bipartisan support. However, the approach leaves many problems associated with narrow network health plans unresolved and does not incentivize insurers to broaden their networks.
Concluding Thoughts: The 2020 health care debate in the Democratic Party involved a discussion on the merits of modifying the ACA versus the merits of replacing the existing health care system with a single-payer system. The single-payer option was both politically and economically unfeasible. The Biden-era modifications to the ACA did not result in meaningful permanent changes to health insurance or health care.
The Biden-era changes to the premium tax credit lapse in 2025. The changes in Medicaid eligibility rules, under the Covid emergency, expire in April 2023. Problems related to cost sharing and high deductibles persist and were not addressed. The issue of future loss of insurance coverage during economic downturns has not been addressed. Despite elimination of the family glitch many disparities in health care price and outcomes persist due to the separation of state-exchange and employer-based health insurance outcomes. Short-term junk health insurance problems still exist. The No-Surprises Act addressed some but not all problems associated with narrow-network health plans.
Long-term permanent solutions to health care problems can only be achieved if the Administration prioritizes health care over other concerns, including the spending in the Build Back Better Bill, some of the proposals for discharge of student loans, and even the expansion of the child tax credit. Several of the health insurance reforms discussed here deserve prioritization over other proposals because the reforms also enhance financial and retirement security.
David Bernstein is the author of the 2024 Health Care Reform Proposal, a memo that is available at Kindle. This paper does a good job discussing the academic literature and providing background on the health insurance problems and policy proposals outlined in this memo.