Introduction:
A previous post evaluated several of the Biden Administration’s domestic policy agendas, including the Administration’s proposals on health care and insurance, student debt and college costs, retirement savings, and the fiscal condition of Social Security.
The evaluation of the Biden Administration’s record on health care found several persistent problems including a high number of uninsured or underinsured people, loss of insurance during economic downturns, and high levels of out-of-pocket costs leading to medical debt or decreased retirement savings have not been fully addressed.
This paper puts forward several new proposals to address these health insurance problems.
Five Health Care Proposals:
Proposal One: Modify tax rules governing access to employer-based Insurance and state-exchange insurance:
Analysis: Current tax rules and regulations result in around 156 million Americans obtaining health insurance through employer-based plans compared to around 16 million people who obtain health insurance through state exchanges. The proposed changes facilitate greater use of state-exchange health insurance.
New rules include:
- Tax deductibility of employee benefits for 75 percent of the cost of state-exchange health insurance for each employee.
- Modification of employer mandate to facilitate employer subsidies of state-exchange health insurance instead of firm-specific employer coverage. All firms that pay 50 percent of employee costs on state exchanges would satisfy the employer mandate.
- A premium tax credit similar to the existing premium tax credit to cover costs for workers without an affordable health insurance option.
- Facilitate the purchase of retiree health insurance on state exchanges rather than through existing employer plans.
Advantages of new rules:
- Proposal maintains tax-preferred employer payments for health insurance.
- Proposal provides access to a wider range of state exchange policies allows workers to find a health plan that matches their needs. Many workers with employer-based insurance have only one insurance option.
- The use of state-exchange health plans allows workers to maintain the same health coverage during job transitions including periods of unemployment.
- The automatic increases in the premium tax credit due to loss of income from the loss of job facilitate continuous health coverage when a worker becomes unemployed.
- Greater use of state-exchange health insurance would make it more difficult for Republicans to initiate plans to weaken or eliminate state exchanges and other ACA innovations.
The possibility that a combination of employer-based and state exchange insurance markets facilitated through tax policy changes might lead to reduced disparities in insurance coverage and continuous coverage through job transitions was discussed here in this blog.
Proposal Two: Modify the use-or-lose provision governing contributions to Flexible Savings Account.
Analysis: Under current rules, contributions to flexible savings accounts that are not used for qualified medical expenditures are forfeited by the taxpayer to the Treasury. The proposed changes would allow the roll-over of unused fund to a tax-deferred retirement plan.
New Rules:
- Unused contributions to a flexible savings account will be automatically rolled over into either a 401(k) plan or IRA.
- The portion of the ACA that is rolled over into the retirement plan will be taxed as ordinary income.
Advantages:
- The proposal encourages greater use of flexible savings accounts, which will reduce the tendency for households to forego necessary health regimens and procedures.
- The proposal adds additional retirement savings for workers and reduces the tradeoff between saving for retirement and savings for unanticipated health care costs.
Proposal Three: Replacement of tax deduction for contributions to a health savings account with a tax credit.
Analysis: The current tax deductibility of contributions to health savings accounts provides greater benefits to high-income households than to low-income or middle-income households.
Potential New rules:
- Create a tax credit equal to 20 percent of the annual contribution to a health savings account.
- The tax credit will not be refundable.
Advantages:
- The use of the tax credit will facilitate contributions to health savings accounts by low-income and middle-income people who are now less likely to contribute and may forego medical procedures and regimens due to lack of funds.
- Refundable tax credits are plausible but monitoring costs would be high and Health Savings Accounts are probably not the best product for people without taxable income.
Go here for the literature on health savings accounts and high-deductible health plans. It is possible that modification of flexible savings accounts as described in proposal two would be a more efficient approach.
Proposal Four: Replace Short Term Health plans with a more comprehensive low-cost health insurance option.
Analysis: Short-term health plans, which were expanded by executive order under the Trump Administration and remain in place provide suboptimal health coverage. Short term health plans often deny coverage for life-saving procedures, fail to cover many conditions including pregnancy and mental health conditions, and leave households with extremely large bills for short hospital stays. The replacement of short-term health plans with viable comprehensive health insurance would eliminate these situations.
Proposed New Rules:
- A new health insurance product consisting of a private health insurance plan with an annual limit on total health care expenditures and automatic access to Medicaid once health expenditures reach their annual limit is created.
- Private component of new health insurance product would be priced based on age like current state-exchange policies.
- Private component of nee health insurance product would cover all essential health benefits like current state exchange health plans. Reasonable deductibles and coinsurance obligations would be allowed and encouraged.
- Current short-term health plans which allow for underwriting based on health status, deny essential health benefits, and allow for exclusions based on previous health conditions would be prohibited.
Advantages:
- The replacement of short-term health plans with this new low-cost private/public health option would reduce the number of people who were uninsured or underinsured.
- The private/Medicaid option provides access to more doctors and specialists than a pure Medicaid option.
- The private/Medicaid combination could prove to be less expensive to both federal and state taxpayers than the pure Medicaid option.
- The premiums on the private health plan should be reasonable because of the annual limit and cost sharing obligations. The lower premiums would reduce the loss of tax expenditures to the Treasury from government health insurance subsidies.
Go here for a short post on the problems with short-term health plans.
The idea of combining private insurance with an annual expenditure limit with automatic access to Medicaid for patients that exceeded the annual limit is conceptually similar to rules governing access to Medicaid benefits for nursing homes. The proposal was outlined in this paper found at SSRN.
Proposal Five: Facilitate necessary out-of-network treatments of difficult to treat conditions.
Analysis: The passage of the Affordable Care Act (ACA) increased the need to control health care costs and insurance premiums. Narrow network health plans are a popular option on state exchanges for people and plan sponsors seeking to reduce premium payments. However, access to health services in narrow-network plans is often limited, especially in plans with few specialists and a narrow geographic scope.
Proposed Reforms:
- Improved network adequacy regulations,
- Expanded dispute regulation procedures to cover all medically necessary out-of-network procedures,
- Additional government subsidies for certain high-cost medically necessary health care procedures
Advantages:
- All three approaches have merit but the improvements in network adequacy and the expanded dispute resolution will increase costs to the insurance plan.
- The proposal to expand existing state-level network adequacy regulations might be difficult in states with a relatively small number of providers.
- The proposal for expanded dispute regulations procedures could be implemented through modification of the No-Surprises Act.
- An additional limited government subsidy for high-risk high-cost cases would reduce insurance costs and premiums.
This issue could partially be addressed by expanding the No-surprises act but I argue here that additional subsidies for high-cost cases, which require an out-of-network specialists would also be beneficial.
Find more details on these policy proposals in a paper A 2024 Health Care proposal.