A More Affordable Care Act

The following is a guest post by Andrew Sprung, who blogs about ACA implementation at xpostfactoid and healthinsurance.org. You can follow him on Twitter: @xpostfactoid1.

Review: ObamaCare is a Great Mess: A View of the Affordable Care Act Without Partisan Blinders & How to Fix It. By Jed Graham. Amazon, June 2015

Those who have closely followed the drama of Affordable Care Act implementation as it’s unfolded in the media may be familiar with the sharp criticisms of Jed Graham, a reporter at Investor’s Business Daily. Given the title of Graham’s e-book assessing the law, ObamaCare is a Great Mess, a sometime reader of Graham’s articles might assume that he’s one of the ACA’s many implacable ideological opponents. That would be to ignore the subtitle, A View of the Affordable Care Act Without Partisan Blinders & How to Fix It, as well as its substantive criticisms and recommendations.

Graham identifies the law’s shortcomings from an essentially progressive perspective, highlighting what he presents as the regressive impact of its mandates and the limited affordability of its offerings for many buyers. “The heart of the ACA is basically sound,” he writes. “The goal of reform should be to unclog the arteries and let the heart do its job.”

The artery blockages Graham alleges include the following:

  • The ACA subsidy structure renders coverage genuinely affordable only for insurance seekers with incomes up to about 150% of the Federal Poverty Level, or 200% FPL at best. Those at higher income levels are voting with their feet, forgoing marketplace offerings.
  • For too many buyers, the only premiums that look affordable are those charged for the lowest-tier bronze plans — yet high deductibles and cost-sharing render these plans close to useless for most low-income buyers.
  • The ACA’s limited age-rating, allowing insurers to charge the oldest customers three times as much as the youngest rather than the pre-ACA industry standard of 4-to-1, renders coverage unaffordable to too many young adults and hence is producing risk pools that are too old and sick.
  • The high price of unsubsidized insurance renders coverage unaffordable for many prospective buyers — older ones in particular — whose incomes are modestly above the subsidy threshold.
  • The tax penalty for those who forgo coverage is unduly harsh for those faced with the unaffordable-silver-vs. unusable-bronze choice.

His “sound heart” avowal notwithstanding, Graham views the ACA’s somewhat spotty successes to date through a resolutely glass-half-empty prism. The core problem he identifies — the marginal affordability of ACA private plans offerings for many of the uninsured — is real. But he tends to downplay offsetting facts and factors — for example, that more than three quarters of buyers who are eligible for the Cost Sharing Reduction (CSR) subsidies that are available only with silver plans do in fact choose silver, or that large percentages of the still-uninsured who are eligible for subsidies remain unaware of the help available.

Remixing the subsidies

The main thrust of Graham’s critique was seconded last week by the Urban Institute, in a report warning that under the ACA, “consumers with relatively low incomes may face very high costs for premiums and out-of-pocket costs relative to incomes.” While Urban proposes adding a half trillion dollars in federal spending over ten years to revamp premium and cost-sharing subsidies, Graham’s benefit-related reforms would require presumably more modest outlays (though he doesn’t specify costs). His most interesting ideas involve remixing the subsidy structure.

Graham’s central insight is that at present CSR subsidies present too many buyers with a Hobson’s choice. “At present,” he writes, “there isn’t really any middle ground between coverage that costs too much for many people and coverage that doesn’t do anything much” (locations 1471-72).  He would attach CSR to bronze as well as silver plans, providing a proportionate boost to actuarial value starting from bronze’s lower baseline and extending lower-level CSR to buyers with incomes up to 300% FPL.  He further proposes letting shoppers use half the value of their CSR subsidy to reduce monthly premiums, rather than reducing cost-sharing alone.

Finally, in a bid to lure more young buyers into ACA risk pools, Graham would increase age rating from the current 3-to-1 to 4-to-1 — but only for bronze plans (enhanced with CSR). While acknowledging that across-the-board 4-to-1 age rating would render coverage unaffordable for many seniors, Graham argues, “It’s hard to argue that the ACA has found the right balance between affordability for young and older adults when a bronze plan costs $ 1,000 more for a 30-year-old earning 250% of the poverty level than for a 62-year-old with the same moderate income” (locations 1347-54).

All of those proposals involve tradeoffs. Bronze plans would improve, but more low-income buyers would select them. While very few would end up with plans that leave them as underinsured as bronze plans currently do, many of the roughly 80% of buyers under 200% FPL who currently buy silver would end up with skimpier coverage under bronze plans, enhanced by CSR to a lower actuarial value than silver.

Still, the ACA is supposed to be in part about consumer choice, and attaching CSR to bronze plans as well as silver would afford low income buyers viable tradeoffs between premium and coverage. At present, CSR-eligibles who want a lower premium are forced to leave a valuable subsidy on the table.

A mild mandate

For Graham, improving the bronze offering is linked to making the individual mandate less onerous. He proposes that the penalty simply be a reduction in the subsidy available in subsequent years (e.g., to a new tax credit he proposes for those who earn too much to qualify for premium subsidies), with the subsidy reduction increasing for each year that a person remains uninsured. Going without coverage for one year would leave a buyer with 95% of her tax credit the next year. Lower income buyers would pay just 1% of their subsidy for each year they remained uncovered — amounting to just $10 per year in an example Graham presents. This strikes me as probably too mild and too abstract a penalty, unlikely to deter anyone from remaining uninsured.

Graham’s analysis is essentially apolitical, which is both a weakness and a strength. Its working assumption seems to be that if Democrats agree to repeal the employer mandate (as many progressives, including the Urban Institute report cited above, also propose) and radically scale back the individual mandate, Republicans will agree to other changes that will boost affordability and secure the longtime viability of the marketplaces — as well as to additional funding (see note below). To date, however, Republicans have shown no interest in any changes to the ACA designed to strengthen it.

At the same time, variants of virtually all of Graham’s benefit-related proposals could be tried on a state level, if a governor and legislature so chose, via the ACA’s Section 1332 “innovation waivers.”  These waivers invite states to submit alternative schemes, starting in 2017 that meet the ACA’s standards for affordability and coverage at comparable cost.

ObamaCare is a Great Mess went on sale two days before the Supreme Court rejected the King v. Burwell plaintiffs’ challenge to the crediting of ACA premium subsidies through the federal exchange. Its warnings come at a useful moment. As the decision approached, putting the law’s supporters in an agony of suspense, a cascade of good news came in: the country’s uninsurance rate kept dropping, medical debt was shrinking, spending was coming in under estimate. For many, the King suit came to feel like a final hurdle, and in the aftermath, triumphalism has sometimes run a bit rampant.  Graham’s critique offers a timely warning that no reform as sprawling and thoroughgoing as the ACA can thrive without constant adjustment, that the law as currently structured leaves many underinsured and many feeling priced out, and that the markets and services the ACA created cannot thrive indefinitely without some measure of accord between the two parties.


Update: It can perhaps be argued that Graham’s full package should be considered as a whole to address what he sees as the ACA’s fundamental flaws. That includes his funding mechanism, a far-ranging Social Security reform described in his previous book, to pay for repeal or replacement of the individual and employer mandates as well as for his benefit changes. In brief, Graham would cut the Social Security benefit in early retirement but phase the cuts out over lower-income retirees’ remaining life span. Needless to say, this is not going to happen any time soon, though there’s no reason that Graham shouldn’t lay out his preferred global solution. Meanwhile, states could surely propose changes such as attaching CSR to bronze and expanding age-rating for bronze plans alone via innovation waiver — or, for that matter, replacing the employer or even individual mandates.  Such proposals might require some creative accounting, but so have “private option” Medicaid expansion proposals that have been implemented.

Further clarifications have been added above, as well as one error corrected: Graham proposes expanding age rating for bronze plans to 4-to-1, not 5-to-1.

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