How the ACA should have been different, the hindsight bias game

Lonely Libertarian wrote,

I would be interested in hearing your thoughts on how you might have changed the ACA—or if you would have—had you known “then” what we “know” now.

I’ll play this hindsight game, so long as we all understand that it is, by definition, unfair to presume that what we know and would do now could have been known and done then. With that in mind, here are two things, among many, we now know (or know better):

  • The Medicaid expansion is optional and resisted in about half the states
  • The individual mandate remains unpopular and divisive

(In contrast, we don’t yet know that the exchanges are, broadly, a failure or that enrollment will be lower than expected or too highly skewed unhealthy/old. It’s too early to draw any conclusions about these. But I already have ideas—which I’ll save for another time—to offer in case these come to pass.)

In light of these, if I had the power to go back in time and change the ACA, I’d have made exchange subsidies available down to 0% FPL, with the state option of allowing individuals with incomes below 133% FPL to enroll in Medicaid as another choice, alongside exchange plans. That is, publicly administered Medicaid would be a state-discretionary “public option” for poor individuals. They could use their exchange subsidy to enroll in Medicaid or any participating private plan.

Clearly, subsidies would have to be at least generous enough to make Medicaid, if not private options, affordable for very low income individuals. The upside here is that all poor Americans, even in states that didn’t want to offer a Medicaid expansion/public option, would have access to subsidized coverage.

I’m leaving out some details about how to set subsidy rates down to 0% FPL. (I see several approaches.) Any way you slice it, I think it’s likely that a reasonable approach would cost more than the ACA’s original design, because subsidies for poor Americans in states that refused the Medicaid option (if not also in states that accepted it) would likely have to be higher than the cost of Medicaid.

How would we pay for that extra cost? One way is to cap the employer-sponsored insurance (ESI) tax subsidy to an extent that would generate more revenue than the Cadillac tax. Another way is to move Medicare/Medicare Advantage to a competitive bidding (premium support) regime. These are not mutually exclusive and both are appealing policy options to conservatives. Finally, one could extend the Medicaid public option up to higher incomes and or the Medicare FFS public option to younger ages. These might appeal to progressives. All of the above would save money or generate revenue, and some versions of them have been scored by the CBO, I believe. (With apologies, I’m not link hunting right now.)

As for the individual mandate, I’d have dumped it for a late enrollment penalty of a size that compensates insurers for any additional cost they might incur under such a scheme (e.g., if late enrollees are disproportionately sicker than the insured pool at time of sign-up). Obviously the precise penalty level would have to be either set in the market (risk rating for late enrollees?) or revisited over time for calibration. Many options here.

This leaves open the problem of the uninsured imposing costs on the system (uncompensated care). To the extent that would remain an issue, it might require slightly higher taxes to deal with it.

I could entertain other ways in which the past me (were he king) would change the ACA if he knew what the current me knows (some are here), but this is enough for now. I’ll conclude with a major caveat: the utility of policy proposals, with or without hindsight bias, is attenuated to the extent they are politically infeasible. I’m not at all confident what I suggested above would have passed Congress in 2009-2010 or any particular Congress in the future.


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