Health-Care Reform, 2015
What the next health-care fight will look like—and why it might be even harder than the last one.
In June, the Obama Administration issued guidelines for determining whether plans could remain grandfathered that were stronger than many consumer advocates had expected. Yet even these guidelines–which are likely to be weakened in the regulatory review process–still ensure that most employer plans (including, almost certainly, the anemic plans offered by low-wage companies that sponsor coverage, like Wal-Mart) will pass regulatory muster. And regardless of their grandfathered status, employer plans can cover just 60 percent of subscribers’ medical costs–the current norm is roughly 80 percent–and still not violate the law, which means employees could be paying 40 percent plus their share of the premium. This is apparently the price to be paid for a law that, as the proposed regulations revealingly put it, “balances the objective of preserving the ability of individuals to maintain their existing coverage with the goals of ensuring access to affordable essential coverage and improving the quality of coverage.”
The structural bind raised by the reliance on employment-based insurance only hints at the deeper dilemma: Effective implementation and administration of the ACA will not, by themselves, ensure that the key goals of the legislation are met. Even if every step envisioned by the law is successfully taken by 2015–a big if, as we’ve seen–there will still be large gaps in coverage and weak restraints on costs. Insurers won’t be blatantly turning people away, or pricing the sickest out of the market altogether. But they will still be charging premiums that exceed many people’s means, and those premiums will still be rising far too rapidly. While regulators overseeing private plans will know much more about what insurers offer and spend their money on, getting them to change what they offer and spend their money on will be another matter.
In short, Harkin’s starter home needs some major improvements. Unfortunately, the political winds are already threatening to knock the home down.
The Next Political War
The political battle over health reform did not end on the night of March 21, when the House of Representatives passed the Senate bill. It simply entered a new phase, going from conventional to guerilla war. And conservatives have long shown themselves to be better at guerilla warfare than progressives. The fights over the individual mandate are a mere prelude to the struggles to come, which will concern the greatest fault line of contemporary American politics–redistribution, or more precisely, the raising and spending of money to ensure health security.
Redistribution is the soft underbelly of health reform. As the political scientist Theda Skocpol points out:
The 2010 health reform promises subsidies to millions of working peopleof modest means, whose employers do not provide health insuranceand who cannot afford to buy it themselves in the existing marketplace.Most of the revenues to pay for coverage expansion come fromAmericans making more than $250,000 a year, as well as from fees on businesses and cuts in subsidies to private insurersinvolved in Medicare.
This redistribution relies on a grab bag of financing sources, virtually all of which are divorced from the receipt of benefits. Many of these sources are both highly visible and highly unpopular among deep-pocketed interest groups and mobilized segments of the population. As Paul Pierson and I document in our new book, Winner-Take-All Politics, these players have gained in strength over the last generation at the expense of organized labor and middle- and working-class voters.
Maintaining the redistributive aspects of health reform will thus be a formidable challenge. The promise of 30 million newly insured Americans and significant reductions in federal budget deficits are contingent upon the full implementation of the taxes, fees, and offsets in the bill, some of which do not take effect until after the presidential election of 2016. These include roughly $4 billion in annual fees on the pharmaceutical sector, and $8 billion to $14 billion in annual fees on health insurers, as well as limits on tax deductions and tax-favored accounts for medical care mostly used by higher-income taxpayers. Even though most Americans are not highly supportive of tax cuts, Republicans have proved quite adept at using them as a political battering ram. Moderate Democrats have repeatedly been willing to support tax cuts in the past or to oppose scheduled tax increases. With an energized GOP base stoked by Tea Party enthusiasm, the anti-tax pressure is likely to become even more intense.
Reformers should not underestimate the power of the GOP anti-tax crusade–or, for that matter, the party’s anti-regulatory zeal. When the frontal assault on the individual mandate is repelled, the progressive tax provisions in the bill will be the next target, along with the interlocking requirements on employers and insurers designed to guarantee that public financing is backed up with employer contributions and insurance-company restraint. We can also count on Republicans to continue to oppose changes in Medicare designed to build on its past success in restraining costs (though, fortunately, most of these changes are out of Congress’s hands). At the state level, conservative governors and legislators will continue to wage modern-day nullification campaigns, which federal officials will have to resist aggressively at every turn.
And conservatives won’t be the only political force seeking to blunt the law’s effects. Medical industry players–private insurers chief among them–will also be doing everything they can to shape what states do. The grand bargain was supposed to be that insurers would face greater competition in return for millions of new customers. Insurers will get the customers. But with the industry growing more consolidated by the day, they are not likely to face much greater competition. And with the highly visible moment of reform having passed, their lobbyists–joined by representatives of providers, business groups, and other organized interests affected by the law–will be back in the saddle again. Just because they received major concessions doesn’t mean they won’t push for even more. Reformers, backed up by the federal government, will need to push back.
Renovating and Improving the Starter Home
If reformers play just defense, they will be stuck protecting a law that has two notable problems: It is not designed to ensure that everyone is covered; and it is not capable of seriously reining in medical inflation. (Isabel Sawhill and Greg Anrig discuss health-care costs and the deficit in the current issue.)
The first problem is the easier of the two to tackle, at least in policy terms. In our predominantly employment-based system, there are only two routes to seamless guaranteed coverage–requiring that employers provide coverage or contribute toward its costs, on the one hand, or severing the financial link between employment and health benefits by raising the funds for subsidized coverage through alternative means, on the other. The ACA embodies an uneasy hybrid of these two approaches: somewhat weak coverage requirements on the largest employers, but none on those with fewer than 50 workers, and no guarantee that those without coverage through employment will receive insurance through the exchanges or Medicaid.
From a policy standpoint, the creation of a new funding stream outside of employment–say, a value-added tax whose revenues are dedicated to subsidizing health coverage–has a lot going for it: It could ensure a stable revenue stream, serve other policy goals (such as encouraging savings), and delink health insurance from its precarious connection to employment. Yet it also has notable drawbacks. For starters, it requires frontally challenging the GOP anti-tax crusade. Given the controversy already surrounding reform, this may be a bridge too far. Moreover, a separate revenue source will not have any direct, tangible connection to the benefits of reform, as did the Social Security payroll tax. President Franklin Roosevelt famously said, “We put those payroll contributions there so as to give the contributors a legal, moral, and political right to collect their pensions and their unemployment benefits. With those taxes in there, no damn politician can ever scrap my Social Security program.”
For these reasons, the more promising route may be to build on the existing law to fill in its gaps. One way to do this would be to strengthen the employer requirements to turn them into an automatic source of affordable coverage for workers. In practice, this would mean extending the employer coverage provisions to employers smaller than 50 workers, eventually reaching all employers, including the self-employed. It would also mean transforming the penalty–currently $2,000 per full-time employee (excluding the first 30 employees) for most employers–into something closer to a “play-or-pay” mandate in which uninsured workers’ coverage is automatic through the exchange (or Medicaid) when their employer pays a dedicated payroll-based contribution.
Exempting small employers entirely from the coverage requirement, as under the current law, has two salient drawbacks. First, it means that millions of Americans do not receive automatic coverage at their place of work. More than half of the working uninsured are either self-employed or work in firms with fewer than 50 workers. Because these firms are not required to contribute even a token amount on behalf of their workers, coverage for these workers has to come through Medicaid outreach or enforcement of the individual mandate, neither of which is likely to work as well as simply signing workers up for employer- or government-sponsored coverage at their place of work.
Second, a blanket small-business exemption is ill-targeted, since it treats small high-wage firms with substantial financial capacity to provide coverage (such as law firms) no differently than small low-wage firms without such capacity. Instead, employers that do not sponsor coverage should have to contribute to the cost of their workers’ coverage on a sliding scale based on firm payroll, which is a better measure of a firm’s ability to provide coverage than the number of employees. Moreover, such a change would still take into account firm size as well as wages, easing the burden on the smallest firms. For example, firms could be required to pay 1 percent on the first $250,000 of payroll, 4 percent on the next $750,000, and so on, up to the full levy of, say, 7 percent. The lower contributions required of low-wage firms could be financed by redirecting the law’s ill-targeted tax breaks for small business, which would no longer be necessary to encourage these firms to participate.
This approach would have three benefits. First, the payroll contribution would be a dedicated amount that workers could see as “purchasing” their benefits through the exchange. Second, this approach would mean that everyone working or living in the family of a worker (including the self-employed, who, as with Social Security, would be required to make the contribution on their own behalf) would be automatically covered, either directly through an employment-based plan or through the exchange when their employer pays the contribution.
The third benefit is that a true play-or-pay approach would lessen reliance on the highly controversial individual mandate, which is viewed with skepticism by a majority of Americans and is the target of a vigorous GOP assault. At least before the recent downturn, an approach requiring that all firms (including the self-employed) either play or pay would guarantee coverage to more than 95 percent of Americans younger than 65. If no one was allowed to exit coverage without showing proof of an alternative source, this number would rise to 100 percent in short order, as very few nonelderly Americans have no tie to the workforce for an extended period.
Given the resistance of employers to the present rules, it may seem fanciful to think that the employer requirements could be strengthened. But as the new law kicks in, employers playing by the rules may come to be more supportive, recognizing that their less responsible competitors gain a competitive advantage by not providing insurance and raise the costs of employer plans when their uninsured workers receive uncompensated care. To be sure, this logic would work only for firms actually providing coverage, and it’s likely to be persuasive only for those coverage-providing firms (such as unionized supermarkets) that have aggressive low-wage competitors. But firms not providing insurance could see advantages in a broader employer requirement as well. If the cost of allowing their workers to buy into the exchanges was affordable, small and large firms alike could see it as beneficial to buy coverage through the exchanges rather than on their own. Indeed, the exchanges should eventually be opened up to all employers, not just the smallest–a step that states have the authority to take.
This is yet another reason why states and the federal government must be vigilant in ensuring that the exchanges are set up on solid foundations, and why cost-control tools have to be used actively and strengthened over time. If the exchanges function effectively to provide lower-cost coverage, they are likely to become more and more attractive to employers, especially the smallest among them. The exchanges, after all, will provide a menu of health-plan options, and they will remove from employers’ shoulders the administrative burden of picking and monitoring health plans and managing enrollment in them (this, incidentally, might be another allure to small firms to participate). So long as firms are required to pay a reasonable amount to fund workers’ coverage, there is no reason to insist that firms provide insurance on their own when they and their workers would prefer to buy it through the exchange.
Cost Control or Bust
None of this will matter much, however, if costs aren’t contained. And here we reach the weakest foundation of Harkin’s starter home. All the reform ideas that would have provided big direct savings–from serious administrative streamlining through a single national exchange to the public insurance option that I’ve advocated–were either sidelined or neutered as they ran the gauntlet of affected interests. Indeed, the public option debate was a case study in why cost control is so hard: Conservative Democrats first effectively stripped out the tools of cost control that would have allowed the public option to compete aggressively with private insurers, most notably, the use of provider rates based on Medicare’s payment schedule. Then, they complained that the public option wouldn’t control costs!
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