Take Care is pleased to present a series of posts offering thoughts on how Congress might address key issues in the healthcare system.

By Wendy Epstein | DePaul College of Law | @ProfWEpstein

The Democrats’ ultimate goal is and should be to provide for universal health care for all Americans, and the movement toward a single payer system is undeniably gaining momentum. Yet while they control the House, with a Republican-controlled Senate and a serious mountain to climb on funding, a decision by the Democrats to pursue Medicare-for-all, or any other serious move toward single payer, would serve only to frame the 2020 electoral debate. It would not realistically achieve legislative success. 

The new House majority, however, could actually solve some real problems with the Affordable Care Act—namely, those caused by the repeal of the individual mandate, which will go into effect next month.  

A Big Problem and the Possible Bipartisan Will To Fix It

To understand the problem, recall how the ACA Exchanges were intended to work.  They were designed to provide a source of affordable insurance to two main populations: individuals making between 133% and 400% of the federal poverty level (who were to be given tax credits to make it cheap enough for them to afford insurance) and those making over 400% of the federal poverty level but who didn’t have another source of reasonably-priced health insurance.  Further, the “guaranteed issue” and “community rating” provisions restricted insurance companies from refusing to cover individuals with pre-existing conditions or charging them more based on health risk.  See here for a more in-depth explanation.

But if insurers have to cover high-risk people and cannot charge them more than low-risk people, insurers need to enroll low-risk people to even out the costs.  Enter the individual mandate, the idea of which was to bring lower-cost folks into the risk pools, whereas they might otherwise have opted out of coverage.  These lower cost people would even out the higher cost ones. 

The mandate was not perfect, and too few low-risk people enrolled (hence premiums went up), but it did work to a degree.  Between the carrot (the promise of subsidies for some portion of the population) and the stick (the mandate), millions have gotten health insurance who were not previously covered.

Now the stick is about to be taken away.  Starting next month, people who choose to forego health insurance will no longer face a tax penalty.  That is scary for the ACA.  It is unclear how many low-risk people will drop their insurance as a result, or who, perhaps just as importantly, will opt-out of the ACA policies and choose instead one of the bare bones policies that the Trump administration is pushing.  But if large numbers of low-risk individuals leave the ACA plans, that creates a tremendous problem.  As increasingly higher-risk, higher-cost individuals are left in the ACA plans, premiums will have to keep going up. 

Ultimately, this creates a tremendous problem for the government.  About 87% of individuals who purchase policies on the Exchanges are receiving tax credits.  As premiums go up, the federal government is footing a larger and larger bill. 

Although the Republicans repealed the individual mandate, they do understand the problem that the repeal creates.  That is why recent Republican-sponsored attempts at health reform have included alternatives to the individual mandate, such as continuous coverage requirements.  The continuous coverage idea is to prompt individuals to maintain their insurance by charging them a penalty to re-enroll if they have had a lapse.  Because the penalty would be assessed only when people re-enroll, however, the policy is not well-suited to deter lapses in the first place.  But it proves that Republicans, too, are concerned about what happens in a post-mandate world.  (Admittedly, there is also lots of evidence that the Trump Administration just wants to sabotage the whole ACA, blame the Democrats, and then claim victory, but I’m going to shelve that concern for now.)

Solving The Problem: Getting Low-Risk Individuals to Enroll and Retain Their Policies

So how do we solve the problem of prompting seemingly low-risk individuals to enroll in ACA plans and keep their plans?  Any viable solution has to consider—and address—the reasons that lower cost individuals are not choosing to sign up for policies.  Four reasons are particularly salient: (1) Some people still cannot afford to purchase policies.  (2) Some (correctly or incorrectly) estimate that it is not worth the cost.  (3) Cognitive biases, like the optimism bias, cause some to underestimate their likelihood of needing insurance.  (4) For some, the system is still too complicated to figure out.

The following paragraphs briefly introduce a menu of plausible solutions worthy of further exploration, broken down by those likely to prompt enrollment in the first place and those designed to prevent lapse for those already enrolled.

Prompting Enrollment

One obvious way to address the lack of affordability is simply to expand the tax credits.  Check out the Pallone-Neal-Scott bill for an example of how it might work.  The downside, of course, is that doing so is costly, and getting the Republicans on board would be a struggle.

But there are other carrots to consider. For instance, insurers are now highly constrained in the rates they are permitted to charge under the community rating regime. While insurers should not be permitted to vary rates by health status, the government might allow insurers to use some of the tools they use to prompt enrollment in other insurance products, like offering low introductory rates or the promise of rate lock-in.  This is how the life insurance industry gets people to sign up for policies before people think they will really need them.

Also, if people are not enrolling because they do not think they will need their policies, then health insurers should be encouraged to experiment with products that address this concern—for instance, a variant on a “return of premium” life insurance policy.  The product would require careful design because insurers need to incentivize the use of preventive care, but the idea would be to return some of the premium people paid if they remained healthy—both prompting enrollment and encouraging healthy lifestyles.  See Tom Baker’s and Peter Siegelman’s concept of awarding a prize for another variant on this idea.

Another idea is to turn the system into an opt-out vs. an opt-in system, which has been effective in prompting enrollment in retirement savings mechanisms.  Put another way, individuals could be automatically enrolled in plans, with the ability to opt-out. 

Finally, Congress would be well-served to consider ways to further simplify the system.  This Rand Report on Consumer Decision-Making in the Health Care Marketplace has specifics.

Getting People to Keep Their Policies

The mandate has already prompted many people to enroll.  We know that the status quo bias often makes defaults sticky, and might in and of itself cause some individuals to keep the policies that the mandate originally prompted them to get, particularly if they are automatically re-enrolled.  But Congress should consider other ways to make sure people keep the policies they already have.

A move to longer-term policies (perhaps five- or ten-year rather than one-year policies) with guaranteed rates and early termination fees, for instance, would likely help to reduce lapses in coverage.  There would need to be penalty-free ways for insureds to terminate a long-term policy, for instance if the insured obtained an employer-sponsored policy instead, but the benefits of lock-in for this context might exceed the downsides. 

Early termination fees got a bad rap, particularly in the context of their use in cell phone contracts, but are worth revisiting here.  Some of the concerns they generate, like less incentive to provide quality service if customers are locked in, are less worrisome in the health insurance context where incentives in a long-term contract are, to a degree, better aligned. For instance, the insurer benefits if insureds remain healthier during the insurance term and therefore cost the insurer less.

Conclusion

The viability of the ACA Exchanges depends on attracting healthier, lower cost individuals to enroll.  With the repeal of the individual mandate, it is time for a bipartisan exploration of how to accomplish this.

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