In a speech earlier this week, Donald Trump and running mate Mike Pence harshly criticized the Affordable Care Act. “Obamacare has to be replaced. And we will do it, and we will do it very, very quickly. It is a catastrophe,” Trump said.
While the Trump plan fails to provide a realistic replacement for the ACA, there is bipartisan agreement that the instability in the ACA’s individual health-care markets needs to be addressed. It’s the solution that liberals and conservatives disagree on.
Liberal politicians and policy experts have advocated a number of tweaks: instituting a public option in markets where many insurers have pulled out, increasing the means-tested subsidies the ACA offers to low- and middle-income people, and increasing the fine associated with the individual mandate. Conservatives counter that the law cannot be fixed and must be fully repealed and replaced.
Regardless of who wins next week’s election, current polling suggests neither party is likely to achieve enough of a Congressional majority to institute their preferred health-care reforms. So where does that leave the Affordable Care Act? Are there solutions that might gain bipartisan support?
To find out, we sat down with Avik Roy, a conservative health-care policy wonk and former advisor to Mitt Romney, Rick Perry, and Marco Rubio. Roy has garnered quite a bit of attention in recent months for his criticism of the Republican party’s current nationalistic bent. Roy is also the founder of FREOPP, a new free market think tank focused solely on policies to improve the economic fortunes of low-income Americans — the think tank is, according to its mission statement, “an attempt to resuscitate the model of non-partisan policy research that can attract the support of policymakers on both sides, by adopting as its cause a principle that nearly all Americans support: equality of opportunity.”
In September, Roy released the second edition of Transcending Obamacare (the first edition was released in 2014), a comprehensive plan to reform the Affordable Care Act in accordance with more conservative, free-market principles. The plan, which does not require a formal repeal of the ACA, is notable both because it offers solutions that might garner bipartisan support and because it is the only mainstream conservative proposal that provides near-universal health insurance coverage — in fact, Roy’s model claims that the FREOPP plan, dubbed the Universal Tax Credit plan, would insure more people than the ACA currently does.
Similar to the ACA, the FREOPP plan proposes providing generous means-tested subsidies for the purchase of health insurance. However, the plan calls for a shift toward a system that combines catastrophic plans for expensive health emergencies and health savings accounts (HSAs) for more routine health costs. The FREOPP plan also calls for the gradual transfer of most Medicaid recipients—a cause of some controversy—and younger retirees into the private insurance market (with the aforementioned subsidies). In addition, the FREOPP plan does away with the individual mandate and some (although not all) of the requirements and regulations the ACA imposed on insurers and insurance plans, the latter of which Roy argues would decrease the cost of health insurance and, thus, increase the enrollment of young, healthy people.
Can you explain to me the mechanics of the Universal Tax Credit Plan, specifically the idea of having a catastrophic insurance plan combined with an HSA?
The simplest way to put it is that, where possible, the goal of the plan is to take the money that we as a country spend subsidizing health insurance and health care and say let’s put more of those dollars in the hands of the patient and fewer of those dollars in the hands of insurance companies.
So right now what we do is we say: Insurance should cover all these things, and then we will pay the insurance companies to provide you with that service. The Universal Tax Credit Plan is saying that we all need to have insurance, so let’s make sure there is insurance, particularly for those catastrophic health-care situations where you get hit by a bus, you have a stroke, you get cancer, you’re going to have gigantic medical bills. Let’s make sure we eliminate the situation of people going bankrupt due to high medical bills — you can do that with universal catastrophic health insurance. But for a lot of things that are not catastrophic, it makes a lot more sense for lower-income people to say, let’s deposit that money in a health savings account that you control and then you can go around and use that money for the health-care services that you need.
How would your plan help improve the quality of the risk pool—that is, ensure that more healthy people buy insurance?
One of the things that I’ve criticized about the ACA, since 2010, has been the fact that the ACA makes it a lot less attractive for many uninsured people to buy insurance. We often talk about pre-existing conditions, and isn’t it great that all these people who had pre-existing conditions can now get covered. And that claim really misunderstands the nature of the uninsured population in the United States. So very few people who are uninsured are uninsured because they’re sick — most surveys say about 3 percent of people who go without insurance, over a one- or two- or three-year period — are uninsured because of a health condition. The vast majority of people who are uninsured are uninsured because health insurance is too expensive. It’s not that they’re sick, they’re actually healthy, reasonably speaking. But the cost of health insurance on a monthly or annual basis is just way too high for what they can afford.
So the real problem that we needed to solve was not how to make coverage more attractive to sick people, it was how do we make coverage more attractive to healthy people who are lower-income.
And what the ACA did was it made health insurance very, very expensive for lower-income people who are healthy. It heavily subsidized coverage if your income was near the poverty line — so if you’re really, really poor — but if your income was, say, at 250 percent of the poverty line or above, the regulatory framework the ACA imposed drove up the cost of that insurance a lot, especially if you were healthier or younger. So what we’re seeing now is a lot of those people aren’t signing up.
So you could make changes to the ACA that would alleviate the problems. You basically have to reform the regulations in the ACA that make insurance very expensive for younger and healthier people … and if you do that, paradoxically, the cost of insurance will go down for everybody, because, to your point, you improve the risk pool. More younger and healthier people come into the market, that also allows health insurance to be less expensive for older and sicker people. Everybody wins.
Your plan would provide a tax credit, so for low-income Americans, you would subsidize the purchase of catastrophic insurance and the HSA.
The major difference between, say, how the exchanges work in the ACA and the way the market would work in the FREOPP plan would be the subsidy structure is slightly different — there’s much more emphasis on depositing money in HSAs versus insurance.
Although if you want to buy comprehensive coverage, you can, just to be clear. Lots of people want to have most of that covered by insurance — they don’t want to have that in an HSA, they just want to rid their hands of it and have it all be taken care of on their behalf. They can do that — they can spend the money that way if they want. But give people the option and also make sure that the regulatory structure is such that health insurance is attractive to younger, healthier people, which, under the ACA, it isn’t.
The ACA imposed a lot of minimum requirements on insurance plans, which you argue is one of the things driving up the cost of health insurance. Your plan calls for getting rid of them. Obviously the liberal critique of that is going to be that it’s going to leave us with crappy plans. What’s your thinking on that? And what requirements would you keep?
It’s very important to understand quantitatively, or relatively, which of the regulations are the biggest drivers of cost, of higher premiums, versus not.
So there are certain regulations that aren’t that big of a deal. For example, one regulation that some people complain about but I don’t really is the one that creates these metal tiers — the bronze, the silver, the gold-plated plans. I don’t think that’s a problem because, at the end of the day, given that buying and shopping for insurance is really complicated and there’s all this fine print, having some common way of comparing plans … you can look into those plans, and they’re economically comparable. That’s an example of a regulation that I think is fine.
So the problem with the ACA is not that it has gold, silver, platinum, bronze — it’s that the actuarial values within those four tiers are much higher than what people were buying in the pre-ACA market. So you want to have an escape valve — some people really want bare bones coverage, right? If you’re relatively young and healthy, and you’re a vegetarian and you bike all the time, what you’re really worried about with your health is that you’re going to get hit by a bus, that you’re going to have some catastrophic problem. And there are people like that who want to have a plan that has a high deductible and that costs them like $50 a month. What they’re looking for is that peace of mind that says, if they get cancer, or multiple sclerosis, or they get hit by a bus, their family’s going to be protected.
And we should make sure that there are products out there that address that — not everybody wants a big, gigantic comprehensive insurance plan that covers every single thing, and not everybody needs that. And for the people who do — either because they’re sick, or they’re older, or they’re just more risk-averse — there absolutely should be products available to them that are affordable that would offer that kind of insurance.
But what we’ve done is we’ve reduced the ability of people who want that basic catastrophic coverage to be able to get it.
And that has suppressed enrollment, because it’s made coverage more expensive.
Right. So the goal here is not to take away the option of comprehensive coverage that covers everything. People will still have that option if they want it … let people make those choices according to what their needs and appetite for risk are.
Although, in theory, there will be some people that will probably choose the wrong plan, right?
That’s true, but then again if everyone has [catastrophic] coverage — the scope of the mistake is very contained. So if everybody has coverage, in the worst case you have a higher out of pocket expense because your deductible is high. But you’re not going bankrupt because you didn’t have health insurance. Whereas right now, tens of millions of people face a risk of going bankrupt because the premiums are too high [for them to buy health insurance at all].
This plan has some similarities with the Better Way plan that Paul Ryan put forward earlier this year, but a few differences as well, right?
The biggest difference between the Ryan plan and the FREOPP plan is that the FREOPP plan means-tests the tax credit, so if you’re lower-income, you get a higher tax credit. If you’re higher income, you get a smaller tax credit. In the Ryan plan, everybody gets the same tax credit, regardless of income. There are some adjustments based on age — older people would get slightly more, younger people get slightly less. But on income, it’s … if you’re a high-powered lawyer or a Wall Street banker, you get the same subsidy as someone who’s at the poverty line.
I understand there are people out there who just say: “Look, I’m against redistribution of wealth — I think there are economic disincentives to making more money if the subsidies decline over time.” Those are the arguments you’ll hear. My view is that making sure that everybody has health coverage should be the goal, and you’re going to better achieve that goal if you do it with a sliding scale of subsidies, like the ACA has and like my plan does.
So the sliding scale of subsidies is not something I have a problem with in the ACA — it’s the regulatory structure I have a problem with.
Your plan would get rid of the individual mandate, which would make a lot of people happy.
Not the insurance companies — they would be very unhappy!
And your model indicates that, even without the individual mandate, enrollment still goes up because you’ve also changed all these other regulatory things and reduced premiums. Do you think there’s a risk that you are being too optimistic about the effect of lower insurance premiums and that not enough people will buy in?
So there were five goals of the plan. The first was to cover as many or more people as the ACA … we worked hard to achieve those objectives … I think we went through 13 versions of the plan, a lot of different technical tweaks to get it to where it was.
There’s always risk. Your economic model can be flawed, your projections can be flawed — but the way I would put it is that the fear would be that well, we don’t have an individual mandate, therefore less people would sign up. And what I’ve argued all along is that the individual mandate is too weak; it’s not really making much of a difference because, between the fact that the actual fine is not very large relative to the cost of insurance, and also that there are all these loopholes and exceptions and exemptions to who’s actually subject to the individual mandate, a very small number of people are subject to the individual mandate.
Relative to that, what we do in Transcending Obamacare is, yes, there’s no individual mandate, but there are some other features that make up for that. So one is longer insurance contracts. One thing that the ACA does is it says you can — there are these enrollment periods … the general idea is, once it gets up and running, it’ll be six weeks a year. We propose changing that to six weeks every two years, the reason being that (and this is something I borrowed from Paul Starr, a sociologist at Princeton University who’s written a lot about this) if you make it a longer period of time then you reduce that incentive to jump in and out of the insurance market. If you don’t have a mandate, but you say all these protections and guarantees only apply if you enroll in that six week period every two years, you limit the gaming.
And the other thing that we propose is late enrollment penalties. There’s no individual mandate to enroll in Medicare, but most people sign up. And if you don’t sign up, or you sign up in the middle of the year, there are late enrollment penalties so that, for example, you can’t just jump in and get the same premium that everybody else gets…. So there are techniques like that that are well-established and well-worked out that you can use as substitutes for the individual mandate, in terms of they have the economic effect of making gaming less possible, or less attractive, while not having the constitutional injury and the unprecedented nature of the individual mandate that a lot of people have a problem with.
This interview has been edited for length and clarity.