Separating Hyperplanes
9/07/2017 02:05:00 PM

Auto-enrollment is a wonky health reform idea that never seems to quite die, despite being too complicated for our current politics to implement. The idea most recently graced the pages of the Wall Street Journal, which proposes that as part of the AHCA, uninsured individuals should be auto-enrolled in mini-med health plans whose premiums don't exceed the size of the AHCA tax credit. There are a number of flaws with this plan, such as the fact the AHCA won't be enough to cover the entire premium for most people, but one of the problems is, as David Anderson says, the insurance market has more churn than a butter factory. This makes it very hard for the government to know who to auto-enroll into insurance plans. Remember that there are special enrollment periods that could strike any time of year, so that decision needs to be made for every single individual in the US every single month of the year.

The WSJ plan is bad. But I think we actually already have all the tools in place to do a workable form of auto-enrollment. We already have refundable tax credits for insurance through the ACA. We already charge taxes on a monthly basis. We already have an annual filing process for retroactively correcting errors in monthly tax payments. We already have a requirement to report month-by-month health insurance status on your taxes. What more do we need? Here's my proposal:

The government would let private insurers bid on pools of uninsured people. The lowest bid wins the contract to cover uninsured individuals in the pool. Premiums (net of premium tax credits) are automatically added to your monthly tax bill unless one of the following apply:

  • you have ACA-compliant insurance in that month and did not use the auto-enroll plan
  • you opted out for that policy year during an open enrollment or special enrollment period

If neither of those apply, then you'd owe the premiums (minus the premium tax credit) as part of your monthly tax bill, and in exchange you can show up to hospitals and receive care with bronze-level coverage.

The nice thing about this is it sidesteps Anderson's concern about the difficulty of tracking who becomes uninsured each month, by making it all retrospective. Insurers don't have to actively enroll anyone—they enroll in the auto-enroll plan upon showing up at a healthcare provider without any other form of insurance. When they file taxes on April 15th, it will become clear which months the individual was on the auto-enroll plan and which months he wasn't. As with all taxes, it's the individual's responsibility to pay the right amount each month, or pay the late penalty if they under-payed in any months. So for example, if an individual had no insurance, didn't opt out of the auto-enrollment plan, but also didn't pay the auto-enroll premiums each month, then they'd owe those premiums (minus the amount of the premium tax credit) on April 15th, plus a percentage penalty.

There's obviously a risk premium arising from the fact that insurers who bid on the uninsured pools won't know exactly how many they might have to cover. That likely means most uninsured people could find a better deal by actively shopping on the ACA market. If we were really clever, we'd put the opt-out form on, at the bottom of the page showing all the insurance plans and prices available to them in their market. Make them scroll through all their other options before opting out entirely.

4/20/2017 09:54:00 AM

Democrats have long supported the idea of adding a "buy-in" option to medicare and medicaid, where people who do not normally qualify for these programs could pay enroll anyway, provided that they pay their own way through premiums. The Clinton administration drafted several versions of a medicare buy-in, and Al Gore made it a plank in his presidential campaign platform in 2000. Democrats continued introducing bills on the topic throughout the Bush administration, and very nearly added it to the Affordable Care Act in 2009.

I think democrats have an unrealistic vision of how medicare buy-in would work in practice. They're confident the buy-in program would fund itself, that the insurance plan would be generous, and the premiums low. None of these things are true.

Urban institute analyzed the idea back in 2002 and had this to say:

Only a Medicare buy-in that provided subsidies to make the plan affordable to low-income people would significantly reduce uninsurance rates among the near elderly.

In fact, even when health insurance premiums are low, they are expensive. Americans spend almost as much on healthcare as on housing—our mental model for health insurance should be a major budget item closer in magnitude to paying rent than, say, car insurance. In practice, a Medicare buy-in program cannot be self-funding.

Further exacerbating this problem, Medicare would charge premiums much higher than most Democrats expect. Medicare spends an average of $10,000 per beneficiary per year on benefits, meaning an actuarially fair, community-rated premium for medicare would exceed $10,000 per year. Kaiser Foundation's calculator tells me that an unsubsidized plan for a 64 year old on the ACA exchanges would cost $10,160 per year, but at least with the ACA, there are subsidies for low-income folks.

Oh, and by the way, the ACA plan is better than that medicare plan. In fact, traditional medicare doesn't meet the ACA's minimum coverage requirements. I've written before about how medicare is actually crappy insurance that not only doesn't cap your out-of-pocket expenses, but actually increases them as your condition worsens.

A medicaid buy-in looks a bit better. Medicaid is great insurance that comes with very low out-of-pocket costs. Still, average medicaid spending per beneficiary is $6,502 per enrollee per year, still higher than what most folks pay for an ACA plan (though more generous). A big reason medicaid spending is higher than private insurance is that the enrollees are sicker. For one thing, seniors on medicare don't enroll in ACA plans, but many of them do enroll in medicaid. And think about it: if you had a catastrophic illness and couldn't afford care, you'd do whatever needs to be done to qualify for medicaid—quit your job, give away your assets, anything. Without hiring actuaries and risk-rating premiums, at least partially, to account for the fact that folks who opt into medicare or medicaid buy-ins would be lower cost than existing enrollees, neither plan looks very affordable.

That said, I think with one tweak to the medicaid rules could solve several problems at once: instead of charging a premium, charge a payroll tax.

The exact tax function should be empirically grounded, which is beyond the scope here, but here's a starting point to get the idea: your medicaid premium is equal to 0 percent of income up to federal poverty level, and 10 percent on income above that.

In principle, this buy-in option would exist for everyone, but in practice it would essentially phase out smoothly right around 400 percent of federal poverty level, as most folks above that level could find cheaper options on the ACA exchanges. That makes this plan comparable in scope to the ACA subsidies, except without the three separate cliffs that impose high effective marginal taxes on some folks under the status quo: medicaid eligibility cutoff at 133 percent of federal poverty level, the cost-sharing reduction cutoff at 250 percent, and the tax credit cutoff at 400 percent of federal poverty level.

My medicaid buy-in plan would reduce the disincentives to labor that we find under the current regime. The budgetary impact is ambiguous—although medicaid is more generous than ACA plans, pushing the effective subsidy size up, medicaid reimburses at significantly lower prices, pushing subsidy size down. However, the overall cost, including both on-budget and off-budget healthcare spending, is likely to be lower than the status quo as medicaid pays less and has lower administrative costs than private insurance. Recall also that ACA premiums—as well as the associated ACA subsidies—would also decline as sicker folks would tend to sort into medicaid rather than private insurance, making insurance more affordable for everyone, regardless of whether they use the buy-in option.

3/20/2017 10:58:00 AM

At the moment, there's no Republican plan to repeal and/or replace Obamacare. There are, however, a bunch of different options that various republicans and conservative think tanks have proposed. One might think that all of the options follow similar principles--like how Clinton's and Obama's health reform plans converged over the course of the 2008 primary. But the reality could not be more the opposite: republican proposals range from near-complete destruction of the individual market to massive expansion of entitlements.

Destruction of the individual market

I've been talking about this for a while, and the Urban institute has followed up with numbers: if republicans try to repeal the ACA through reconciliation alone, the result would not merely take us back to the pre-ACA market but actually destroy both the ACA and pre-ACA market. That's because community rating and guaranteed issue regulations can't be repealed through reconciliation, so without subsidies and without a mandate, there'd be considerably more adverse selection than we had before the ACA, with higher premiums and even fewer people covered than we had before the ACA.

Expansion of entitlements

At the opposite extreme, there's a republican proposal to create a new tax credit for health insurance. Hear me out. The only difference between a tax credit and an entitlement is whether the poor are eligible: people not rich enough to owe taxes are excluded from eligibility for tax credits, but are eligible to receive entitlement benefits. The Paul Ryan plan is already most of the way to entitlement, making the tax credit "universal advanceable, refundable," paid out monthly. But consider the political math:

Without legislating the fixed tax credit now, Condeluci said, Republicans "may never get Democrats to be supportive of a fixed tax credit that varies by age. And maybe Republicans know that a fixed credit is not going to be enough for a low income person. They know that at some point they're likely to put into law some kind of income-based subsidy for low income folks. Are they maybe going to hold that negotiating piece as a chip to get Democrats to the table and to agree on replace? Condeluci, in other words, envisions an eventual hybrid in which low income people get income-based support to render coverage affordable, while the somewhat more affluent -- or maybe everyone who buys in the individual market -- get a fixed tax credit to defray some of the cost.

Given that the president-elect is promising that no one who has insurance will be left without insurance, and that a flat tax credit would be obviously inadequate for lower-income households, it seems fairly likely that an income-based subsidy would be included in any tax credit plan. That in turn means that regardless of income, everyone would receive a federal subsidy to offset a large portion of their health insurance premiums--in other words, a massive new entitlement program. There's precedent, too. In 2003 Republicans hatched the Medicare Prescription Drug, Improvement, and Modernization Act, which created a new federal entitlement for seniors known as Medicare Part D. It may not be likely, but don't discount the possibility that Republicans end up outflanking democrats on the left instead of right, it has happened before.


So there you have it. Republicans have narrowed the health policy options to the range between complete destruction of the individual market and a massive expansion of entitlements.

1/05/2017 12:17:00 PM