On October 1, the Congressional Budget Office released a detailed report, Policies to Achieve Near-Universal Health Insurance Coverage. The report outlines four broad approaches to the long-sought goal of universal, affordable access to healthcare for all Americans. The CBO cautiously aims only for near-universal coverage, which it defines as coverage for at least 99 percent of the population. The report argues that 100 percent coverage is unattainable, since some people would inevitably decline to participate–even if they were eligible at no cost–on religious grounds or because they did not want to bring themselves to the attention of authorities, among other reasons.

Each of the four approaches offers potential improvements over what we now have under the ACA, and ways out of the unthinkable chaos of a court-ordered end to the ACA, with no viable replacement. The alternatives range from a Sanders-like single-payer plan bold enough to appeal to the most progressive Democrats, to others that are sufficiently market-oriented to pass judgement with any but the most curmudgeonly Republicans. One of the CBO’s alternatives squarely hits the sweet spot of radical moderation– the Niskanen Center’s hallmark.

Here is a brief outline of the four approaches, with some pros and cons of each. 

Approach 1: A partially subsidized, add-on default plan. 

This approach expands the alternatives already available under the ACA by adding a default plan that would be available to everyone not otherwise eligible for subsidized coverage, while leaving existing policy largely unchanged in other respects. The default plan would include both premium subsidies and cost sharing, with zero cost to the poorest participants. The default plan could be operated either directly by the government or by one or more private insurance companies. Although the CBO does not explicitly say so, Alternative 1 is essentially the approach endorsed by presidential candidate Joe Biden and the Democratic Party in the 2020 election.

Pros. Approach 1 would require a minimum of changes to existing law. One such change would eliminate the “coverage gap” for people with incomes below 100 percent of the federal poverty level (FPL) in states that have not expanded Medicaid. Another change would remove the so-called “firewall,” which is a rule that prevents people with a credible offer of employer-sponsored insurance (ESI) from taking advantage of subsidies and cost-sharing reductions available on ACA exchanges. Eliminating the firewall would moderate the many negative effects of tying health insurance to jobs. 

The CBO argues that it would be impracticable to keep the firewall in pace while administering a subsidized default plan. However, under Approach 1, large employers would still be required to offer health insurance, ESI tax benefits would be retained, and ESI would continue to be a major coverage source.

Cons. Approach 1 would leave Medicaid and CHIP intact. That would leave the healthcare system for people with low incomes highly fragmented, both from state to state and by income, with adverse consequences for continuity of coverage and labor mobility. The Covid-19 pandemic has already shown how widespread job losses disrupt coverage, requiring many people to attempt the switch from ESI to Medicaid. Unfortunately, millions have reportedly fallen through the cracks and ended up with no coverage.

Also, even though it makes the fewest changes to existing law, the CBO warns that Approach 1 would pose the greatest administrative challenges of any of the proposals. One challenge would be monitoring everyone to determine who is or isn’t ‘ eligible for coverage other than the default plan. Another challenge would lie in collecting premiums, or taxes instead of premiums, from people whose default coverage is partially but not fully subsidized. Still, another problem would be notifying eligible people for default coverage, and ensuring that they actually enroll. Point-of-service enrollment could partly alleviate this problem, but that, too, has its administrative challenges.

Approach 2: A partially-subsidized default plan that replaces Medicaid and the exchanges

Like Approach 1, this strategy would introduce a partially-subsided default program with zero premium for people below the FPL. However, in this case, the default program would fully replace Medicaid, CHIP, and the nongroup policies currently offered on ACA exchanges. Medicare and TRICARE would continue as they now operate. Like Approach 1, it would eliminate the firewall but would continue to require large employers to offer ESI coverage. 

Pros. The big advantage of Approach 2 would be its defragmentation of healthcare coverage for the low-income population. Coverage, without change of doctors, networks, or costs, would continue smoothly in case of change in employment, loss of employment, or change in state of residence. Approach 2 offers flexibility concerning public vs. private insurers. The most likely variant for default coverage would be a Medicare-like public option with competing private plans along the lines of Medicare Advantage. ESI would continue to be mandatory for large employers, but the firewall would be eliminated. With a good public option in place, the voluntary exit rate from employer-based coverage would likely be greater than under Approach 1.

Cons. Because it is only partly subsidized, Approach 2 would suffer from some of the same administrative complexities as Approach 1. To get to near-universal coverage, middle- and upper-income beneficiaries would have to pay a premium or premium-equivalent tax. Computing the appropriate premium or tax would not be a trivial matter. It would be necessary to take household income into account, and regional and/or age-related risk factors and possibly tobacco use. Getting everyone enrolled would be another administrative headache. It would probably be necessary to have a point-of-service enrollment mechanism with some kind of retrospective premium  for people who did not voluntarily enroll in advance in the default program or an alternative. That could create unpleasant financial shocks for people not eligible for full subsidies. 

Approach 3: Default coverage through a fully-subsidized benchmark plan

This approach would represent a more far-reaching transformation of the American system of health insurance. The big difference between Approach 3 and Approach 2 is that everyone would automatically be enrolled in a benchmark plan for which there would be no premium or premium-equivalent tax. The cost of the benchmark plan would be covered from general taxation. The benchmark plan would include income-based deductibles and copays, and could be offered either by public or private insurers.

Pros. Alternative 3 would move the United States toward a  universal coverage system similar to those of other high-income countries in place of the patchwork system that exists under the ACA. Default enrollment in a zero-premium benchmark plan would be much easier to administer than a system based on mandatory premiums or premium-equivalent taxes. It would not be necessary to know people’s income at the time of enrollment. Anyone who did not enroll in advance (and there would be little reason not to do so) could be enrolled at a point of service, such as a hospital emergency room or community clinic, with no unpleasant surprises or retroactive premiums.

Approach 3 would effectively break the link between employment and health insurance. Employers would not be required to offer coverage. Depending on the benchmark plan’s generosity, some employers might continue to offer add-on benefits, such as help with deductibles, or to pay for vision and dental care if not covered by the benchmark plan. There would be no tax advantage but some employers might see extended coverage as a useful employee retention device.

The cost of Approach 3 would depend largely on the design of the benchmark plan. The Federal budget burden would be least if the benchmark plan included substantial income-based cost-sharing, as would be the case under a system such as the Universal Catastrophic Coverage recommended by Niskanen Center. The CBO report explains how a Niskanen-style UCC approach would fit with its Approach 3 as follows:

One variant would be to benchmark premium subsidies to a catastrophic plan with high levels of first-dollar cost sharing, such as a high-deductible plan. However, under the catastrophic plan, there would be no cost sharing for the treatment of chronic conditions and preventive services, such as vaccinations and prenatal care. Deductibles would vary on the basis of household income, and individuals whose income was below a certain level would not have a deductible. People could use their subsidy to enroll in a catastrophic plan at no cost or they could use their subsidy toward the cost of a more generous plan offered through a marketplace of private plans if they paid the additional premium. Under this variant, there also could be a public option in the marketplace. 

Alternatively, the benchmark plan could be something more generous, with cost-sharing that was less dependent on income, something like traditional Medicare or an ACA gold plan. As in other approaches, such a plan could be administered in a public, private, or hybrid version.

Cons. This plan would require more people to change their source of insurance coverage. If a more generous form of benchmark plan were adopted, Alternative 3 would require higher  federal expenditures than alternatives 1 or 2. Even so, this approach would fall short of the universal first-dollar coverage that many progressives prefer.  

Approach 4: A Single-payer system

In this approach, everyone would receive comprehensive coverage from a single public insurance plan. There would be no premiums. Cost-sharing would either be eliminated entirely or much reduced  compared to most of today’s insurance options. The single-payer system would replace all existing government plans, including traditional Medicare, Medicaid, CHIP, TRICARE, and the rest. There would be little if any role for private health insurance.

Pros. Bernie Sanders’ Medicare for All plan is the best-known proposal of this type. The popularity of Sanders’ plan stems in large part from the fact that it would fully relieve American families of the financial burden of major illnesses and injuries. A single-payer plan would, in many ways, be the simplest to administer. Backers argue that savings in administrative costs would substantially ease the burden on the federal budget. It would also make life easier for doctors, hospitals, and families, who now must find their way through a maze of different payment rules from different private and public insurers.

Cons. Even after administrative savings, a true single-payer system would be the most expensive option. Some critics are concerned that with no “skin in the game” in the form of deductibles or copays, patients would greatly increase their consumption of services.  Some research supports that conjecture, but some also  suggests that patients make poor choices when faced with high out-of-pocket costs. Rather than choosing good health care values, some studies suggest that they may forgo needed care because of the cost– but then spend on unnecessary care or  treatments that are doubtfully cost-effective. Whatever the case, it is clear that a single-payer system would need to rely more on administrative and less on market-based cost controls than would the other alternatives.

There are many unknowns about how a true single-payer system would operate in this country. Senator Sanders himself often says he wants America to have universal healthcare “like other rich countries,” but the fact is, no other country has anything like Medicare for All. The healthcare systems of other rich countries are very diverse in their structures. Even the most generous systems elsewhere require more by way of cost-sharing than would Medicare for All, and most do not have coverage that is as broad, especially for things like dental, vision, and long-term care. Also, many of Europe’s best systems, such as those in The Netherlands, Switzerland, and even the U.K., leave more of a role for private insurance companies. Some rely entirely on compulsory purchases of private coverage.

Conclusions

The CBO has done an excellent job of laying out the options. Nearly every pending healthcare bill or think-tank proposal fits somewhere within the CBO’s four alternatives. In keeping with its mandate of political neutrality, the CBO expresses no preference for one approach over another.

There is only one major point on which I disagree with the CBO report. That concerns their contention that implementing  any of their four approaches would  require additional federal tax revenue to achieve deficit neutrality. I do not think that is true for the UCC variant of Approach 3.

The problem is that the CBO has not asked the right question. Rather than setting a plan and then asking, “Could we afford it?” The right question is, “How generous a plan could we buy with the money the federal government already spends on healthcare?” 

Total federal spending now accounts for roughly 50 percent of total healthcare spending. My calculations suggest that money would buy a UCC benchmark plan, with no premium for anyone, that would cap total out-of-pocket medical spending, including deductibles and all other cost-sharing, at 25 percent of a household’s eligible income. (Eligible income means total income minus the FPL for that household.) Approximately 65 percent of the population would have health care expenses of no more than 15 percent of total income, including all households with incomes below 250 percent of the poverty level. More than 95 percent of households would have expenses of less than 20 percent of total income. 

Those numbers are based on 2017 levels of healthcare spending with no cost savings. Suppose a UCC plan included administrative and/or market-based cost-saving measures sufficient to reduce overall expenditures by 10 percent. In that case, the out-of-pocket maximum for a budget-neutral UCC benchmark plan could be held to 15 percent of eligible household income. If savings of 15 percent were achieved, the out-of-pocket maximum could be lowered to 10 percent. (See here, pp. 25ff, for the detailed calculations.)

But, as the CBO report reminds us, UCC is only one healthcare reform approach among many. The most important point to draw from the CBO’s work is that any of their four approaches would move us toward the goal of affordable healthcare access for all Americans, and a clear improvement over what we have now.

Previously posted at NiskanenCenter.org Photo courtesy of Pixabay