Repealing the Affordable Care Act (ACA) via the budget reconciliation process without replacement policies in place risks dramatically increasing the number of uninsured people and causing chaos in the individual (nongroup) insurance markets. Replacement plans will likely be controversial and cover fewer people than the ACA. Any replacement plan will need to receive some support from Democrats in order to pass the Senate. After repeal, an ACA replacement will require new revenues because there will be a new spending and revenue baseline. This may prove to be extremely challenging.
Faced with this reality, policymakers should consider fixing the major problems they have with the ACA rather than repealing it; this would not disrupt the parts that are working effectively. To that end, we propose a range of policies that would address critics’ concerns and also strengthen the law, expand coverage, improve affordability, increase market stability, and lower the high premiums that exist in some markets.
We propose the following:
- Replace the individual mandate with a modified version of the late enrollment penalties currently used in Medicare Parts B and D.
- End the employer mandate. The limited gains in coverage and the revenue it generates have not been worth the controversy it has caused.
- Replace the Cadillac tax with a cap on the tax exclusion for employer-based insurance, ideally setting the cap at levels that would generate additional revenues to help finance vital enhancements.
- Improve affordability by reducing premiums, deductibles, and other cost-sharing requirements for modest-income individuals, and extend to higher-income individuals a cap on premiums at 8.5 percent of income.
- With a premium cap at 8.5 percent of income applied to all, relax the 3:1 age rating to be more in line with actual differences in spending for younger and older individuals.
- Examine the essential health benefits package, recognizing that eliminating certain benefits would eliminate risk pooling for those services, shifting all costs to individuals needing those services. That is problematic for any service, but particularly so for prescription drugs, mental health, and substance use disorder treatment.
- Stabilize the Marketplaces by taking steps to increase enrollment. This would include investing in additional outreach and enrollment assistance and allowing states to extend Medicaid eligibility to 100 percent of the federal poverty level (FPL) rather than 138 percent of FPL. People with incomes between 100 and 138 percent of FPL would move from Medicaid to Marketplace coverage and thereby benefit from the affordability provisions mentioned above. Further, it should be made easier for working families to be eligible for income-related tax credits.
- Address the impact of insurer and provider concentration on nongroup market premiums by capping provider payments in those plans at Medicare rates or some multiple thereof—an approach currently used by the Medicare Advantage program. This would limit the use of market power by large provider systems and make it easier for insurers to enter new markets.
- Use a broad-based source of revenue (e.g., assessments on all health insurance and stop-loss coverage premiums or general revenues) to permanently protect nongroup insurers from the consequences of enrolling a disproportionate share of very high-cost enrollees, as is done in Medicare Part D and Medicare Advantage.
Most of these steps have had bipartisan support in other contexts and therefore can provide a framework for a bipartisan compromise.