Six Ideas to Address Problems in the United States Health Care System

The Democratic primary debate around health care has been a tug-of-war between the competing ideas of a Medicare for All plan versus enhancing the current Affordable Care Act (ACA) infrastructure. Medicare for All promises to fix everything—coverage, cost, and quality. Proponents appear to share an underlying conviction that nothing short of a radical transformation can address these challenges, differing only in terms of how quickly and with how much compulsion that transformation should be accomplished. The diversity of universal coverage health care systems around the world, however, belies this belief.  We can make a lot of progress on all three of these fronts through incremental reforms to address the problems people face right now. None of these steps is costless or politically trivial, but neither do they require a wholesale restructuring of the entire US health care system.  Below, I describe six such ideas.

1. Expand Medicaid

The people with the most serious coverage and access problems in the United States today are the 4.4 million poor people who live in states that have not expanded Medicaid. The recent referenda in favor of Medicaid expansion in Idaho, Nebraska, and Utah suggest that, even without new incentives, the move toward Medicaid expansion is likely to continue, particularly if state governments are convinced that the ACA is here to stay. But the problem is too serious to rely on that gradual evolution.

While the Supreme Court has prevented the Federal government from compelling states to participate in the expansion, the incentive structure for participation could be enhanced. One option, drawing on a plan floated by the Bush administration and Congressional Republicans in 2007 regarding reauthorization of the Children’s Health Insurance Program (CHIP) would be to tie the Federal match rate for the Medicaid program as a whole to the share of the eligible population with insurance coverage. That’s been a controversial idea in the past, because conditioning Medicaid funding on state behavior is contentious. Democrats in 2007 opposed the idea of linking CHIP subsidies to enrollment, in part, because data were not available to support this linkage. However, new data sources have since become available that make this modification tractable, with states being rewarded for expanding coverage and reducing administrative hurdles to enrollment. It also would discourage states from imposing work requirements and other administrative hurdles unless these resulted in actual increases in job-based coverage.

2. Improve Non-Group Coverage

Uninsurance rates and access to care among near-poor and middle-income people have improved in the 5 years following implementation of the ACA’s Insurance Marketplaces and premium subsidies in the non-group market.  But there are still many people who cannot afford premiums and who find the cost-sharing in Marketplace plans prohibitive. The generosity and breadth of ACA premium and cost-sharing subsidies are a textbook example of policies that can be dialed up or down. A straightforward set of reforms could extend premium subsidies further up the income scale, change the benchmark plan in the Marketplaces to a more generous standard, and extend cost-sharing reductions to more people. This set of modifications to the ACA could ensure that every American had access to coverage with cost-sharing capped at some level (say 10%) of income at a premium below 8.5% of income.

3. Improve Private Group Coverage

A plurality of Americans under age 65 still gets coverage through employers. Most of that coverage is quite reliable and generous but some is not, and much of it is getting worse over time, with higher deductibles and out-of-pocket maximums. States are limited under the Federal ERISA (Employee Retirement Income Security Act of 1974) statute in their ability to regulate employer-based coverage, but the Federal government has made inroads into the regulation of this coverage since the passage of the Pregnancy Discrimination Act of 1978. Some of the most egregiously poor employer plans were eliminated through the ACA’s regulations of coverage, including the employer mandate, which requires employers to meet a minimum value standard or pay a penalty and allow their employees to join the Marketplaces. Currently, the minimum value standard corresponds roughly to an ACA Bronze plan (ie, a plan with a deductible of over $6,500 and an out-of-pocket maximum of nearly $8,000), though employers continue to have leeway in the choice of services they cover. Bringing this standard in line with the Marketplace benchmark standard would improve the floor of coverage for those in the employer market. This would be particularly effective in conjunction with an improvement in the generosity of Marketplace benchmark coverage.

The Federal government also could use the ACA’s preventive services benefit, which requires plans to provide preventive benefits without cost-sharing, as a way to improve the adequacy of employer coverage. The preventive services benefit could be extended to include generic drugs (or, in conjunction with a broader drug-regulation proposal, selected brand name drugs) that are highly effective in managing chronic illnesses—to be provided without cost-sharing.  This would provide greater protection to the 133 million Americans with common chronic diseases.

One reason for the increase in cost-sharing over time has been federal policy encouraging the use of high deductible plans with tax-favored Health Savings Accounts (HSAs). A modified minimum value standard for employer plans might eliminate these types of plans, which could be a mistake. In principle, a high deductible plan accompanied by an adequately-funded HSA can provide people with incentives to use health care judiciously while also protecting them from financial risk. The problem is that most people with high deductible plans today do not have enough money in their HSAs to cover their likely costs. To address this problem, the HSA legislation could be modified to require employer contributions to HSAs sufficient to ensure financial protection consistent with that required under a modified minimum value standard.

4. Improve Financial Protection and Cost-Sharing Incentives in Medicare

Most Medicare for All plans do not envision shifting the under-65 population into the existing Medicare program.  That’s because there are serious problems with the structure of traditional Medicare.  Those in the traditional Part A and B programs have no upper limit on their maximum out-of-pocket exposure.  The Part D drug benefit requires continuous cost-sharing, so that people who use very costly drugs may incur very large expenditures despite having coverage.  Fixing the traditional Medicare cost-sharing structure would be a good thing in its own right, but it also could be an important first step toward an eventual Medicare for All program.

One way to do this would be to combine and rationalize cost-sharing across the Medicare program into a single benefit design.  A unified cost-sharing design would produce many winners—especially lower-income Medicare beneficiaries without supplemental coverage who have serious health conditions—but it also would create some losers, notably higher-income Medicare beneficiaries who have generous supplemental coverage today. This kind of tradeoff doomed the Medicare Catastrophic Coverage Act of 1988, spooking a generation of health lawmakers. But if such tradeoffs cannot be contemplated within the Medicare program itself, it’s hard to imagine extending them to the entire population as would be the case under a single-payer proposal.

5. Provider Prices and Surprise Bills

Research has shown that high prices paid to hospitals, providers, and drug companies are a big part of why US health care is so expensive. We have to fix the price problem—and one place to start is surprise billing.

One reason that people with good health insurance coverage do not feel secure in today’s health care system is that they cannot be sure they will not be hit with a surprise medical bill. A recent study found that over 40% of emergency room visits and hospital admissions were associated with a surprise bill. Surprise bills, and the high out-of-pocket costs associated with out-of-network benefits (even when these are not “surprises”), leave insured people with great uncertainty. On the flip side, the potential to charge patients at arbitrary out-of-network rates gives providers, even those in highly competitive markets, leverage to demand high prices in insurance contracts.

Red states and blue states have tried to address surprise billing and prices more generally, but states are limited in their ability to address this problem because of ERISA.  While setting provider prices might work best under state law, it simply is not an option. Instead, the Federal government could establish pricing and billing baseline rules. Two basic rules should apply. First, providers should be able to collect payment at out-of-network rates of their own devising only if consumers are fully informed of these costs and the lack of coverage for them ahead of time. That means that providers will need to give patients a binding price quote for all aspects of an episode of care that will be supplied out-of-network well before treatment begins. If unanticipated services are needed, any out-of-network charge risk must fall on the provider, not the patient. Transparency tools are not enough, because patients have virtually no control over the treatment choices that are made within the course of an episode of care. The onus for providing full price information should fall on providers, as it already does for just about any other good or service people buy.

Second, the fees that providers charge in true emergencies should be capped at a pre-established rate.  That rate could be a percentage of Medicare payment, or an average national allowed amount, or it could be established at the state level. Choosing a surprise bill reimbursement rate will be a political debate, but legislators should be mindful that picking a relatively low rate will put pressure on the entire system to keep prices down. Pegging surprise bill rates to a national standard is another important step toward system transformation. If Congress can’t agree to fix these rates, which constitute only a small minority of system payments, it’s hard to imagine it imposing Medicare rates on the entire system.

6. Expanding the Scope of the Center for Medicare and Medicaid Innovation

Many ideas for moving toward a single-payer plan envision establishing public option plans, Medicare buy-ins, or other incremental steps. Some of these are likely to be very good ideas, but we don’t really know whether they will be attractive to consumers and providers, and whether they will meaningfully reduce costs and expand access. The only way to find out is to try it. Just as the Massachusetts health reform of 2006 paved the way for the ACA, well-designed experiments could accelerate progress toward deeper system transformation.

The ACA’s Center for Medicare and Medicaid Innovation (CMMI) is a well-established structure under which such experimentation might occur. CMMI currently focuses on innovations targeted at Medicare or Medicaid, but its authority could be expanded to include the Marketplaces and even entire state health insurance markets. With proper authority and funding, CMMI could provide seed funds for establishing public options in state Marketplaces or it could develop a Medicare buy-in program for those aged 55 to 64 as an alternative to the Marketplaces. Legislators could create waiver authorities that allowed states, in collaboration with CMMI, to waive certain ERISA provisions and regulate provider prices. Again, messing with ERISA to regulate provider rates is a heavy political lift, but a much smaller one than taking over employer-sponsored insurance altogether.

The reforms outlined above may not seem very exciting. They don’t hold together as a grand scheme—indeed, they’re designed to work nearly independently. But they would address some of the actual problems that people face today, and would lay the groundwork for further reforms.

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