Since the US election on November 8, the fate of the Affordable Care Act, or “Obamacare”, has been heavily scrutinized. President-Elect Trump’s selection for Secretary of Health and Human Services, Tom Price, has participated in several attempts to repeal it, suggesting the law may be headed for dissolution, with the fate of its 20 million direct beneficiaries uncertain.
Yet even as the form of this dissolution is debated fiercely, Republicans are also considering a supplementary plan to phase out Medicare in favor of what they have called “Premium Support.” And astonishingly, that plan will either render Medicare unworkable, or reconstitute it on the model of… the hated ACA.
What is Premium Support and how does it work?
Premium Support, though proposed and discussed in policy circles since at least 1995, first reached lay audiences in 2012 when Senator Ron Wyden (D-Oregon) and now-Speaker of the House Paul Ryan (R-Wisconsin) proposed an iteration of Premium Support as an alternative to traditional fee for service Medicare. Seniors would receive a voucher (subsidy) to buy insurance from a menu of options on the private market, paid directly to the insurer. The amount of the voucher would be fixed for a given year, though it may vary in size by age, health status, and region of the country to ensure that some benchmark plan was affordable in any given market, and would rise in subsequent years by some amount varying between general inflation and healthcare inflation (the latter has historically tended to be higher than the former, though perhaps not as much in recent years).
Henry Aaron, one of Premium Support’s original proponents, wrote an update in 2012 actually arguing against implementing it for Medicare. One of his criticisms was that the proposed plans were not Premium Support at all, since they were indexed to inflation (or inflation + some amount) rather than to health care costs themselves.
If these ideas sound very familiar, keep reading.
Avoiding a Death Spiral
One aspect of the premium support debate that is curiously under-developed is just what will happen if some seniors cannot afford, or choose not to pay, their premiums, despite the aforementioned voucher. Aaron mentions the converse problem in the New England Journal–that insurers will “cream skim”, i.e. attempt to find and insure the healthiest patients while leaving the sickest uninsured (and a criticism of Medicare Advantage programs). But if comparatively healthier or younger seniors themselves choose to forego insurance because they find it too expensive–say, because insurers are required to insure all seniors at roughly the same rates, regardless of pre-existing conditions–insurers will run into an actuarial death spiral where the healthiest seniors are ever more unwilling to pay premiums, leaving a sicker pool and higher rates for those who remain.
Large employers solve this problem by distributing risk across their tens of thousands of employees and by claiming tax incentives for spending on health care rather than salary; Medicare solves it by distributing the risk across its 55 million beneficiaries and, of course, by relying on the federal budget and aggressively negotiating with providers to keep costs down. But ultimately, every stable health insurance market requires some way to keep most or all individuals within it, either through tax penalties for those who abstain from insurance, or some fallback default insurance for those who don’t choose, higher subsidies to act as carrots for the indigent, or through enrollment on first contact with the health care system.
Premium Support and the Affordable Care Act?
If one combines the prescription for a workable Premium Support from Aaron–(1) a (short) menu of well explained plans offered on a government administered site, (2) where insurance products are offered to all seniors, (3) subsidized by vouchers–with a (4) mandate of some sort to seniors to remain within the market, then one can see that a workable PS system is… Obamacare.
Each of the above items is present in the ACA, from insurance exchanges to a ban on pre-existing conditions to the individual mandate to buy insurance to the “premium support” (!) that patients variably receive based on their income. The premium support in the ACA is even indexed, as Aaron suggests, to the price of “health care spending” in the form of an actual plan on the market (second cheapest silver) rather than to inflation.
All roads lead to the three legged stool
For reasons explained previously on this blog the popular parts of Obamacare (subsidies, the ban on pre-existing conditions) simply cannot exist without the unpopular ones (the individual mandate). Market-friendly insurance strategies–those that allow patients to buy insurance rather than provide it as a government service–necessitate three legged stools to avoid the threats of adverse selection by both patients and insurers and to ensure that everyone or almost everyone is meaningfully covered.
The Premium Support plan will face the exact same reality and will deal with very similar issues ranging from what constitutes coverage to how generous subsidies should be now and in the future. How tragically ironic it would be to see Medicare transformed into the ACA by the same actors advocating for the ACA’s dismemberment.