Opinion, Berkeley Blogs

Bipartisan health care reform could be a winner

By Ben Handel

Most of the discussion surrounding U.S. health care reform in 2017 has focused on efforts to repeal and/or replace the Affordable Care Act, or Obamacare. These efforts have been unilateral, supported only by some Republicans and opposed by nearly all Democrats.

With the apparent recent failure of this legislation, there has been some talk of bipartisan efforts at health reform, likely a smaller-scale bill that would help stabilize the exchange markets set up under the Affordable Care Act.

While this smaller-scale bipartisan effort would be welcome, now is also a good time to think about what a larger-scale bipartisan health care reform might look like. This kind of reform could be more politically feasible than recent liberal discussions surrounding a move to a single-payer system, and improve on the current health care system incrementally, unlike the destructive policies recently put forth by the Republican House and Senate.

The politics of health reform are always tricky, but there are a number of economic ideas that could garner support from both parties based on their past policy positions. These ideas include:

Scaling Back Employer Tax Exclusion: The employer tax exclusion for health benefits allows employers to offer insurance on a pre-tax basis. This gives employers an advantage over insurers in the marketplace and likely distorts employer plans towards greater generosity. Scaling back this tax exclusion will (i) raise additional tax revenue right now and (ii) help stabilize ACA exchanges by getting some employers out of the insurance business. Stable regulations and a commitment to successful ACA exchanges are an important pre-requisite for this change to succeed, as is a gradual phasing out of the exclusion.

Subsidies for Health Savings Accounts: Health savings accounts allow consumers to use tax free funds to pay for out-of-pocket health spending. This is a favorite policy of some conservatives: consumers have more skin in the game while also saving money in tax free accounts if healthy. A bipartisan policy could (i) allow an increase in the Federal limits of contributions to HSA accounts and (ii ) increase subsidies to consumers enrolling in HSA eligible plans on the ACA exchanges, and depositing some of those subsidies into consumers HSAs. This would both increase subsidies (which liberals like) and give consumers more skin in the game on the margin (which conservatives like). Typically, HSAs are thought to be regressive, since they provide tax benefits that help individuals with higher income the most, but, with enough compensating subsidies this could be a neutral or progressive policy. This policy should be accompanied by campaigns to help consumers use these plans effectively, since recent research shows consumers often have limited understanding of plan characteristics and may make sub-optimal treatment decisions as a result.

Commitment to Market Stability: Legislation should commit to regulatory and funding structures for the ACA exchanges that provide insurance to individuals who otherwise fall through the cracks. It is clear that, in lieu of a strong alternative policy, a commitment to market stability is crucial to deliver benefits effectively to consumers. With this kind of commitment, and some tweaking to current subsidies / regulations, it is likely these markets will be sustainable.

Buy-in to Medicare Advantage and Part D: Conservatives have supported privatized Medicare plans now for some time in the form of Medicare Advantage HMOs and Medicare Part D prescription drug plans. Though there would be some logistical hurdles, these markets bear quite a few similarities to the ACA exchanges, and in theory it could make sense to allow consumers to use their subsidies to buy in to these privatized Medicare plans, even when under 65. This would lead to an expansion of private markets and potentially allow consumers receiving ACA subsidies to buy into an existing stable market, if preferable. While some legwork would need to be done on the regulatory side, this type of policy could help leverage existing markets to provide more benefit options.

Continue Medicare Value-Based Purchasing Programs: Medicare has piloted and expanded several programs to shift payments away from fee-for-service to payments that are more closely tied to the value of care delivered. These programs included (i) Bundled Payments for Care Improvements (BPCI) (ii) pay-for-performance programs and (iii ) MACRA, the latter of which allows providers to opt in to a range of alternative payment models. These programs are essential for shifting the U.S. towards a more cost efficient system, and Medicare is often seen as a leader in innovation in this space for the private market. These policies have some bipartisan support, though the current HHS secretary has recently come out against them.

A significant bipartisan reform effort in health care would not need to include all of the above policies: Each has its own economic benefits and potential political pitfalls. But all would be an improvement over the recent set of congressional legislative proposals aiming to repeal Obamacare, which made little sense to most professional economists (both liberals and conservatives). We can do better, and middle-of-the- road reforms like those proposed here would be a useful step forward.

This piece was cross-posted from the UC Berkeley Opportunity Lab's Our Take forum.