No cap in CAP plan

The Democratic Party-oriented think tank's entry in the health care reform debate provides little immediate help for most families with private health insurance.

John Podesta, President Clinton’s former chief of staff, launched the Center for American Progress in 2003 to serve as a liberal/progressive counterweight to the well-funded right wing think tanks in the nation’s capital. In its first decade, CAP played a key role in bringing the 2010 Affordable Care Act into existence. In its second, it helped thwart Republican efforts to undermine the bill.

But CAP, like the rest of the Democratic Party establishment, proved incapable of blocking the malevolent second Trump administration from imposing its destructive will on the nation’s health insurance safety net. Rather than seeking outright repeal, which could be blocked in the Senate, the ACA’s Congressional enemies in the GOP followed the playbook drawn up by the Heritage Foundation’s Project 2025. They undermined the legislation with a few well-targeted hatchet blows.

The result now playing out across the land is the biggest rollback in publicly-subsidized health insurance coverage in U.S. history. This year millions of families dropped ACA plans made unaffordable by elimination of the expanded subsidies passed by the Biden administration. Millions more face elimination from the Medicaid rolls over the next few years as the $1 trillion in cuts contained in last year’s tax cut legislation roll out.

Employer-based private health insurance, which covers more than half the population, faces its own crisis under Trump. The premiums that companies and their workers pay to cover the cost of care plus insurance industry profits and overhead are rising as fast or faster than inflation and wage increases combined.

To reduce the upfront drain on their paychecks, more and more workers are opting into plans with high deductibles and co-pays, only to find they can’t afford the extra bills they receive when they get sick. The Bureau of Labor Statistics reports 42% of adults under 65 are now in high-deductible plans with a mean upfront deductible of $2,750, which means 50% pay at least that much or more before their insurance coverage kicks in. In a nation where 43% of the public says it doesn’t have enough money saved to cover a $1,000 expense, that’s not affordable.

Image by ChatGPT

Voters’ biggest worry

The January KFF tracking poll found two-thirds of the public now considers health care affordability their number one financial worry. It ranks ahead of rising costs for food and groceries, utilities, housing and fuel (although that ranking may shift somewhat in the months ahead thanks to Trump dragging the nation into the Iranian quagmire). The silver lining for Democrats is they still out-poll Republicans by 13 percentage points when it come to whom voters trust to manage the issue. Moreover, 4 in 10 independents say health care costs will play a major role in determining their vote this fall.

Those poll numbers suggest voters will be open this fall to big, bold solutions that address their number one economic concern. Democrats need to run on reversing the cuts to Medicaid and ACA plans, of course. But those programs affect less than a third of the population. They need a plan that helps everyone; and that is easily understood, implementable within a relatively short period of time, and directly addresses the biggest problem that is faced by almost everyone: unaffordable out-of-pocket expenses that come in the form of co-premiums, deductibles and co-pays.

Alas, that’s not what CAP offered in its initial election year foray into the health care policy debate, which it released last week. Dubbed “A Patients’ Bill of Rights To Lower Health Care Costs,” the plan promised “immediate relief on premiums, deductibles, and insurance denials.”

While it would achieve some of that for some people, their plan falls far short of a comprehensive approach to reining in the provider prices that drive insurance premiums. It fails to set strict limits based on income on what people must pay when they get sick.

Most of its proposals, while sound, fall safely within the incrementalist tradition that has long dominated mainstream liberals’ approach to health care reform. Unfortunately, that doesn’t offer “immediate relief.” Most of CAP’s reforms will take years to show up in peoples’ paychecks.

A new incrementalist agenda

The plan touches on all the major issues. It starts by offering a prescription for reining in drug prices by expanding the number of drugs subject to government negotiation, which began during the Biden administration. It would incorporate international pricing into those negotiations, which has been proposed by the Trump administration; and bans most mark-ups by pharmacy benefit managers, which is under consideration by the current Congress. It also applies the Medicare caps on some drug prices (like insulin) to the commercial insurance market.

To address soaring commercial insurance rates, CAP calls for creation of the public option on the exchanges for both individuals and employers, which has been a long-standing goal of many Democrats in Congress. They would set provider payment rates for the public option at 200% of Medicare rates for hospitals and 130% for physicians. Currently, commercial rates average about 250% of Medicare rates, which would make the public option highly competitive in many markets and lower premiums for employers and individuals with ACA plans who make the switch.

The plan would impose both insurer and provider price regulations to further reduce rates. It would set an “affordability standard” for future insurance premium increases by having the government measure the average increase nationwide in spending per private plan enrollee, and require state regulators or the federal government (in states without rate regulation) to roll back premium increases that rose above the benchmark.

According to the report’s own estimate, this would only affect 14 states’ ACA plans and 11 states’ employer-based plans. The reported pointed to Rhode Island, where a model affordability standard reduced overall premiums by 9% or $1,000 a year. But they set their annual increase at 1% above inflation, which in our current environment would allow a 3.5% increase. Even if opposition from hospitals in those states could be overcome, it would have no impact on the majority of states, where increases for private plans have averaged 6-7% in recent years.

The CAP proposal would also set a maximum provider price for any service at 300% of Medicare rates. This would rein in prices, but only for extreme outliers among hospitals and physician practices since the average price compared to Medicare is 50 percentage points below that target. They also call for returning those savings to workers in the form of lower deductibles, which, the reported estimated, would cut the average deductible by $933 or nearly in half. But, again, this would only be for plans paying extremely high prices and not affect anyone near or below the average.

The plan seeks to address the broader market by placing additional price caps on insurers and providers. For insurers, it would limit overhead to the level used by the Federal Employees Health Benefits program, which is about 40% of usual commercial rates for profits and administrative costs.

It would also disallow mark-ups for internal transfer pricing, where insurer-owned physician groups and other closely-held providers charge exorbitant prices to their insurance arm in order to drive up premiums and thus profits an employers’ and employees’ expense. As a final gesture, the plan also called for banning insurance company ownership of providers, a move that the plan recognized “would take years to wind through the courts.”

Hospital price controls would be placed in the hands of the states, and only imposed when hospital prices exceed the statewide median. The cap for those hospitals would be set at inflation plus 1%. Given that nearly every hospital service region is considered highly concentrated with either one or two hospitals controlling the entire market in half the regions, the rule would probably affect a solid majority of U.S. hospitals. The CAP report authors estimated this would save premium payers over $1,300 a year, the most significant cost control measure in the report

Finally, the CAP plan would ban prior authorization. Instead, it would substitute “independent clinical review … grounded in evidence-based clinical guidelines and ‘appropriate use criteria.’” Taking those decisions out of the hands of insurers makes a lot of sense.

It calls on physician groups to develop clinical decision support tools that “physicians could voluntarily query at the point of care to check whether a planned test, procedure, or treatment aligns with evidence-based criteria.” Such tools already exist (Up to Date, for instance). Why they aren’t used is a separate question. For a separate list of “costly and widely overused services,” insurers could submit claims to an independent review board for adjudication within 48 hours.

Projected savings from the CAP plan:

Source: Center for American Progress

Help everyone instead

The CAP approach to the current affordability crisis violates what I’ve come to think of as the Robert Reich rule. In a post last fall on his substack, the former Labor Secretary cautioned would-be reformers not to push 10-point plans that few will read and fewer will understand. If people have a problem, he said, address it directly with something that is easily understood. That is what succeeds politically. Complexity doesn’t.

Almost all the proposals in the CAP plan are complex and not easily understood by average voters. They will be hard to explain when they are attacked by providers and insurers with their expensive advertising campaigns about how it will destroy what people have, which is inevitable for any reform that asks the medical industrial complex to give up something without getting anything in return.

The CAP authors also failed to offer direct relief to householders in the working age population. The benefits are indirect. Moreover, they do not deal at all with the affordability issues facing low- and moderate-income seniors who live on Social Security alone — about 40% of the elderly.

Focusing only on the prices paid by employers creates another problem. There’s no guarantee any subsequent premium declines will be shared with employees. Except for small number of workplaces with unions, it is employers who determine how those savings will be shared.

Employers have historically required employees pick up 25% of family plans and 20% of individual plans. In recent years, employees have been asked to pick up a growing share of the total premium, which has driven more people to choose their employers’ high deductible plans to save money.

I did not find in the CAP plan any proposal that guarantees premium savings will be shared fairly between employers and their employees. There is an insurance regulation that could assure that: Setting a cap on what any household pays for health care out of pocket for all co-premiums, deductibles and co-pays.

Some advocacy groups have proposed setting a fixed cap on out-of-pocket expenses of $5,000 a year. That is still far too high for anyone in the bottom half of the income distribution. The better way to go, which I included in my plan released last December, is to set the cap at a percentage of household income that any household has to pay for health care in any given year.

That, too, would require legislation to regulate how employer-based insurance plans (and government plans like Medicare) are structured. But, unlike a $5,000 cap, it solves the problem for everyone. It would not depend on price controls or premium savings that will only impact 11 or 14 states; or be limited to plans paying for outlier prices at individual hospitals; or only affect some drug prices; or several of the other half-measures in the CAP plan that inevitably would be applied unevenly across the country, and, as a result, not solve everyone’s out-of-pocket cost problem.

The CAP plan also does little to bring hospitals, insurers and physicians to the table, which if I read Jonathan Cohn’s book The Ten Year War correctly, was crucial to getting the Affordable Care Act passed. Everyone had to give up something to get something, which in the ACA’s case, was turning no-pay patients, a major contributor to uncompensated care and rising insurance premiums, into paying customers.

The CAP plan is all pain, no gain for the entrenched special interests that make up the medical industrial complex. In one sense, that fits our populist times. But as a practical matter, it isn’t a winning strategy.

I’ve proposed something that is more radical yet holds out the possibility of building a new, broad-based coalition for major reform. The permanent, income-based cap on out-of-pocket expenses benefits everyone, making it — like Social Security and Medicare — easily saleable and politically unassailable once enacted.

Equalizing prices that providers can charge any payer dramatically lower premiums for employers and employees alike, which has the potential to win support from business groups, especially those with an older, sicker workforce. This requires government to pay more so that the privately-insured can pay less. But this could be achieved through either progressive taxation (like reversing many of the Trump era tax cuts) or by capturing some of the savings through the Medicare payroll tax levied only on the employer side, not on workers.

At the same time, the government, operating either through state regulators or at the national level, should put providers on a budget that grows more slowly than in the past. CAP would impose a dramatic cut, but only on outliers, by limiting price increases to inflation plus 1%. I would peg the growth in budgets to something less than economic growth, which would allow providers to adjust over time to slower spending growth and provide them with the freedom to deploy their financial resources in ways that promote better health and better outcomes so that the slower growth doesn’t result in a stinting on care or rationing.

Providers can be brought to the negotiating table if reformers give them and their organizations an off-ramp of a budget that is slower growing but guaranteed. They will no longer be incentivized to to deliver unnecessary care, or depend on the quantity of services delivered to achieve their annual budgets.

Politicians needn’t worry about how to sell provider payment reform to their constituents. That is something they will need to work out with medical industrial complex behind closed doors once the political will to make changes exists. The CAP plan is no different in that regard.

But what an out-of-pocket cap based on income enables them to say is something that can’t be said about the CAP plan: No family will ever again pay more than a low percentage of their income for health care. That to me sounds like a winning slogan.