Obamacare's second chance

Cutting out-of-pocket costs will be key to achieving near-universal coverage

Sometimes life provides a second chance. For Obamacare, that second chance is now.

We’ll soon learn whether the Affordable Care Act is capable of achieving near universal healthcare coverage at an affordable price—the promise made by the 44th president when his signature legislation passed in 2010. In his first month in office, President Joe Biden has reopened enrollment on the exchanges and ordered an immediate review of policies instituted by the Trump administration that are inhibiting sign-ups.

He’s ordered a roll back of the Medicaid work requirements allowed by Centers for Medicare and Medicaid Services under Trump. He’s also proposed more generous subsidies for the 12 states that still haven’t expanded their Medicaid programs to cover the near-poor.

The most significant new initiatives for expanding Obamacare, however, are contained in the COVID-19 relief package. When passed, there will be more generous subsidies for individuals and families who purchase plans on the exchanges. The new blueprint subsidizes 100% of the costs of the plans for anyone earning less than 150% of the poverty level and reduces out-of-pocket premiums for those earning up to 400%.

In a new twist, the legislation, which could pass the House this coming week, will cap all out-of-pocket premiums at 8.79% of income — no matter how high that incomes goes. That by itself would be a major expansion of the program since nearly every family buying coverage would now be subsidized. Take, for example, a family earning $100,000 a year in adjusted gross income. The maximum premium would be $8790 or $733 a month. That’s less than half the actual cost of a typical family plan.

The relief bill also contains new subsidies to help people pay for COBRA coverage. That law allows laid off workers to stay on their employer plans. However, paying for that coverage usually comes out of the laid off workers’ pockets, not their employers’. 

The healthcare establishment desperately wants these initiatives to succeed. Hospitals, doctors, drug and device manufacturers, the insurance industry, and, it should be pointed out, the business community agreed a decade ago that Obamacare, which preserves our current employer-based insurance system for the working population, was the best way to provide insurance for the nation’s 30 million uninsured.

Why these powerful special interests want to preserve the status quo isn’t a mystery. Their business models depend on maintenance of a fragmented and unnecessarily complex health insurance system whose opaque rules are unfathomable to the vast majority of Americans. It results in providers charging different prices for each of three broad tiers of coverage: one for the old, one for the poor and one for the privately insured. Moreover, insurance purchasers within each tier are given multiple options.

This fragmentation winds up requiring individuals to buy different forms of coverage at different stages of life, while, perversely, offering different coverage to similarly situated individuals within each stage of life. It also leads Americans to paying more for their healthcare than any country on earth — now 18% of gross domestic product.

Nobody in their right mind would design such a system if they were starting from scratch. It should also be pointed out that the U.S. is the only country on earth that relies on employment-based health coverage for its working population.

Yet, when pressed, that’s what Americans seem to prefer. A Pew Research Center survey released last fall showed 26% of Americans backed a mixed government and private insurance system. Add in the 30% who only want government to provide Medicare and Medicaid and the 6% who want no government involvement in healthcare at all (both of those latter constituencies are overwhelmingly Republican), the anti-single payer constituency outnumbers those backing Medicare for All by a wide margin.

Despite the dramatic shift in tone proposed by the Biden administration, the Congressional Budget Office last week projected the new Obamacare subsidies, which are only slated to last through 2023, would have a 10-year cost of $54 billion while only adding 2.5 million more people to the ranks of the insured. That won’t bring the U.S. anywhere near universal coverage.

Nor will it deal with the public’s No. 1 issue, which is the high cost of premiums and co-pays in their employer-based private insurance plans. Those have been going up 4% to 5% every year while wages and salaries rise an average of just 2%. That’s a recipe for constant disillusionment and, if left unaddressed, will lead people to continue searching for more comprehensive solutions.

Ultimately, the only way to make healthcare insurance affordable is to bring down the total cost of care. That requires a new reimbursement system that controls drug, device, hospital and physician prices, and imposes strict limits on insurers’ profits and overhead.

Needless to say, Congress is unlikely to act on any of those fronts anytime soon. This is not a red-blue issue. Most of the Democratic Party is just as beholden to the hospital, physician, drug, device and insurance lobbies as are their GOP counterparts. Therefore, we can expect to see continued unresolved fights over Medicare for All, the public option, or, with another swing of the political pendulum, conservative alternatives like skinny, high-deductible or short-term plans.

The only way to avoid those fights and still achieve near universal enrollment is to make Obamacare plans—and all employer-based plans—truly affordable for individuals and families. The seeds for how to get there have been planted in the COVID-19 relief bill. Make the new subsidies more generous. Make them permanent. And put strict limits on what individuals and families must pay for care.  

Congress needs to place a permanent income-based cap on the amount anyone ever has to pay out of their own pockets for healthcare coverage, whether in the form of premiums and co-pays. It should be set at a fixed percentage of total income and fall to zero when people are out of work or stuck in low-wage jobs. Legislators should pass a law that applies the same rules to employer-based plans.

This will be costly to the government on the front end. But increasing taxpayer exposure will give Congress a powerful incentive to finally address this nation’s cost-of-care crisis through payment reform. Just as the Senate during the first two years of the Obama administration got all the players in a room to hammer out how to create a viable individual insurance market, a major expansion of subsidies in that market (plus new controls on how much individuals had to pay for their employer-based plans) would force Congress to finally come up with an acceptable way for controlling overall costs.

If President Biden truly wants to leave a permanent mark on the healthcare system, he should find a way to pass legislation that finally puts an end to making patients pay for the healthcare system’s failures.

A shorter version of this article appeared in the Feb. 22, 2021 edition of Modern Healthcare.