U.S. Census data out last week shows that in 2014, the number of uninsured Americans declined by 8.8 million. That’s remarkable progress, and it is indisputably due to the Affordable Care Act (ACA). But with King v. Burwell and other specious debates about the legitimacy of the ACA fading in the rearview mirror, many policy experts are now shifting their attention to further ways to improve the ACA for consumers. For example, a recent Urban Institute report proposes several ideas for ACA 2.0. These include efforts to improve the overall affordability of health insurance coverage, eliminate the family glitch, improve incentives for states to expand Medicaid, and shore up the customer service and oversight infrastructure to support effective implementation of the law.
The ACA has made insurance more affordable for many consumers, but some still face high financial burdens. Due to cost, 22% of people say they have delayed treatment for a serious condition in a 2014 poll. To reduce the financial burden on low- and middle-class families, out-of-pocket costs must be considered in addition to the up-front price, or premium, that consumers pay for a plan.
The report’s authors suggest that one way to address the problem of high out-of-pocket costs would be to peg ACA subsidies to the second-lowest-cost gold level plan rather than the second-lowest-cost silver plan, allowing more consumers to buy plans with lower deductibles and cost-sharing. In addition, the authors propose that the ACA’s cost-sharing reduction subsidies could be improved by raising the actuarial value (AV) of each level, from 87% to 90% for those 150-200% of the federal poverty level (FPL), from 73% to 85% for 200-250% of FPL, and from 70% to 85% for those 250-300% of the FPL. This means that plans will reimburse up to the AV percentage of covered benefits across an average population, reducing the out-of-pocket responsibility for these groups while not increasing their premiums.
An inconsistent affordability threshold between employer and individual markets also exists. Under the ACA, employer coverage is deemed affordable if it is less than 9.5% of income, but the marketplace uses an 8.0% affordability standard to determine if the individual mandate applies. The authors further argue that consumers would benefit from legislation to lower the percentage of income they are expected to contribute to health insurance. For example, marketplace caps could be lowered from 6.34% of income spent on premiums in 2015 for those at 200% of FPL (or $40,180 a year for a family of 3) to 4.0%. For those at 400% of FPL and higher, the lack of a current cap could be replaced by an 8.5% cap. This 8.5% cap could also replace the current 9.5% cap for the employer-sponsored insurance affordability standard, eliminating the inconsistency in affordability thresholds.
Eliminating the Family Glitch
If the cost for an individual to enroll in employer-based coverage is less than 9.5% of household income, nobody in the family is currently eligible for marketplace tax credits even if the employer-based family coverage costs more than 9.5% of income. In an effort to fix this “family glitch,” the 8.5% standard could be used here as well. The authors propose that if the cost of family coverage through an employer is above 8.5% of household income, dependents should be allowed to obtain subsidies through the marketplaces, and the amount the worker pays to the employer for a self-only group plan should be subtracted from the amount the family is expected to contribute to a marketplace plan.
Medicaid expansion flexibility
The report also proposes an alternative option for Medicaid expansion to further increase access to coverage. The proposal would allow states to expand to 100% of FPL rather than expanding to 138% of FPL or not at all. The authors argue that such additional flexibility could encourage more states to opt for expansion. Those with incomes between 100% and 138% would then be eligible for premium tax credits. The Urban proposal would not require any contributions to premiums for those at 100% of FPL and a premium contribution maximum of just 1% of income for those at 138% of FPL.
Shoring up Administrative Capacity
Finally, the report calls for additional federal funding to increase administrative capacity. Ensuring a high functioning IT infrastructure as well as adequate enrollment outreach efforts are important to maintain the gains that have been achieved by the law. Having systems that provide adequate, accurate, and timely notices as well as plan information to consumers is critical for the marketplaces to function effectively. The report also calls for further funding to support oversight and enforcement functions. While some state departments of insurance now have more resources because of short-term federal rate review grants, understaffing remains, leaving tracking, analysis, and compliance efforts likely not receiving sufficient attention. The federal rate review grants will expire soon, further reducing states’ oversight capacity. Increased funding would also allow for more robust data reporting requirements and improved transparency.
These steps will take significant funding, but the report offers several suggestions for ways to pay for these improvements to the ACA. It notes that national health expenditures are now forecast to be $2.5 trillion below the forecast made four years ago for the 2014-2019 period, so their estimated $453-559 billion price tag over 10 years should not be prohibitive. The illustrative financing options the report provides include extending the 23.1% Medicaid drug rebate to dual eligibles, taxing cigarettes and alcohol, increasing the Medicare hospital insurance tax by 0.2% (0.1% on employers and 0.1% on employees), and replacing the Cadillac tax with a cap on tax exclusion for employer-sponsored insurance. A combination of these or other options would pay for the proposed investments, which equal 0.20-0.24% of GDP, and allow for improved affordability and increased enrollment.