Health care financing in the United States

Any essay on American health care now and in the future can usefully begin with the present and recent past. For that task, consider four different elements that make up the country’s basic health care financing arrangements. There is American social insurance in the form of Medicare hospital financing. Paid for by contributory taxes on American wages and salary, Medicare provides 60 days of hospital coverage to American workers over 65 and the disabled.Footnote ¹ Medicare’s medical insurance and Part D drug programs are separate. They represent a mix between private and public coverage that is paid for both by a flat premium and general taxes.

A second component is the United States form of poor law medical financing, called Medicaid, which covered about 55 million people in 2013, before the program’s expansion under the Affordable Care Act (ACA) (Artiga and Rudowitz, Reference Artiga and Rudowitz2014). This combines federal financing for half or more of state expenses for American families whose incomes and assets fall under state poverty lines. Child Health Insurance Program (CHIP), created in 1997, provides additional health insurance coverage for children in families that have low incomes that are above their state’s cut-off for Medicaid eligibility. Together, Medicaid and CHIP provide health insurance to one third of America’s children (Paradise, 2014).

A third component of is employment-financed private health insurance, where one’s jobs determine whether one has health insurance and the health insurance that one has is a product of bargaining by employees and employers. The expansion of employer-paid health insurance during the 1950s and 1960s was induced by a series of administrative, legal and legislative decisions, none of which was explicitly intended to expand employer involvement in health care. Employer-based coverage continued to expand through the 1960s, stabilizing in the early 1970s. Since 2000, the percentage of employers who offer health insurance coverage has declined, but still accounts for the health care coverage of some 170 million Americans.

Fourth, there is the coverage veterans have through the national Veterans Affairs (VA) organization, lifetime coverage for those wounded in war. The VA is America’s version of socialized medicine, hospitals and clinics owned by the federal government. This portrait of current arrangements, while not ample, sets out what existed before the ACA was passed in 2010.

The ACA, briefly

The ACA included three buckets of policy: (1) expansion – through Medicaid and new, subsidized health exchanges (later dubbed ‘marketplaces’) of Americans insured against health costs; (2) reforms of the rules of American private health insurance and; (3) a mix of different policy initiatives explained as cost control, but not providing much of it (Marmor et al., Reference Marmor, Oberlander and White2009; Gusmano, Reference Gusmano2011; Oberlander, Reference Oberlander2011). The result was a confusing patchwork built on existing programs, but one that expanded public and private insurance coverage in the United States to more than 25 million people. The fate of this ‘system’ over the next four years depends both on the state of the economy and the stability of the Republican control of the Congress.

The complexity of repeal

Rhetorically, Trump and the Congressional Republicans are all committed to ‘repeal and replace’ the ACA. This would involve ending the Medicaid expansion and eliminating the subsidies for the purchase of insurance through the marketplaces, but the reality is more complicated. Starting with the ‘repeal’ part of the equation, it is implausible that the Republicans will be able to overcome a filibuster to block an outright repeal of the legislation, which would require at least 60 votes (the Republican hold a 52-seat majority following the 2016 election). As the Republican cannot simply repeal the ACA through the normal legislative process, the most likely scenario for repealing large portions of the ACA is for the Republicans to do so by using a budget reconciliation bill. That legislative rule limits the number of amendments that can be offered, is not subject to a Senate filibuster, and can be adopted with a simple majority. In fact, the Republicans already tried this in 2015, but the bill was vetoed by President Obama.

The use of this special legislative process has limits. Because of the so-called Byrd rule (named after late Senator Robert Byrd of West Virginia), Senators can block provisions that are unrelated to spending, revenues, or the federal debt limit. In the case of the ACA, this would make it impossible to include most of the insurance reforms included in the law. Nevertheless, it is possible for the Republicans to use reconciliation and eliminate the health insurance expansions that most people have in mind when they refer to ‘Obamacare’: the premium tax credits, the small business tax credit; the individual mandate, the employer mandate, the expansion of Medicaid coverage for adults up to 138% of the federal poverty level, presumptive eligibility, maintenance of effort and benchmark plans for Medicaid, along with the ACA’s taxes (Jost, Reference Jost2016).

Insurance reforms

The outcome in the arena of reforms for current health insurance is perhaps easiest to anticipate. The popular restraints on private insurance principles – ending the legality of lifetime expense limits, the rejection of insurance because of pre-existing condition, the rule that children can continue to be covered by their parents’ health insurance to 26 years of age – are likely to be continued. Days after the election, President-elect Trump signaled that he favors keeping these provisions in place. Of course, it is possible that he may equivocate on this again. Most of the leading Republican alternatives to the ACA call for replacing these protections with high-risk pools or a ‘continuous coverage’ requirement. Regarding the latter, these provisions would ‘require that individuals have at least 12–18 months of continuous coverage to avoid medical underwriting’ (McDonough and Fletcher, Reference McDonough and Fletcher2015). House Speaker Paul Ryan has endorsed reliance on state-operated high-risk pools providing coverage to people with serious illnesses; these existed before the ACA B there is little evidence they would address the needs of people with pre-existing conditions (Meyer, Reference Meyer2016).

Assuming Trump and the congressional Republicans maintain these ACA protections and back away from their more radical alternatives, doing so makes reducing cutting the money for the ACA’s public and private insurance expansion a lot harder to do. As Tim Jost explains (Jost, Reference Jost2016), this could destabilize the insurance market. In negotiations with congressional Democrats and the Obama administration, leaders of the insurance industry accepted the new federal regulations because the law included the individual mandate and subsidies for those with incomes between 138 and 400% of the federal poverty level. Because of the mandate and subsidies, the insurance industry accepted the inclusion of regulations that forced them to sell insurance to ‘higher risk’ patients. The ACA generated new revenue for them. It seems likely, therefore, that to the extent that insurance expansion is rolled back, various rules will be introduced to limit the impact such constraints on insurance firms.

This introduces another political irony. Republicans who attacked provisions of the ACA that were designed to protection insurance companies against heavy losses will need to explain why similar protections are now justified. For example, Senator Marco Rubio argued that the ACA ‘risk corridors,’ which redistributed money from plans that made unexpectedly high profits to those with unexpectedly high losses, represented a ‘slush fund’ for insurers (Blumenthal, Reference Blumenthal2014).

Elimination of insurance expansion

Is it plausible to think the Republicans will eliminate subsidies for the purchase of health insurance in the marketplaces and/or the Medicaid expansions through a budget reconciliation bill? Let’s begin with a discussion of the Medicaid expansion. Representative Tom Price (R-GA), Donald Trump’s nominee to become the Secretary of the Department of Health and Human Services, along with Republicans in Congress appear to be united in their opposition to Medicaid expansion, but this view is not shared by Republicans at the state level. Does the ideological/partisan opposition to ‘Obamacare’ among Republicans at all levels of government in the US federal system outweigh the prospect of bringing in the federal Medicaid money? It is important to recall that the ACA covered 100% of the costs of Medicaid expansion in 2014–2016 and is scheduled to cover 90% of such costs starting in 2017. Despite this substantial fiscal carrot, 19 states have refused to expand Medicaid. Nevertheless, 31 states (plus the District of Columbia) have now expanded Medicaid and it would be painful to roll this back. Trump and the congressional Republicans may not be swayed by appeals from states with Democratic governors, but 16 of the states that have expanded Medicaid have Republican governors.

In seven of these states (Arizona, Arkansas, Indiana, Iowa, Michigan, Montana, and New Hampshire), the expansion was accomplished through a waiver process that involved negotiations between the Department of Health and Human Services and the states. The flexibility given to these states provide political protection. Officials in those states can claim they are NOT implementing Obamacare but rather a variety of market-oriented approaches to expand coverage. These ‘neoliberal’ waivers take two forms. The first stresses individual choice and personal responsibility. They seek to ‘incentivize patients to take greater ownership over their health care decisions through health savings accounts, cost sharing and other means’ (Pence, Reference Pence2014). Proponents believe that Medicaid enrollees will behave more ‘responsibly’ if they have some ‘skin in the game’ when making health care decisions. A second major theme of the neoliberal waivers is premium assistance. This approach involves the use of Medicaid funds to subsidize an enrollee’s employer insurance or the purchase of individual coverage on the ACA’s insurance exchanges. The waiver in Arkansas stresses this approach. Proponents believe that subsidizing healthier Medicaid enrollees to purchase commercial insurance on the exchanges will encourage more carriers to participate and, in turn contain premiums and other costs. Even if the Trump administration eliminates ACA marketplaces in their current form, it is possible for them to allow states to develop some form of premium assistance as an alternative to traditional Medicaid.

It is quite reasonable to think that, rather than a complete elimination of Medicaid expansion, Trump and the Congressional Republicans will choose to offer states maximum flexibility to continue the expansion through various neoliberal approaches. There are at least four reasons for thinking this is a likely scenario. First, this approach consistent with the history of increased use of waivers to set Medicaid policy under Democratic and Republican administrations (Thompson and Gusmano, Reference Thompson and Gusmano2014). Second, it is an approach that was embraced by Vice-President Elect Pence as Governor of Indiana. Third, it is consistent with the position that Governor Mitt Romney took during his failed 2012 bid for the presidency. Governor Romney, faced with questions about why he opposed Obamacare, much of which was modeled on the Massachusetts health reform that he signed into law, argued that it would be appropriate for states to adopt such a plan, but that it should not be imposed on them by the federal government (Gusmano, Reference Gusmano2015). Despite the tension between Romney and Trump during the 2016 campaign, Romney offered a broadly accepted Republican rationale for substituting state action for federal policy (Nathan and Doolittle, Reference Nathan and Doolittle2014). Finally, and perhaps most importantly, it would address the reality of the intergovernmental lobby and the importance of federal Medicaid money in the states.

Historically, the Medicaid program has enjoyed far greater support than one might anticipate by examining the political participation of program beneficiaries, half of whom are children. Hospitals and nursing homes rely heavily on Medicaid spending. These institutions are important political players in all states and, including those states controlled by the Republican party, Governors and state legislators regularly push to maintain as much federal spending as possible. The use of Medicaid waivers that allow Medicaid beneficiaries to purchase private insurance has introduced yet another interest group to this mix. In Arkansas, for example, you now have insurance firms and brokers who see Medicaid funds as subsidies for their commercial business, not simply as a separate, taxed, public program.

Even with institutional and state level support for Medicaid, it is difficult to imagine a scenario in which the Republicans do not roll back Medicaid spending. Congressional leaders have already voiced support for limiting the federal government’s commitment to the Medicaid program by turning it into a block grant. There are competing versions of this proposal of varying severity. One alternative is to adopt a per capita limit on federal payments that would increase only with the number of those who become eligible. All of these proposals are efforts to limit federal government spending on Medicaid, making states responsible for any additional costs. It is likely that most states will choose to reduce eligibility or cut benefits under the program, leaving millions without insurance coverage. Whether there is sufficient support among Republicans for capping the federal government’s commitment to the Medicaid program at the same time they are fighting to roll back the Obamacare Medicaid expansion is unclear. But there is strong support from the leaders of the House and Senate and the Trump transition team. Even if the idea cannot command a majority in Congress, the Trump administration could choose to pursue this through the Medicaid waiver process.

The fate of the exchanges is likely to be complicated. The Obama administration has worked hard to increase enrollment in the marketplaces but even in the fact of an individual mandate with subsidies and a modest penalty for failing to purchase insurance, it has struggled to encourage younger, healthier people to participate. Even without the elimination of subsidies, the incoming Trump administration could erode the marketplaces through lack of effort. As with Medicaid, the most likely scenario is that states will be given much more leeway through the waiver process to follow the lead of Arkansas in its effort to turn Medicaid expansion into subsidies for private health insurance. Some states had set up small business exchanges before the adoption of the ACA and the Obama administration allowed these efforts to continue. This approach will likely lead to higher insurance premiums and much greater variation in access to affordable insurance for individuals and small businesses. If the Republicans are successful at scaling back or eliminating the existing subsidies, it is unlikely that the marketplaces will survive.

Replace?

In addition to efforts to use waivers and block grant Medicaid, the proposals to replace the ACA are a hodgepodge of long-standing Republican health policy ideas. Most either shift financial risks to individuals or encourage competition among insurers. The proposal endorsed by Trump and leading Republicans in Congress include the adoption of individual tax credits for purchasing health insurance, the expansion of health savings accounts, the creation of high-risk pools, and allowing insurance to be sold across state lines to increase competition. The tax deduction proposal would be more valuable to those with higher incomes. Most of those who would lose coverage if the ACA Medicaid expansions or insurance subsidies were eliminated or scaled back have low incomes. The proposed tax deduction would not be worth nearly as much as the benefits they currently receive under the ACA (Cutler, Reference Cutler2016).

All the Republican options for what to do about Obamacare involve some loss of insurance coverage. Rolling back, if not eliminating, the ACA’s Medicaid expansion is a high probability. It is likely to mean fewer insured than would have been the case had Hilary Clinton been elected. The various tax credit ideas either reward the young and healthy or burden them with higher premiums than would be the case if age were taken into account.

Shifting circumstances: the economy and the 2018 mid-term elections loom large

Although the stock market rallied in the weeks following the election, strong economic performance over the next four years is far from guaranteed. If enacted, Trump’s proposed reductions in individual and business taxes would benefit the wealthy disproportionately. There is no historical evidence to support the claim that such tax cuts would ‘trickle’ down the rest of the population (Reich, 2016). Trump’s taxing and spending proposals to date are projected to increase the federal deficit between $5.3 and $12 trillion over the next decade (Committee for a Responsible Federal Budget, 2016; Pozen, Reference Pozen2016).

If the economy performs poorly during the next few years, Republicans will cut back on the extent of health insurance even further. Without the same level of subsidy for individuals and small businesses, we are likely to see a further erosion of private insurance. We are also likely to see big changes in Medicaid one way or another.

On the other hand, a slow-down of the economy could generate greater pressure from the intergovernmental lobby (the National Governor’s Association, the National Council of State Legislatures, along with individual governors) to maintain federal Medicaid payments. Given the counter-cyclical nature of Medicaid, a higher level of unemployment and subsequent loss of private insurance associated with poor economic performance will make federal cuts even more painful. Trump and the Republicans certainly face a political backlash if they don’t try to ‘repeal’ Obamacare. Yet, they also face a backlash, not only from those who lose their insurance, but from a variety of organized interests, if they fulfill this promise. The challenging political calculus facing Trump as he attempts to fulfill his campaign promise to get rid of Obamacare is how to do so without undermining the support that he enjoyed from swing voters in states like Michigan, North Carolina and Wisconsin. While it would be foolish to imagine that voting is driven primarily by policy decisions, the Republican party could face a backlash if they undermine the financial protection that the ACA has extended to millions, particularly those with low to middle incomes.

If Trump as President and the Republican party dominate in the Congress over the next four years, the best guess is that the American health insurance industry will be assisted in dealing with whatever changes emerge in President Obama’s most noted domestic reform. If, in contrast, the Democrats were to capture the House or Senate in the 2018 mid-term congressional elections, a shift from the present emphasis on limiting the role of the federal government, to a fight to expand Medicare would be more likely.

In short, we are moving toward an adaptation of relying on private health insurance with more or less regulatory intervention to address the problems that the Obamacare rules for health insurance firms raised. Social insurance got a big blow this time, but it has been coming for decades now because we did not have social insurance Democrats in the White House and fewer than before in the Congress. The most obvious effect will be to further confuse Americans about what Obamacare was meant to accomplish. Called ‘it’ by President Obama, the reforms of 2010 never were adequately explained and that means the battle over what will be repealed, adjusted, or continued will be strikingly confusing.