By Sally Pipes
Published July 21, 2019
On July 9, the United States Court of Appeals for the Fifth Circuit hinted that it might strike down ObamaCare. If it does, then the U.S. Supreme Court will likely have the last word on the law's fate. And it's unclear whether ObamaCare could survive another date with the high court.
If the courts axe ObamaCare, President Trump has promised to replace it with something "far better." That's a tall order — but not an impossible one. By adopting reforms that inject market forces into health care, the Trump administration can ensure that every American has access to affordable coverage that fits their needs.
President Obama's Affordable Care Act failed to live up to its name. Average monthly premiums for plans sold on the exchanges established by the law have risen 75 percent — from $273 in 2014 to $477 in 2019. Average deductibles for mid-level silver individual plans are north of $4,000.
People don't have many plans to choose from. In 2019, nearly four in 10 counties had only one choice of insurer on the exchanges.
And yet ObamaCare still has the support of much of the public. Over half of Americans oppose repealing the law. That's largely because the law prevents insurers from denying coverage to people with pre-existing conditions. Nearly 70 percent of people want to preserve these protections.
Consequently, any plan to replace ObamaCare must address the concerns of people with pre-existing conditions. Here's how that could work.
The first step is to make individual health insurance more appealing. That can be done by offering universal, age-based, refundable tax credits to help cover the cost of coverage. Unlike ObamaCare's income-based subsidies, these credits wouldn't change if someone got a raise or a new job with a higher salary. And they track health costs, which tend to increase as people age.
Credits could start at $1,200 for people aged 18-35. Everyone between the ages of 35 and 50 would receive $2,100, and those over 50 would get $3,000. Families could claim an additional $900 for each child. According to the Government Accountability Office, these credits would have covered the cost of a basic insurance plan before ObamaCare went into effect.
The replacement plan can further empower individuals by expanding health savings accounts. HSAs allow individuals to save money tax-free for medical expenses.
Currently, HSAs are only available to people with high-deductible health plans and can't be used to pay for insurance premiums. A good replacement plan would lift these restrictions.
It would also raise the cap on HSA contributions. Contributions are currently capped at $3,500 for individuals and $7,000 for families. The Health Policy Consensus Group recommends doubling the contribution limit to make HSAs even more powerful.
Armed with tax credits and well-funded HSAs, people would flock to the individual market. Insurers would rush in to compete for the business of those new customers. Without ObamaCare's coverage mandates, insurers could design plans that fit a wide variety of consumer needs. Some plans could be expensive and comprehensive, while others could be cheap and bare-bones.
Increased insurer participation would yield lower costs. Adding one insurer to an exchange reduces premiums by 4.5 percent, on average.
Then there's the challenge of protecting those with pre-existing conditions. ObamaCare required insurers to cover everyone and charge them the same rates, no matter what. That's well-intentioned but encourages people to wait until they get sick to sign up for coverage. That leaves the insurance pool disproportionately composed of sick, costly patients — and thus yields higher premiums.
Instead, insurers should be required to cover everyone who stays covered from year to year, without raising their premiums if they get sick. With so many affordable plans and pre-tax dollars at their disposal, people would have an easy time maintaining coverage.
A continuous coverage requirement will encourage young and healthy people to buy insurance. That will provide insurers with enough premium revenue to cover the costs of older, sicker enrollees.
For those who truly can't find affordable coverage in this reformed market, policymakers could seed high-risk pools and fund reinsurance schemes that would handle the highest-cost claims. Segregating the relatively few patients with extremely costly conditions from the bulk of patients, who have more actuarially predictable claims costs, would allow insurers to keep premiums affordable and stable.
Republicans have spent years trying to repeal and replace ObamaCare. The courts may soon give them the chance to implement an alternative, market-friendly vision for health reform. Let's hope they seize it.