When Congress returns in September, Senate health committee chairman Lamar Alexander (R-TN) and ranking member Patty Murray (D-WA) will attempt to find a way to at least temporarily shore up the Obamacare individual health insurance markets.
First, they will try to guarantee the low-income cost sharing reduction (CSR) subsidies for at least a year in order to give participating insurers the confidence to charge rates that will often be 15% to 20% lower than they would otherwise have been. A good step that Democrats will have no trouble supporting.
But for there to be any chance that Republicans would support a stabilization bill, they will also have to get some concessions. The most likely concession to draw Republicans onside would be one that granted the marketplace more flexibility and a resulting better risk pool so that health plans could come up with better prices.
Opponents of this flexibility will argue that there is no free lunch. Plans with fewer benefits will cost less because they offer less.
Actually, not quite.
The fundamental problem with the Obamacare exchange health plan offerings is that they cost too much because too few healthy people have signed up––in turn because the plans are not attractive to them. Fewer benefits will mean lower cost. But if more attractive policies can be offered and healthier people sign up, the costs will also go down because more healthy people would be attracted to the pool. Actuaries I have talked to estimate that an efficient risk pool could lead to prices as much as 40% less than what we have now. Admittedly, such a reduction in cost might take a couple of years––insurers will want to see a better risk pool before cutting any rates.
But I will suggest there is also a way for Democrats to sign-on to a way to make the market more flexible and give the Republicans what they are looking for.
The Chrome and Iron Plan, an Alternative to the Individual Mandate, and Maine-Style Invisible Reinsurance
First, offer a Chrome Plan:
- Continue to offer the Obamacare standard Bronze, Silver, and Gold Plans––with their current benefit mandates––as the baseline plans.
- Allow insurers to offer an alternative plan––let's call it the Chrome Plan.
- Give insurers the freedom to create any set of plan benefits they choose for their Chrome Plan––and let them create any number of Chrome Plan variations to offer their customers.
- But, require any Chrome offering to provide overall benefits equal to at least the existing Obamacare 60% actuarial value Bronze Plan.
- At point of sale, the insurer would be required to provide the consumer with a detailed comparison of benefits covered under the Chrome Plan they were interested in buying and the standard Obamacare mandated Bronze Plan––full disclosure.
Currently, the Obamacare Bronze Plan has a 60% actuarial value––the Silver Plan is 70% and the Gold Plan is 80%. But these plans must provide the set of Obamacare benefit mandates and are limited in the maximum deductibles and out-of-pocket costs they may charge customers.
Under my Chrome Plan, insurers would not be required to provide all of the mandated benefits––but their package would be required to have the same overall 60% actuarial value as the Bronze plan. The difference is that insurers would have the flexibility to mix and match the benefits a consumer wanted to buy so long as it achieved the same overall value.
Premium costs would not likely be cheaper than the existing Bronze plan in the short-term because the Chrome Plan would still be providing an overall benefit package equal to the same 60% actuarial value of the Obamacare benefit mandates. The only way to reduce short-term costs would be to either cut benefits or increase subsidies. But, people would be afforded the opportunity to buy the benefit package they valued.
Costs could be cheaper in the longer-term as more healthy consumers came into the market more satisfied with what they could buy therefore improving the risk pool and ultimately enabling health plans to reduce real premiums.
Second, offer an Iron Plan––a plan with a 50% actuarial value measured against Obamacare's standard plans. This would be a plan that had less benefits and therefore cost less and would allow insures to mix and match benefits so long as it complied with an overall 50% actuarial value. Again, require full consumer disclosure by comparing the benefit details of any Iron Plan to what was offered under the standard Obamacare Bronze Plan.
Undoubtedly, these Iron plans would be in the form of a very high deductible catastrophic design that also offered consumers access to the insurance company's substantial provider network discounts for first dollar costs––a significant advantage over consumers who now remain uninsured because they couldn't afford or didn't value the current options.
By offering this Chrome and Iron flexibility, health plans would have the freedom to experiment with various plan designs looking to find the market's sweet spot. Consumers would be protected from "junk" plans given the actuarial minimums and the requirement that carriers fully disclose these options compared to the standard Obamacare plans.
In the end, we would have much better competition and more options while people could buy––Gold Plans or Iron Plans––whatever they want.
Third, provide a more effective alternative to the universally unpopular individual mandate by repealing and replacing it. Instead of the current mandate and fine, allow consumers to buy or not buy insurance––no fines for not having coverage. Allow consumers to buy coverage whenever they please and receive coverage going forward for any accident or illness. Except when coverage is not purchased promptly at the time a consumer is first eligible, any preexisting condition would not be covered for six months. This suggestion differs from a recent Republican proposal that would not have allowed late enrollees to be covered for any prospective accidents or illness––entire families would have remained totally uncovered for a six-month penalty period.
Under this suggestion, a late enrolling individual or family would be able to immediately benefit from coverage going forward––coverage and network discounts. Only preexisting conditions would be subject to the six-month waiting period for coverage.
This alternative provision would do a better job of encouraging people to enroll than what we have today––and thereby contribute to a healthier and lower cost risk pool––without the dreaded financial penalties that have not been consistently enforced by either the Obama or the Trump administration.
Fourth, provide a relatively nominal amount of seed money to support state insurance commissioners and insurers to work collaboratively toward establishing self-supporting Maine-style reinsurance pools. These so-called "invisible" schemes enable states to provide high claim cost reinsurance by assessing the broader insured market in order to fund the cost of the highest claims in the individual market. By assessing the broader market, the pool could be self-supporting and insurers would be guaranteed that the payments would not be put at political risk, as the Obamacare reinsurance program ultimately was. And, such high risk pools would only support, rather than be part of a repeal of, the preexisting condition coverage guarantees that Obamacare finally assured.
Obamacare's problems are bigger than these four relatively minor changes could solve. But, just getting us to a place where insurers could experiment with market-based ideas in order to offer consumers more attractive products, where we had an effective incentive for people to participate without the dreaded mandate fines, and where high cost claims could be pooled and subsidized in a self-sustaining behind the scenes risk pool, could be a big steps in the right direction.
This commentary originally appeared on Robert Laszewski's Health Care Reform Blog.
Robert Laszewski, the president of Health Policy and Strategy Associates, has 20 years of experience in the insurance industry, serving as a chief operating officer for nine of those years, before beginning his Washington, D.C. policy- and market-consulting business.
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