In the Nation's Interest

A Cure for the Affordable Care Act

Despite the political challenges, it’s very clear that the new administration and Congress are moving forward on their promise to repeal and replace the Affordable Care Act (ACA). This gives them a chance to fix the ACA’s weaknesses, while preserving and building on what it got right.

Guiding their reform should be the principles that healthcare should be accessible to every American, be high quality, and be affordable. Upholding all three principles means, first and foremost, enacting policies that better harness market competition. In countless industries from manufacturing to services to retail, market competition works, delivering more value to more people. But in healthcare, structural shortfalls of the market stifle choice and competition and drive up cost.

Healthcare reform 2.0 should start with universal refundable tax credits for all Americans to purchase insurance. Elected officials should fund these tax credits without enlarging the deficit. The universal tax credit would eliminate the need for the unpopular individual mandate, and would replace the current complex subsidy-based system that has inhibited the formation of new plans. The credit would cover the cost of either of the two low-priced insurance plans in the region but also allow people to purchase more elaborate, expensive plans, with the incremental difference paid out of pocket by the consumer. Market-based economic incentives and benefits would result.

Policymakers should retain and improve the ACA’s existing health care exchanges as one option for access to health care plans. To foster competition and choice, they should open the exchanges to all individuals served in the “natural” healthcare market which could reach beyond state lines — not just the ACA’s strict state boundaries. As a result, many healthcare consumers would benefit from pricing unique to their respective area (consider the cost of doing business in New York City versus the state’s rural areas). This reform would change the status quo “cookie cutter” policy, in which only one exchange must serve an entire state but not exceed its boundaries, even into contiguous metropolitan areas.

Reform also should permit Americans to purchase coverage through all alternative access points, including the public exchanges, private exchanges, employer-based programs, or the individual insurance market. Some companies might want to band together in a private exchange to provide benefits to their employees. Consumers’ preferences and market forces will determine which access points (and insurance plans) predominate.

As a Committee for Economic Development report details, this new structure would give Americans an incentive to shop and compare the value of plans, and providers would have more motivation to compete on price and quality. Many would adopt innovations that lower costs and increase quality, such as streamlining administrative operations, and shifting away from costly fee-for-service reimbursement models. Moreover, physicians should be protected from litigation when following safe harbor treatment protocols, which would further reduce costs by stopping “defensive medicine.” And since universal credits would enlarge the healthcare market by guaranteeing coverage, new plans likely would enter the market. An additional dose of competition would come from allowing providers to market insurance across state lines.

Many popular components of the ACA should be kept. The system should continue prohibiting insurance companies from denying coverage or charging higher premiums due to preexisting conditions. Letting parents include their kids on their policies until age 26 should also remain, and so should the prohibitions on both lifetime limits for health care costs and cancellation of coverage due to immaterial reporting inaccuracies on applications.

Healthcare policy impacts people in a way that no other policy issue can. It impacts their physical, mental, and economic well-being. High quality, affordable care for all Americans lies within reach, but only if elected officials put policy above partisanship, and enact a multi-part plan that harnesses all that markets can offer.

 

This column was originally featured in The Hill.