By Christina S. Ho
This past year has sensitized us politically to government’s affirmative obligations, especially the duty to backstop health catastrophes in order to dampen the risks that ordinary people must bear.
Our government bails out large risks in so many other arenas. Yet we too often fail to backstop the most human risk of all — our vulnerability to suffering and death.
Throngs of scholars have described our deep tradition of government-sponsored risk mitigation to nurture favored private activities and expectations, and relieve those favored actors from catastrophes beyond what they could be expected to plan for. I have characterized this distinctive political role figuratively as one of “government as reinsurer.”
The federal government provides standard reinsurance for private crop insurers, virtually full risk-assumption for private flood insurance, guarantees for employer pension benefits, robust backstops for bank liquidity risks, FHA mortgage insurance and a federal secondary market to absorb the risks of housing finance.
In these arenas and more, statistically correlated or high-magnitude catastrophic losses are shed onto the state in order to smooth out and shore up the underlying private risk market. We have yet to commit similarly in the health care domain.
The “government as reinsurer” rationale finds only imperfect expression in Medicaid and Medicare. Medicaid emerged because even at the mid-century high-water mark for private health coverage, groups such as the “aged, blind and disabled” who had health needs beyond the ordinary were deemed uninsurable. Medicaid, following the Kerr-Mills Act, covered the “medically needy,” capturing the intuition that catastrophic medical circumstances, not poverty per se, should trigger the role of the state. Meanwhile, Medicare might not have existed without the political backing of both unions and employers who relished the opportunity to shift retiree health costs, the heavy tail of their risk portfolio, onto government.
But how can we advance health reinsurance today? It is no longer a straightforward proposition on the ACA exchanges. Under the American Rescue Plan’s premium tax credit (PTC) upgrade, all ACA enrollees are held harmless from any premium increases above a set percentage of income. Thus, any premium reductions achieved by reinstating ACA reinsurance (or encouraging state waivers for such reinsurance) will accrue to government, rather than consumers.
Instead, we should press ahead in federalizing Medicaid so that it provides a strong guarantee, rather than a ragged 50 state patchwork.
Medicaid has long held out promise as a backstop to catastrophic health risks. We have also loaded it up with jobs such as providing “welfare medicine,” breast and cervical cancer screening, covering kids, paying for perinatal care, and relieving Medicare cost-sharing for low-income seniors. Alongside these tasks, it has performed a partial reinsurance function, backstopping losses that exceed some threshold beyond what the private risk market can bear. An open-ended matching structure renders it an automatic countercyclical fiscal stabilizer in economic downturns, a feature we’ve deliberately turbo-charged by enhancing the match-rate in each of the last few recessions. After catastrophic events, we turn to Medicaid for rescue care, as illustrated by New York’s post 9/11 Disaster Relief Medicaid Program. Medicaid is also the program we relied upon most to cushion the health coverage fallout from the economic turmoil of the coronavirus pandemic. It is past time to federalize and solidify our Medicaid commitments.
We have moved, haltingly, in the right direction. The ACA envisioned uniform, federally-mandated baseline eligibility for all Americans up to 133% of the federal poverty line and offered 100% federal financing to achieve it. Though Justice Roberts partially disrupted this goal, the vast majority of states accepted the bargain nonetheless. The recent American Rescue Plan Act not only renews that 100% federal financing deal for the expansion population, but layers an additional match-rate boost of 5% for the non-expansion population atop the 6.2% bump secured in last March’s Families First Coronavirus Response Act. These assertive measures to establish a uniform floor across all 50 states are welcome. Federal baselines in financing, eligibility, benefits, and payment would go far in anchoring the backstop that this program could become.
There are even steps the Administration can take without Congress, especially now that across-the-board PTCs place a percentage-of-income ceiling on what consumers must pay for a benchmark plan. With that backstop in place, plans can price-in the high-cost, high-risk segment of the claimant distribution, with Treasury largely absorbing higher premium effects and thereby freeing up benefit design space for lower upfront cost-sharing.
Plans are currently hemmed in from doing so: the metal level standards that stipulate the target actuarial value (AV) each plan must meet are calibrated against a standardized population that CMS prescribes. But Gabriel McGlamery and David Anderson propose an administrative solution. CMS could redefine the standard population with a disregard, so that the expenditures of claimants with high-cost chronic conditions do not count against AV. The costs of actual high-risk enrollees would still be covered under the plans (most hit the statutory maximum out-of-pocket (MOOP). But MOOP protection would no longer consume 60% to 63% of AV as it does now, leaving only a sliver of room for other benefit features.
This measure would address the problem of low-income consumers in plans so skimpy they cannot use them, and would also serve truth-in-labeling. As McGlamery and Anderson put it, “Metal level becomes a better measure of the ordinary consumer’s benefit value when you remove people with extraordinary claims.”
The health “reinsurance” function appears in different guises elsewhere. It can look like the centralized subsidy of tertiary care hospitals to which locals can refer their complex-non-routine cases. In China, “Critical Illness Coverage” provides additional centrally-funded benefits for priority conditions like COVID-19 and illnesses that trigger “out-of-pocket expenses exceeding the average disposable income per capita in the local area.” Thailand has a history of centralized efforts to address high-cost care, but these measures go beyond subsidy: it also employs a central health technology assessment board as an upstream measure to mitigate high medical costs.
What is common across these examples is government stepping in to handle costs above a certain magnitude for the purpose of providing more access to the remainder of the market.
A bailout economy must first and foremost bailout people, but then use those bailouts as stepping stones toward more direct public provision, as we have managed to do in the case of flood insurance, and the recent transformation of student loan guarantees to direct lending. Any steps taken by the Biden-Harris Administration should set us on this glide path to more robust collective action for health.
Christina S. Ho is a Professor of Law and the Associate Dean for Faculty Research and Development and New Programs at Rutgers Law School.