Executive Summary

Though not yet six years old, the Affordable Care Act (ACA) has accumulated a record of remarkable accomplishments. Despite uncompromising political opposition; widespread public misunderstanding; serious underfunding; numerous lawsuits, three of which have so far made it to the Supreme Court; and major technological failures at launch, the ACA has largely succeeded in its principal task—enrolling tens of millions of people in health insurance coverage. Indeed the period from 2010 to 2015 may be the most successful five years in the modern history of health policy.

The ACA has already achieved many significant accomplishments:

The ACA has reduced the ranks of the uninsured by an estimated 17.6 million since it was adopted in 2010.1 This is a striking reduction, especially in light of the refusal of twenty states to implement the ACA’s Medicaid expansion, one of the ACA’s core coverage strategies.2 The percentage of Americans under the age of 65 who lack health insurance is now lower than at any point in the past five decades (see Figure 1).

Hospital expenditures for uncompensated care have plummeted by $7.4 billion, with the decline particularly great in states that embrace the ACA’s Medicaid expansion.3

Health care prices have grown at an annual rate of 1.6 percent since the ACA was adopted, roughly in line with overall inflation and the slowest rate for any comparable period for the past half century.4 Economic conditions have contributed to this favorable trend, but the ACA also played a helpful role.

Public health care expenditure growth has markedly slowed, which suggests the change extends beyond transient economic patterns associated with the Great Recession. The ACA is now projected to reduce budget deficits far more than was projected at the bill’s passage.5 Between January and March 2015 alone, the Congressional Budget Office (CBO) and the Joint Committee on Taxation reduced their estimated costs of ACA’s 2015–2025 coverage provisions by $142 billion.6 Medicare expenditure growth has fallen markedly below original projections. In 2008, for example, CBO’s projected that Medicare’s net mandatory outlays would be $759 billion in calendar year 2018. CBO now projects that Medicare will spend only $574 billion in that same year, 24 percent less than predicted before the ACA (see Figure 2). State expenditures associated with the ACA have also been restrained, with lower Medicaid expenditure growth observed within states that embraced the ACA’s Medicaid expansion than in their non-expansion counterparts.

Average monthly premiums on the new marketplaces are proving reasonable, with manageable premium growth in most major markets since the ACA’s enactment.7 Between 2014 and 2015, the population-weighted national average premium increase in the lowest-cost silver plan was 2.9 percent.8 Although 2015–16 premium growth varies by location and plan, average premium growth for the benchmark second-lowest-cost silver plan was 7.2 percent,9 well below average premium growth in the three years preceding the ACA.10

Recent data on hospital infection, preventive care, and avoidable hospital readmission (alongside continued striking progress in age-adjusted survival) suggest that American medical care is better11 and safer12 than it has ever been. Incentives and new payment arrangements enacted under the ACA played an important part in these improvements.

Despite these accomplishments, our health care system continues to face serious challenges, some traceable to flaws and weaknesses in the ACA. The ACA undertook from the beginning an ambitious reform agenda, but some of its approaches have turned out to be ineffective, poorly targeted, or not ambitious enough to address deeply rooted problems.

Many of the remaining challenges in health care reform reflect the inherent complexities and path-dependency of the American system and were beyond the reach of any politically feasible reform. Perhaps the most serious problem—which this report will address repeatedly—is the inadequacy of the ACA’s subsidies and regulatory structures to address the problems of low-income Americans, for whom merely meeting the costs of day-to-day essentials is a continuing challenge, and for whom even modest monthly insurance premiums and cost-sharing are often serious barriers to health coverage and care.13

This report identifies problems and suggests potential solutions. Some solutions would require federal legislation. Others could be implemented by the administration, state law, or by private parties.

Some of our solutions are concrete and practical. Others are intended to provoke further thinking and debate. We have not precisely estimated costs and benefits, something that should be done before implementation. We understand that many of our proposals are not immediately politically viable. We believe it is important to think now about what should be done, and what the most important choices will be when political opportunities present themselves.

The first and second sections of our report describe steps to expand health care coverage and improve its affordability, particularly for low- and moderate-income Americans. The third section deals with improving the health care shopping experience for those who use health insurance marketplaces. The final section recommends improvements in the Medicaid program, which covers the lowest-income Americans.

In all, we propose nineteen steps that could help fix recognized flaws in the ACA as well as build on its accomplishments. Taken together, these proposals would further improve the access and affordability of health care under the ACA, create more robust provider networks, enhance competition among insurers, improve the consumer experience, and strengthen the Medicaid program. We understand that in the current political climate, improvements to the ACA that require congressional action are unlikely. Yet an administration committed to improving access could take some of the actions we recommend without new legislation, while other proposals could be implemented by the states, marketplace, or simply by insurers.

1. Expanding Access to Health Coverage for Moderate-Income Americans

Fix the Family Glitch. Congress should clarify the legislative drafting ambiguity that led to the “family glitch,” or the White House should direct the Internal Revenue Service to interpret relevant sections of the Internal Revenue Code, so that working families are not excluded from marketplace tax credits. The result could allow up to 4.7 million people to gain access to subsidized health care coverage.

Reduce Complexity in the Tax Credit Program. The Internal Revenue Service should provide applicants to the ACA’s Advanced Premium Tax Credit program with clear and comprehensive explanation of how their credit was calculated as well as regular statements on applicant income so that burdensome tax credit reconciliations can be avoided. The result could help protect more of the approximately 4.8 million eligible taxpayers from receiving overpayments in advance premium tax credits.

Increase Credits for Moderate- and Middle-Income Families. Congress should consider either increasing the size and scope of the Advanced Premium Tax Credit program, or adding fixed-dollar, age-adjusted tax credits to the mix to improve access to affordable health insurance for moderate- to middle-income households. The result could dramatically expand coverage for families who currently receive little assistance under the ACA.

2. Making Health Care Affordable

Reduce Cost-sharing and Out-of-Pocket Limits and Improve Minimum Employer Coverage Requirements. Congress should amend the ACA to expand eligibility for cost-sharing reduction payments and reduce out-of-pocket limits for moderate-income individuals or families. Congress or the administration should also improve minimum essential coverage and minimum value requirements to ensure that employees receive at least a minimum level of protection from employee coverage. These reforms could increase the affordability of coverage for millions of Americans.

Increase Use of Health Savings Accounts for Moderate-Income Americans. Congress should align the requirements of the ACA and of the health savings account program and consider offering subsidies for health savings accounts for moderate-income individuals and families. This could make health care more affordable for millions of moderate-income Americans.

Allow Use of Health Reimbursement Accounts to Purchase Health Insurance. Congress should amend the Internal Revenue Code to allow small employers to use health reimbursement accounts, with appropriate safeguards, to help the employees purchase health insurance. This could make health insurance more affordable for millions of people.

Incorporate Value-based Insurance Design to Support Coverage for High-Value Services. The ACA requires insurers to reimburse clinical preventive services without patient cost-sharing if these services receive an “A” or “B” rating from the U.S. Preventive Services Task Force. In similar fashion, expert bodies could require public and private insurers to cover high-value secondary prevention and disease management services without copayments or deductibles.

Improve State Regulation of Network and Formulary Adequacy. States should adopt legislation or amend existing legislation to ensure that insurer networks and formularies are adequate and nondiscriminatory. Control over networks is a legitimate approach to controlling health care costs and ensuring provider quality, but networks must be regulated to ensure that plan enrollees can access necessary care and are not discriminated against because of their medical conditions.

Improve Protection from Balance Billing. States should adopt legislation to protect network plan enrollees from balance billing when they access care in emergencies or through network providers. This is necessary to ensure that network plan enrollees are not burdened by crippling medical bills when they have not intentionally sought care out of network.

3. Improving the Consumer Marketplace Experience

Actively Guide Consumers in Coverage Selection. The marketplaces should provide better tools, and personal assistance, to consumers to select plans. This could help ensure that consumers enroll in the plans best suited to their needs and resources.

Improve Network and Formulary Transparency. The marketplaces and state regulators should demand greater network and formulary transparency from insurers and deploy tools to help consumers better understand the networks and formularies available to them. This could help ensure access to appropriate care and continuity of care for consumers.

Standardize Insurance Products. Marketplaces should standardize products their insurers offer. This would facilitate and improve not only consumer choice but also insurer competition.

4. Improving Medicaid for Low-Income Americans

Have the Federal Government Permanently Assume the Entire Cost of the Medicaid Expansion Population. Congress should make permanent the 100 percent federal match for the adult Medicaid expansion population. This could encourage states to expand Medicaid coverage and protect the expansion population from future state budget-based cutbacks.

Constrain 1115 Waivers. Section 1115 waivers have proven an effective tool to permit the administration to accommodate the concerns of states reluctant to expand Medicaid. The administration needs to take care, however, that 1115 waivers are not used to undermine basic protections of the Medicaid program or to discourage enrollment.

Eliminate Medicaid Estate Recoveries from the Expansion Population. Congress or the states should prohibit estate recoveries from the expansion population. Individuals should not be discouraged from seeking the medical help they need for fear that, once they die, their beneficiaries may have to pay for the health care they received.

Improve Medicaid Payment Rates. The Department of Health and Human Services and the states should take action to ensure that Medicaid payment rates are sufficient to ensure adequate provider participation. Medicaid beneficiaries need not only a guarantee of coverage but also of actual access to available providers.

Ensure a Judicially Enforceable Right to Adequate Access to Medicaid Providers and to Adequate Medicaid Payment Rates. Recent court decisions have undermined the long-standing right of beneficiaries and providers to sue in federal court to ensure state compliance with federal Medicaid requirements. Congress should clarify continuing rights of access to federal court for Medicaid beneficiaries and providers to ensure that beneficiaries enjoy the access to care guaranteed them by federal law.

Reconsider a “Public Option” Early Medicare Coverage within Health Insurance Marketplaces. Individuals should have the option of purchasing Medicare coverage on state marketplaces. As an initial step, the Centers for Medicare and Medicaid Services should design an actuarially fair benefit package available on the new marketplaces for participants over the age of 60.

Raise or Eliminate Medicaid and Supplemental Security Income Asset Limits for People Living with Disabilities. The ACA does not impose asset limits for the Medicaid expansion population. Stringent asset limits remain, however, for individuals who qualify for Medicaid because of qualifying disabilities. States and the federal government should raise or eliminate these asset limits, which harm individuals with disabilities and their families.

Expanding Access to Health Coverage for Moderate-Income Americans

Before the ACA’s passage, the United States had the most complicated health care financing system in the world. The ACA made that system even more complicated, by adding the new health insurance marketplaces, Medicaid expansion, and other innovations.

Employer-sponsored group coverage remains the foundation of our health financing system. Federal and state governments heavily subsidize this form of coverage through exclusions from federal income and payroll taxes and from state income tax of employer and often employee contributions for coverage. Americans have also traditionally obtained coverage through many other channels. The elderly and many people with disabilities, for example, qualify for Medicare, while certain categories of the poor have long qualified for Medicaid and then CHIP. Programs such as the Veterans’ Administration and Indian Health Services cover other specific populations. These various forms of health care and coverage are financed through multiple funding streams that are often poorly coordinated. Care and coverage are also regulated by different federal entities and by fifty state governments, whose priorities, political perspectives, administrative structures, and regulatory requirements are often quite different.

Although the ACA included reforms aimed at virtually all of the various pieces of our patchwork of coverage, it left most pre-existing programs largely intact. Most Americans continue to get health coverage as they always have, largely unaffected by the ACA. When the ACA did affect individuals’ existing health coverage, it primarily expanded coverage, for example by abolishing annual and lifetime limits for employer coverage, allowing coverage for young adults to age 26 under their parents’ plans, or closing the drug coverage “donut hole” for Medicare beneficiaries.

The most dramatic effect of the ACA has been to help people who were not previously covered. Before 2014, most working-age adults under age 65 who were not offered health insurance through employment were not eligible for any government assistance or tax subsidies to help them purchase health coverage. Many people were unable to afford health insurance unassisted.

The ACA took two approaches to extending coverage. First, it expanded Medicaid eligibility to cover individuals and families with incomes below 138 percent of the federal poverty level (FPL) who were not otherwise covered. Second, it offered tax credits on a sliding scale to individuals and families with incomes between 100 and 400 percent of the FPL—who were not otherwise offered coverage in government programs or affordable and adequate employer-based coverage—to help them purchase health insurance through state health insurance marketplaces. In 2015, individuals are thus eligible for financial help as long as their annual incomes are below $47,080. A family of four is eligible for some premium assistance at incomes less than about $97,000.