The Case for Overriding State Coverage Mandates

Alaska Sen. Mark Begich, a Democrat who is up for reelection this fall, has a new proposal to establish a cheaper-than-bronze (“copper”) tier of insurance plans on the Obamacare insurance exchanges. The following is drawn from the fact sheet released by Begich:

• Adds a new copper level of coverage to the metallic tiers of qualified health plans for 2015 plan years;

• The copper plans will feature a 50 percent actuarial value, ensuring that, on average, at least half of medical costs of covered services will be paid by the insurer; 

• Like other metallic tiers, individuals and families purchasing copper plans within the Marketplace can qualify for premium and cost-sharing subsidies; 

• The copper plans will also feature the ten services included as essential health benefits;

• For copper plans, increases the annual maximum out-of-pocket limit to make feasible copper plan designs in high-cost marketplaces. The Secretary of the Department of Health and Human Services must ensure the limits are reasonable for every marketplace;

• Permits Multi-State Plans to include the new copper plans; and

• Copper plans meet minimum essential coverage.

Essentially, Begich’s copper plans are subject to all of the regulations that govern the other tiers, but they allow for somewhat higher out-of-pocket limits. This is hardly a radical change. Begich makes no reference to state coverage mandates, which are a significant barrier to the emergence of low-cost coverage options. But he does point in an interesting direction.

In Healthy, Wealthy, and Wise, John Cogan, Glenn Hubbard, and Glenn Kessler persuaded me that rather than allow consumers to purchase out-of-state plans, an idea embraced by many Republican lawmakers, we ought to a lightly-regulated nationwide insurance market, drawing on the lessons of employer-sponsored ERISA plans:

The federal market would operate alongside existing state-regulated insurance markets, allowing individuals and employers to choose between state and federally regulated plans. The ability to choose between the two markets would serve as a check on the imposition of regulation that is ultimately not in consumers’ interests. If one level of government imposes undesirable rules in one market, consumers will have the opportunity to vote with their feet for insurance plans in the other.

The reform will also create several ancillary benefits. First, it will increase the portability of health insurance. Families that currently purchase insurance in the individual or small-group market in one state often must drop that coverage and find new insurance when moving to another state. At a minimum, this exposes the family to unnecessary financial risks. With nationwide, competitively priced insurance plans available, the potential loss of insurance will no longer be a barrier to relocation.

Second, the policy change will create a more level playing field between families that must obtain insurance in the non-group market and those who work for large employers whose plans are exempt from costly state regulations. And the reduction in costs will lead to a decline in the uninsured.

The main concern about this proposal is that it will lead to even more regulation than occurs under state law. By increasing the scope of federal control, Congress would be capable of imposing broad regulations across the entire U.S. market with a single vote. If individual states retained jurisdiction, then separate actions by fifty state legislatures would be required to achieve the same regulatory outcome.

Indeed, this is precisely what has happened with the enactment in 2010 of the PPACA. The policy choice we now face is to (1) repeal the act entirely, return to the highly inefficient system of state regulation, and hope that future Congresses will refrain from re-regulating insurance markets; or (2) replace the act with rules that will allow market incentives to demonstrate their effectiveness. We propose the latter choice. We would eliminate community rating, most minimum benefit regulations, and minimum medical loss ratios, all of which are now the law of the land.

Even if we want to retain community rating and minimum benefit regulations, the Cogan et al. proposal for a lightly-regulated federal market could restrain the worst impulses of state insurance regulators and allow for low-cost insurance options. In his new Wall Street Journal column, Holman W. Jenkins Jr. calls for a national health insurance charter:

What can be done is Congress creating a new option in the form of a national health insurance charter under which insurers could design new low-cost policies free of mandated benefits imposed by ObamaCare and the 50 states that many of those losing their individual policies today surely would find attractive.

What’s the first thing the new nationally chartered insurers would do? Rush out cheap, high-deductible policies, allaying some of the resentment that the ObamaCare mandate provokes among the young, healthy and footloose affluent.

Jenkins acknowledges that his proposal would tend to undermine Obamacare:

The ObamaCare exchanges would devolve into refuges for those who are medically uninsurable. But this seems increasingly likely to happen anyway. The federal government, having assumed the job of subsidizing these people, should do so honestly and openly.

ObamaCare is dead on the vine. It becomes clearer by the day the only way insurers can make the Obama benefits package work at a monthly premium affordable by healthy people who don’t qualify for subsidies is with massive deductibles and copays and narrower provider networks. ObamaCare’s individual mandate, as philosophically odious as some find it, would survive. An admirable principle buried in ObamaCare—that subsidies should be reserved for the needy—would also survive.

What wouldn’t survive is the Democratic scheme to force everyone, regardless of age and actuarial risk, to buy a gold-plated package of benefits that will stimulate a wasteful race to spend more resources on health care. And, down the road, by reforming ObamaCare, much else could be reformed, including Medicare and the ill-begotten and destructive link between employment and health care.

Essentially, Jenkins envisions a private individual insurance market, operating under his national health insurance charter, that operates in parallel to the Obamacare insurance exchanges, the latter of which would cater to low-income and moderate-income individuals in need of subsidies and the medically uninsurable. (It is worth reiterating that the Obamacare exchanges are not well-suited to serving as high-risk pools, a subject to which we’ll return.)

One wonders if it might be possible to combine elements of the Begich and Jenkins proposals, i.e., create a “copper-level” tier that is regulated under a national health insurance charter rather than state insurance regulations. The Institute of Medicine recommended that the exchanges offer a low-cost national benefit package that would override state coverage mandates, a proposal that was ultimately ignored. But for all the reasons Cogan et al. outline, it remains very attractive.

The good news is that policymakers are getting creative. The bad news is that had Republican lawmakers taken action before the Obama presidency, we wouldn’t be in this dire state, and so conservatives need to do a lot of work to build trust on this issue.

Reihan Salam — Reihan Salam is executive editor of National Review and a National Review Institute policy fellow.

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