Ensuring Health Coverage for the Uninsured Is Compatible with Market Discipline

Advocates of regulating medical-care costs contend that reliance on market competition would leave too many people without secure insurance. The implication is that only Medicare for All, or something similar, can provide adequate protection for the public. That is not true, but market advocates must demonstrate that security and consumer choice are compatible by embracing practical reforms.

Disruptive change is not necessary to improve insurance take-up because most of the uninsured already qualify for discounted premiums or free coverage. According to the Congressional Budget Office (CBO), two-thirds of the 30 million uninsured in 2019 were eligible for enrollment into subsidized plans:

• 5.1 million people were eligible for Medicaid, which in most cases does not charge premiums;
  
  
• 5.5 million people were eligible for subsidized premiums through the Affordable Care Act (ACA) exchanges; and
  
  
• 9.4 million people were eligible for enrollment in employer-sponsored insurance, with federal tax subsidies lowering the cost.

Of the uninsured who were not eligible for publicly-supported insurance in 2019, 2.6 million had incomes above four times the federal poverty line (FPL), or about $106,000 for a family of four. Another 4.0 million were residing in the U.S. without proper legal authority to do so, and thus were ineligible for subsidization according to prohibitions included in the ACA and other federal laws.

The remaining uninsured — 3.2 million people — are poor, and thus cannot afford coverage on their own, but live in the fourteen states that have opted to retain tight Medicaid eligibility requirements instead of expanding the program under the terms of the ACA. Because they have incomes below 100 percent of the FPL, this subgroup of the uninsured is also ineligible for subsidized premiums in the ACA exchanges (the ACA presumed all states would expand Medicaid to 138 percent of the FPL).

Three reforms, which are compatible with competitive insurance markets, would cover most of the remaining uninsured in the U.S.:

• Automatic Enrollment. The U.S. is prone to breaks in insurance protection because its multi-payer system requires individuals to reenroll into coverage on a regular basis (often annually). With this high administrative burden, it is inevitable that some breaks in protection will occur. The federal government could make it easier for the uninsured to stay continuously enrolled by working with the states to build an automatic enrollment system for Medicaid and ACA-subsidized plans.
  
  The key reform is to tie the annual open enrollment season for coverage to federal income tax filings due by April 15^th of each year. Federal tax forms would collect information on who is uninsured, and then share that data, along with reported incomes, with the states. The states would then use the federal data to place those who otherwise would go without coverge into appropriate insurance options for the 12-month period beginning July 1.
  
  Many of the uninsured would have incomes low enough to qualify for Medicaid, and thus owe no premiums. Others might have higher incomes and qualify for ACA-subsidized plans. This latter group could be placed into insurance with deductibles that adjust to ensure their ACA subsidies cover the full premium, and thus eliminate the need for any enrollee contribution. States could then give all persons placed into these plans the opportunity to switch into other coverage, or drop out altogether.
  
  
• Employer Plan Flexibility. Many millions of workers remain uninsured even though they have been offered coverage by their employers. Take-up would improve if firms were given more flexibility in federal law to query their employees about their insurance status, and then to extend to those who otherwise would be uninsured a zero-premium option. With this flexibility, employers could adjust their plan offerings, by increasing deductibles and other cost-sharing, to give their workers the opportunity to accept a plan that requires no employee-paid premium. These workers would then be assured of having coverage that, at a minimum, protects against high-cost events.
  
  
• A Compromise on Medicaid. The uninsured who are poor and live in states that have not expanded Medicaid have insufficient personal resources to access care on their own, or to pay entirely out-of-pocket for insurance. They need a better option. One approach would be to allow states that are resistant to Medicaid expansion to offer these uninsured residents coverage through the ACA exchanges. The federal financial contribution to their coverage would be calibrated to not exceed what Medicaid expansion would cost, which may mean states must increase their contribution to implement this work-around. Even so, giving states this flexibility would open up a pathway to coverage using private plans that may secure broader political support in certain states than would be the case with a straight Medicaid expansion.

The uninsured who are living in the U.S. without the legal authority to do so require a solution grounded in immigration policy. (It is worth noting that other countries with advanced economies, including Canada and the U.K., also restrict public subsidization of health coverage for persons who do not have legal authority to live in their countries of residence.) Immigration reform which settles the legal status of this population in the U.S. should give those who are allowed to continue residing here a realistic pathway to insurance enrollment, including with public subsidization. Further, federal law should be amended immediately, for humanitarian reasons, to allow coverage for immigrants under the age of 19 through the Children’s Health Insurance Program (CHIP).

There are sound reasons to prefer market discipline to regulation when seeking to control medical-care expenses. Regulations can stifle innovation, and lead to imbalances that force patients to wait for needed care. Markets, when structured properly, can deliver consistent improvements in productivity, which would discipline costs without sacrificing quality.

But the public will be wary of embracing market discipline so long as doing so is seen as increasing insurance insecurity for consumers.

The remedy is for market advocates to embrace population-wide insurance protection as an essential objective of their reform efforts. Fortunately, pursuing that goal does not require wholesale change to existing insurance arrangements. Most of the uninsured are already eligible for good coverage. The next step should be to build processes that ensure many more of them are enrolled into that coverage and thus gain improved access to necessary medical care.

James C. Capretta is a Contributor at RealClearPolicy and holds the Milton Friedman Chair at the American Enterprise Institute. He is the author of the monograph “Covering the Uninsured in the United States’ Multi-Payer Health System,” published by AEI in May, from which this essay is drawn.