How Clinton Can Put Health-Care Reform Back on Track

This article appears under the title "Stronger Policy, Stronger Politics" in the Fall 2016 issue of The American Prospect magazine. Subscribe here.

You've heard of a beautiful failure. What about an ugly success? That may be the best way to describe the Affordable Care Act. It has covered millions of Americans-just this year, 250,000 Louisianans signed up for Medicaid in the six weeks after the state expanded the program under the law. And the ACA has widened health coverage without spiking costs; indeed, expenditures are way below initial expectations.

But even if we could forget its shambolic launch, the ACA has hit some increasingly serious obstacles. Enrollment in the new marketplaces created by the law (aka "exchanges") is below expectations, and the number of plans competing in them is falling, particularly outside dense urban areas. Premiums are set to rise sharply, and these increases could further destabilize the most troubled exchanges by driving away current or potential enrollees, especially the young and healthy.

Federal subsidies for most enrollees in the exchanges will protect them from premium increases, but that still won't give them the kind of coverage that middle-class Americans with good jobs generally have. In many exchanges, the only available plans put tight restrictions on their enrollees' choice of doctors and hospitals. Indeed, with their predominantly lower-income enrollees, limited offerings, and narrow-network plans, many of the exchanges look more and more like Medicaid, the health program for poorer Americans, and less and less like Medicare, the health program for older and disabled Americans that enjoys broad middle-class support.

Medicaid is an immensely valuable program. But the continuing problems in American health care-prices that remain out of control, costs that look set to start rising more quickly, uneven access to care of uneven quality, and the insecurity created by our patchwork system with its big remaining gaps in coverage-are too large for a small set of scattered players in the market to address effectively. Nor will such arrangements create the broad political constituency necessary not just to defend current reforms but to improve them.

In short, health-care reform is at a crossroads.

Every major social policy in the past-even Social Security-has required modifications to adapt to changing conditions and respond to unexpected outcomes. To state the obvious, the ACA hasn't entered this phase of constructive adaptation. On the one side, Republicans have demonized the law and aggressively undermined it. In the states they control, they have refused to expand Medicaid and hindered enrollment in the exchanges, and in Congress they have blocked efforts to fix problems in the law.

On the other side, the law's supporters have emerged from their foxholes; yet many still shy away from acknowledging the need for further reform. Some defenders are reluctant to highlight problems lest they undermine the law's still-shaky public standing or open the door to destructive changes. Others on the left aren't loudly calling for an upgrade of the ACA because they believe it was far too timid-a "good Republican program" was Bernie Sanders's faint praise in 2013. As a result, there remains an enormous gap between those who say, "This is actually pretty good" (realistic but not inspiring), and those who say, "Let's replace it with Medicare for All" (inspiring but not realistic, for reasons I'll discuss).

Right Art/AP Images Credit

Health Care on the Menu: As part of the 2016 effort to boost health insurance coverage, Barack Obama has lunch wtih Milwaukee residents who wrote to him about the Affordable Care Act. In July, the president called for a public option in areas of the country with little or no private competition in the ACA's health insurance exchanges. 

What reformers need, in other words, is a positive agenda that's both inspiring and realistic-an agenda that won't just address some of the real shortcomings of the 2010 law, but also create political pressure for ongoing improvements. The top imperative is clear: The exchanges must become an attractive source of affordable, quality coverage for a broad range of Americans, including the middle class.

The key to a persuasive vision that attracts broad popular support is bringing back the public option-a public plan modeled after Medicare that can serve as a backup and benchmark for private plans. Too often the public option is seen as distinct from the exchanges. Yet it's critical to creating regulated marketplaces that work. The public option can make the exchanges more attractive to consumers, especially where private plans with broader networks are scarce. By doing so-and by working alongside Medicare to restrain prices while improving quality-it can help keep premiums in check, bring healthier people into the pool, and thereby stabilize the foundation for a functioning marketplace that includes private plans.

No less important, the public option can serve as a focal point for efforts to improve the ACA, uniting reformers behind an ambitious but achievable vision. It's more than a policy mechanism. It's the message of a movement for the ACA's continuing expansion.

Making It Stick

Let's be clear: Continuing improvement of the ACA was always going to be needed. While some of the law's tribulations have come as a surprise, the basic challenge was apparent even before Barack Obama's signature on the legislation was dry.

The ACA wasn't designed to be ideal. It was designed to be passable

-acceptable to enough stakeholders to be enactable in a polarized Washington. Its central liability today was its central advantage back in 2010. By minimally disrupting existing coverage, it minimally threatened most of the currently insured. That was the way to get more people covered and to create a secure source of fallback coverage for everyone. Unfortunately, it wasn't the way to build a program that would create a strong base of support among the overwhelming majority of Americans with employment-based coverage.

Political scientists have intensively studied when and how policies develop strong support coalitions over time. The formula for success turns out to have three main ingredients: visibility (you know it's there), traceability (you know who's responsible for it), and collectivity (you see yourself as part of a group benefiting from it). Basically, voters should be able to see a benefit; reward politicians for delivering it or punish them for threatening it; and act collectively-ideally in an organized group-in doing so. Without these ingredients, voters tend to see policies less as solutions to immediate problems than as symbols of ideological priors. Instead of moving toward greater investment and enthusiasm, they dig in to their respective partisan camps.

Judged on that basis, the ACA is missing some ingredients. The Medicaid expansion has been high-profile and the exchanges have reached around 12 million Americans (about half the initial projections made by the Congressional Budget Office). Yet the middle-class "deliverables," as advocates called them back in 2010, have proved mostly invisible or opaque. There's little evidence, for example, that the millions of young Americans helped by the requirement that insurance companies cover dependents up to age 26 have changed their views of the law or their political activities in response.

To be sure, all Americans are much more secure because of new rules and marketplaces that will let them buy coverage if they get ill or lose their job. But this is a "what if?" scenario and thus cannot be counted on as a basis of active support. The same is true of slower medical inflation. To recognize it, voters have to think about counterfactuals, which is inherently difficult. Moreover, even when voters do recognize these broad benefits, it's simply not that easy to trace them back to the law.

The upshot is that many Americans don't feel they have a lot at stake in the ACA's success. They may have strong partisan commitments; they may even acknowledge the law has done good things. What they don't generally feel, however, is that the law is substantially benefiting them. And that's a big problem: If the ACA is going to foster the self-reinforcing political pressures that helped other successful social policies become entrenched, a broad cross-section of Americans must come to see the law as critical to their own well-being and be willing to act collectively to back up that view.

To those who know my prior work, it will come as no surprise that I see the public option as the way to achieve these goals. The idea is simple. It is popular. And it actually saves serious money, freeing up the resources needed to deliver on the promise of reform. With committed backing from progressives, the public option could be the centerpiece of a broad campaign to respond to public concerns, put critics on the defensive, and expand the boundaries of the possible. Rallying behind the promise of a Medicare-like plan, this movement would demand the public option not as a stand-alone policy but as an essential component of a larger upgrade of the ACA.

Fibonacci Blue/Flickr/Creative Commons

That upgrade should start with the law's most troubled component, which is also the most crucial component for building middle-class support: the exchanges.

A Better Exchange

The exchanges were supposed to be the centerpiece of the ACA: the primary source of subsidized coverage for uninsured people not poor enough to receive Medicaid. Their enrollment, however, is well below expectations-lower than needed not just to ensure the stability of the exchanges but also to create a strong constituency in support of the law.

We've seen this movie before. Medicare has long allowed beneficiaries to choose to receive their benefits through regulated private plans-the system is now called "Medicare Advantage." Two decades ago, however, private plans were pulling out of Medicare in droves, almost a third of beneficiaries didn't have access to even one, and many predicted a "death spiral" for the remaining plans.

That didn't happen, and a big part of the reason, as Sabrina Corlette and Jack Hoadley of Georgetown University's Health Policy Institute show in a timely new study, is that Congress amended the program to stabilize the plans. The results were swift: Within a few years, enrollment shot up, and nearly every Medicare beneficiary had access to at least one private plan.

Now, part of the reason that private plans regained ground was that Congress gave them a hefty subsidy above the cost of treating comparable patients within traditional Medicare. But another reason was a major improvement in Medicare's program for adjusting what plans were paid to reflect the true risk of enrollees. Indeed, despite a ratcheting down of the subsidies since 2010 (savings that offset part of the cost of the ACA), private plan participation in Medicare has grown. Moreover, there's good evidence that the best Medicare Advantage plans deliver core benefits at least as efficiently as Medicare does, suggesting the subsidies are not necessary to maintain their participation.

The key lesson from the Medicare experience is that policy-makers need effective tools to make sure that health plans are not devastated when they end up with disproportionate numbers of high-cost patients.

The tools in the ACA have proved inadequate, and some of the provisions authorizing their use are expiring since they were envisioned only as transitional. Congressional Republicans have also succeeded in curbing one such support for the market. An essential next step, then, is to strengthen and extend the "risk-adjustment" and reinsurance provisions of the law, which will require new legislation, and to put new federal dollars on the table to stabilize the most troubled markets.

Another crucial (and far more obvious) response is to increase the subsidies for enrollees in the exchanges, especially for middle-income people. These premium subsidies were always too low, and given the below-projected costs of the program-and the savings that could come from adding a public option-the case for increasing them now is overwhelming. Indeed, it's imperative if the ACA is going to have a strong middle-class constituency. Increased subsidies should be coupled with a massive increase in outreach efforts, particularly to younger Americans, to bring in more affluent and healthy stakeholders. This, again, will require investments now that pay off later.

Reformers should also seek to make it less attractive for people who buy coverage individually to buy it outside the exchanges. As Henry Aaron of the Brookings Institution has pointed out, one way to improve the exchanges is to do what Washington, D.C., and Vermont have done: require that individual insurance plans sold outside the exchanges also be offered on the exchanges, making it impossible for insurers to stay out of the subsidized market (with its relatively poorer and less-healthy population) while still serving the rest of the individual market. This single-market requirement would have two big benefits: Insurers would be more reluctant to quit the exchanges if that also meant not offering any individual policies, and a wider selection of offerings in the exchanges would then bring in more people, especially if those offerings include the public option.

The Best Option

Nearly every argument for the public option looks stronger today than it did in 2010. Insurance markets have grown more consolidated. Provider groups have become more concentrated and more resistant to private insurers' efforts to hold down prices. The co-ops added to the law as a sop to public-option advocates have abjectly failed, as those advocates predicted they would. And now there's a growing chunk of the nation without any insurance competition in the exchanges. As a result of the withdrawal of major national commercial insurers, exchanges serving roughly one in five people will offer only one insurer-call it a private single payer. If that doesn't make the case for the public option, I don't know what does.

Pete Souza/Wikimedia Commons

The public option isn't only about coverage; it's also about costs. A growing body of evidence shows that the prices paid by Medicare are more reasonable than the higher (and wildly variable) prices paid by private insurers. Medicare's administrative costs are much lower than those of private plans. The program has spearheaded major innovations in reimbursement policy-for example, with its recent move toward the bundling of payments for particular episodes of care. By penalizing hospitals for readmissions, Medicare is getting them to pay more attention to the quality of care they provide.

The ACA leans heavily on Medicare to provide cost savings, not only through cost reductions in the program itself but also through the diffusion of its practices into the private sector (which has been going on for decades). But there are real risks to placing all the cost-control eggs in the Medicare basket. For one, Medicare serves distinct populations: older and disabled Americans. More important, using Medicare as a means to create cost savings and sustain the ACA has already provoked considerable political resistance among Medicare's beneficiaries, whom Republicans have targeted with frightening (and generally false) claims about the ACA's effects. A sizable public plan for non-elderly Americans would save money directly and create greater scope for federal efforts to promote innovation in the services used mostly by younger Americans.

There's another big advantage to the public option too often neglected. When exchanges are reliant on the good graces of insurers, those who run the exchanges are reluctant to push too hard to ensure plans perform well, lest they exit the program altogether. At the extreme, policy-makers may tolerate behavior they'd never allow otherwise. When Aetna recently pulled back, it signaled a key reason was the federal government's move to block its proposed merger with Humana. The public option gives policy-makers the greatest possible scope to pursue tough policies that are necessary to make an increasingly consolidated industry work.

To be sure, the obstacles that derailed the public option in 2010 haven't gone away.

The biggest is how to ensure provider participation in the plan. The public option should be based on Medicare, albeit with broader benefits (comparable to the mid-range silver plans on the exchanges). It should use Medicare's infrastructure for payment and quality assurance. And it should pay providers at Medicare's levels, plus some bonus to encourage participation (say, 10 percent, and perhaps more in states where Medicare payments are exceptionally low relative to what private insurers pay). That's going to make the public plan highly competitive. It's also going to make providers more reluctant to sign up for it, as well as increase the incentive for insurers to lobby against it.

But these problems have solutions, too. For insurance companies, fixing the exchanges means many more people buying their products and better management of the market to protect them if they end up with less-healthy patients. Sure, they would prefer to have all this and no public option too, but they should be offered a package deal. Most plans should be able to thrive alongside a public option, just as they have in Medicare Advantage. Though the traditional Medicare program has been much more innovative than commonly believed, it's never going to be an HMO. Its strength is in being a big player that can leverage its reach to make major systemic changes. That role leaves plenty of room for private plans to develop models that some people value even more. Remember: Virtually all private insurance companies are eager participants in Medicare Advantage. They've already accepted a public option in return for a lucrative market.

It's tempting to argue for the public option as a fail-safe in areas where there are only a few private insurers, as President Obama advocated last July in a high-profile article in the Journal of the American Medical Association. But this approach would have numerous problems. The public option should not be commissioned and decommissioned based on the private offerings from one year to the next, and once it's offered in an exchange, it should remain there to ensure continuity of coverage. Moreover, only providing a public option as a fallback creates the very uncertainty that insurers are citing when they pull out of the exchanges today. Better to stabilize the regulated private market and add the public option in all the exchanges.

Jane Stevens/Flickr/Creative Commons

The provider side poses steeper hurdles. The concentration of providers' groups means many are demanding-and getting-rates far higher than what Medicare pays. Nonetheless, providers continue to accept Medicare patients at historically high levels, and most efficient providers more than break even treating them (which is why charges of "cost-shifting" are wrong-headed-the main problem is inefficient systems). Still, it would be prudent to require that providers who take Medicare patients also take those covered by the public option. Medicare-participating providers are not allowed to turn down Americans younger than 65 who are permanently disabled or have end-stage kidney disease (both non-elderly populations covered by Medicare). Why should they be allowed to turn down younger Americans who are enrolled in the public option?

As a first step, we should limit so-called out-of-network charges to a multiple of Medicare's rates, as California is currently considering. (The California bill limits payments to 125 percent of Medicare's rates while capping patients' out-of-pocket obligations.) This is similar to what Medicare does to limit charges by non-participating providers, and it will ensure providers have little incentive to remain outside the public option. Applied to all insurers, it will also reduce the major problem of "surprise medical bills" (when, for example, in-network hospitals use out-of-network specialists) that threatens even well-insured patients today.

California's example brings up a final point: States will have a fundamental role in the struggle for a broader, stronger, and better ACA. Already, they have the ability to apply for special waivers to expand Medicaid through unconventional means-for example, by allowing newly eligible populations to buy insurance through the exchanges (with ample subsidies and cost-sharing protections). Starting next year, they can also apply for state "innovation" waivers to try new approaches to universal coverage, including creating their own public plans.

These waivers have risks, of course, and states must be held to high standards. But a high-standards federalist approach-which is roughly how Canada's system of provincial plans works-has virtues, too, allowing states to experiment in ways that can inform other states' (and national) policies. Perhaps most important, new state approaches create the opening for strange political bedfellows-the final imperative to discuss.

Looking for Love in All the Wrong Places

Successful policies have strong backers-the kinds of backers who will campaign for a public option. Successful policies also build unlikely alliances, swinging opponents into the pro column over time. It's not just that policies need support from the other side when political winds change. It's also that unlikely allies-even reluctant allies making the best of a bad situation-have the greatest impact on the potentially convincible. When a GOP governor or prominent corporate leader backs the ACA, it signals that a good Republican or genuine business representative can support a reform identified with the other side.

In the near term, the biggest opportunities for such alliances involve Medicaid. Nineteen states continue to refuse to expand their programs, leaving an estimated three million to four million Americans caught in the gap between qualifying for Medicaid and qualifying for subsidies in the new exchanges. They do so despite full federal funding for the initial expansion (and 90 percent in perpetuity), despite tens of billions in potential reimbursement for doctors and hospitals in their state, despite the resulting slower growth in their economies, and, above all, despite the enormous hardship they are creating for low-income people. While Republican governors have proved more willing to buck the GOP line than Republican legislatures have, there's little sign that most of the holdout states will relent absent serious new pressure.

Fortunately, it's not hard to see where that pressure could come from. The Supreme Court said that all Medicaid funds could not be conditioned on states expanding their programs. But new federal legislation that put in place significant but not draconian penalties for states that failed to increase Medicaid eligibility would likely pass constitutional muster-especially if a Democrat-appointed justice were to assume the seat left open by the death of Antonin Scalia. The pot could be sweetened by extending full federal financing of the expansion for additional years. If holdout states not only had to forgo big benefits but also had to pay higher costs, the incentives to comply would become overwhelming.

A second potential source of unexpected support is the business community.

Most employers have been only tangentially affected by the ACA

-they were either already offering insurance that more or less met the law's standards, or they weren't providing it at all and still don't have to. As a result, they have largely accepted the 2010 law but without any great enthusiasm.

Where could business support come from? One possibility is smaller employers. The ACA created new options and subsidies for firms below the 50-worker threshold (the point at which firms face penalties if they don't insure their workers). But these provisions have largely failed to encourage small employers to use the ACA's infrastructure to provide coverage. A major problem is that small-business owners are unaware not just of the option of enrolling their workers through the marketplaces but also of the availability of tax credits they would receive to lower the cost.

Better advertising the benefits of the ACA to small businesses would certainly help. But we should go further. Under the current law, if an employer doesn't provide coverage, workers have to seek out plans on their own. A far better system would ask all employers whether they cover their workers, and automatically enroll those workers when they don't. Workers could still opt out if, for example, they had insurance through a spouse or acknowledged they would have to pay a tax penalty for going without coverage. But this relatively simple step of automatic coverage could radically change the system: The default for workers without employment-based coverage would change from no insurance to insurance through the exchanges. Employers of these newly covered workers would then be required to make a modest contribution to the cost based on employees' wages (higher when they're higher) and firms' size (lower when it's smaller, with no charge for employers with 50 or fewer workers-just as in the ACA today).

Pete Souza/Wikimedia Commons

Of course, this will be a heavy lift. But it's the best way to ensure workers get coverage as well as foster a deeper business stake. And it's the right policy. Liberals and conservatives agree that employment-based coverage has real downsides. It makes workers excessively worried about leaving or losing a job, places a burden on smaller businesses that provide coverage, and probably deters entrepreneurship as a result. The ACA has proved that big employers still have plenty of incentives to offer coverage. Yet the share of small employers providing it continues to decline, and large employers may move away from guaranteed coverage in the future even if there's a penalty. If they do, automatic enrollment in the exchanges ensures their workers don't fall through the cracks-while, again, bringing more big, diverse groups into the exchanges.

Figuring out how to better integrate employers into the ACA wouldn't just be good for the law's political entrenchment. It would ensure that the system could evolve and adapt as the economy changed. Creating that potential is precisely why reformers need to fix not only the policy features of the ACA but also its politics.

The Fierce Urgency of Now

Fixing the ACA's politics won't be easy. A president can strengthen the law without new legislation. States can improve what they're doing without national policy changes. But the big steps I have called for-expanding the exchanges, adding a public option, rewriting the Medicaid rules, bringing in employers-will require new federal legislation. That means their prospects will depend critically on what happens in this year's elections.

Thankfully, it won't depend as critically on whether reformers can get 60 votes in the Senate. Now that the ACA is law, a good deal of what needs to be done can be accomplished through the budget process, which isn't subject to a filibuster. Budget legislation must meet other rules, most notably that it doesn't raise the deficit. This means increased premium subsidies or changes in Medicaid rules will require offsetting revenues or spending reductions, or both. As I've argued, at least some of this fiscal space could come from the public option.

Yet even without the 60-vote hurdle,

Democrats are going to have to create serious cross-pressures on Republicans, especially if the GOP continues to hold the House.

They need to portray the ACA's limitations as a preventable illness rather than a chronic condition-the outcome of Republicans' attacks on the law and unwillingness to support attractive remedies. They need to own the ACA's formidable successes and make Republicans own its fixable shortcomings, especially Republicans in more moderate districts and states.

Which is why all advocates of universal insurance-even those who believe that Medicare for All is the goal-need to embrace and build on, not scorn, the ACA. It's attractive to think the only way to get to "real" reform is to bury the law and create something else. But the history of health reform in rich democracies suggests otherwise. The British National Health Service was built on a far more modest national insurance program. Most European systems moved from programs focused on wage earners to universal or near-universal programs that turned once-private sickness funds into quasi-public institutions. In Canada, provincial programs (initially just for hospital care) were stepping stones to today's comprehensive (though still provincially based) system.

Our own history tells the same story: LBJ had two-thirds Democratic majorities in 1965, and he could only create universal federal insurance for the aged (Medicare) and targeted coverage for the poor (Medicaid)-the two groups conspicuously left out of the employment-based system. Even Social Security started small and grew big. For its first 15 years, the federal old-age insurance program was caught in limbo, with its opponents successful blocking the increases in coverage and funding necessary for it to successfully compete with state assistance programs for the indigent aged (set up alongside the federal program in 1935). As late as the early 1950s, these state relief initiatives were reaching three times as many people, and Social Security faced a serious conservative push for "repeal and replace." It expanded only when Republican Dwight Eisenhower, under pressure from Democrats and labor unions, decided that it was a better way to deal with retirement insecurity.

The reasons for Eisenhower's decision are instructive. Conservatives were divided, because they worried that the assistance programs were a fiscal burden on the states and an invitation to dependency (because those programs didn't require contributions). Meanwhile, corporations had built their private pensions on top of Social Security and wanted the public program to pay out more so they could pay out less. Of course, Eisenhower also knew Social Security was popular. But the massive popular support and "elderly lobby" we now associate with the program was mostly an effect, rather than a cause, of the big expansion that he supported. In a very real sense, Social Security built its own support.

If the ACA is to take its place alongside Social Security, it will need to start building its own support, too-and everyone who believes in reform must pitch in to make that happen. If the law is increasingly sidelined, we won't go back to the status quo ante; the right will be emboldened and the most promising stepping stone for broadened coverage and effective cost control will be lost. Forget Medicare for All. Reformers will be lucky to hold on to what has already been achieved.

Much will hinge on what happens this fall. With a GOP president and Congress, the problems facing the ACA could open the door to destructive changes. If Democrats instead have the White House and a stronger position in Congress-a Senate majority, perhaps, and maybe a House one, too-destructive changes are still a big risk. But there's far greater scope for moving the debate in the positive direction it needs to go if the virtuous cycle of self-reinforcing improvements is to begin-to launch a concerted campaign for fixing the exchanges, adding a public option, creating effective pressures on GOP governors to expand Medicaid, and making the exchanges the default source of coverage for those without workplace insurance.

If that potential is realized, we may look back at 2017 as a turning point much like the GOP capitulation on Social Security in the early 1950s: not the end of the debate but the beginning of the right debate about how to ensure affordable, quality health care for all Americans. The ugly success could turn out to be a beautiful success, after all.