[00:00] Bryan Hyde: Welcome to the Health Policy Podcast. I'm Brian Hyde, and today I'm joined by Tony LoSasso. Tony is a professor at University of Wisconsin-Madison, but that, that only begins to hint at some of the hats that you wear, Tony. Take a moment, if you would, to tell us a little bit about your background, who you are, and what you do. [00:19] Tony LoSasso: Sure, thanks, Brian. It's great to join you here. I really appreciate the opportunity to talk about some of my work. I am, as you say, I'm a professor at, in La Follette School of Public Health Public Affairs. I'm a health economist by training and La Follette at the University of Wisconsin-Madison, of course. And I have been in this game, again, academic economist for the last 30 years or so, by and large studying the interplay of health policy and private decision-making. As I as I like to think of it, that's kind of where the rubber hits the road. And so endlessly fascinating. Washington and state capitals basically give all health economists full employment and no end of work and questions to explore. [01:20] Bryan Hyde: And Tony, correct me if I'm wrong, I'm going to greatly oversimplify what economics studies. But when people ask me, what do economists study? I've always heard it explained and felt like it made sense. They study why people make the decisions or the choices that they do. You know, they study the incentives. Why would people choose this or that? Does that more or less fit when we're talking about healthcare markets, insurance, and so forth as well? [01:45] Tony LoSasso: Yeah, I think you nailed it there. I mean, I really like to think about it as trade-offs and how individuals make decisions under under constraints and uncertainty, which is, of course, a big feature of healthcare utilization, the uncertainty piece. So yeah, it's— I guess what I like to ask my students always, because they may come with preconceived notions about this or that policy is what we ought to do, it's the right thing to do, I like to pose the question, well, what happens next? And so how do people, institutions respond to, you know, step one? Because there's many steps that follow that. [02:38] Bryan Hyde: So let's, let's launch into a discussion of— I'm going to use the term Obamacare, but this is actually about more than just Obamacare. And this is not just a gripe session about, you know, something that has been law since, what, 2010? But health insurance has been a very interesting place to navigate since that time. And I'm looking at a recent article you wrote for RealClearHealth about one of the, one of the big pieces of evidence of how much things have shifted is that in, in the ACA, America, the Affordable Care Act, uh, marketplace, I understand a silver plan now costs more than a gold plan. And, and how do you even begin to start unpacking that? How could that be? [03:18] Tony LoSasso: Yeah, yeah, it's a great question, Brian. I appreciate it. Um, uh, it, uh, it came as a surprise That's a great question. That's a great question. That's a great question for me because I did not know that myself until earlier this year. Just by way of background for your viewers and listeners here, what we mean when we say a silver plan, we're talking about a health insurance plan that covers approximately 70% of your healthcare spending, whereas a gold plan is a plan that covers about 80% of your healthcare spending. lower cost sharing. And typically, you would expect then a higher premium or price of health insurance. And so, however, in more than half of ACA marketplaces, that's not the case. And so that's a surprising thing. And I'm happy to kind of dive into the mechanics of what got us to this kind of perverse outcome. [04:27] Bryan Hyde: Yeah, I mean, look, since 2010, we've had, what, 16 years of back and forth? You know, there's been Republican administrations, Democrat administrations. Is there something more than just political wrangling that's to explain? In fact, I guess I should ask it this way, Tony. Are there economic laws at play that are bringing this situation about? [04:48] Tony LoSasso: There are. And so, So the history is tangled. And I guess I do want to point out that this is not a fraud thing. This is not a— there's not really even a quote unquote bad guy in this. It really is just about misaligned incentives and sort of bad— I guess what I would characterize as bad policy design. So I'm happy to go into that. But so to go back a little bit to what the ACA, Obamacare, created, again, as you say, back when it was signed in 2010, it did a lot. It was a very large bill. But the piece that we're talking about here created these These marketplaces. So, and that's when I say ACA marketplaces. These are sometimes called state exchanges. And this is a place where individuals can buy health insurance, okay? Whether they're between coverage, between employer-sponsored coverage, or maybe retired, but yet not yet eligible for Medicare. So it meets a need that I think is a good thing. You want to have a robust— what, again, in the business we call a non-group market, group being like employer-sponsored. You'd like to have a non-group market that is robust and fills in the gaps for people. And so arguably, that's what the ACA was trying to create. And so it enacted, as part of the law, it enacted a set of regulatory structures that created the state exchanges. And so that started in 2014. Now, okay, at least 2 critical pieces of this. So to make the insurance that you purchase, that people purchase in the exchanges affordable, It incorporated two things. So one was premium tax credits, and so so what that did is it's a sliding scale tax credit that is that the higher income you are, the lower the premium tax credit. Lower income, larger premium tax credit. So recognizing that insurance can be costly and can be a large chunk of your income if you're a low-income person. So okay, well-intentioned idea there. And so now, how did they do that? Well, they keyed off of— they keyed the premium tax credit off of the second lowest silver plan in the marketplace, second lowest price silver plan in the marketplace. OK, fine. Why that? Well, we don't have to get into that. But the idea was to make it sort of less gameable by insurance companies. So, OK, fine. The second piece, which is important here, is that for low-income people, another facet of health insurance is cost sharing that I just alluded to when I talk about the 70%, 80%, so forth. So cost sharing subsidies limited individual enrollees' out-of-pocket costs for health care to a certain fraction of their income. And so originally, how that was designed was that the federal government would pay health insurance companies directly these quote unquote cost sharing subsidies. Now, in 2017, the first Trump administration decided that there was no legal basis for these payments directly to insurance companies, and so they cut it off. Okay, so again, arguably, like, what you know is that a well-intentioned? But then it goes back to this question. Okay, what happens next? Okay, the question I like that well. So the insurers are the law still says that you have to cap what people pay out of pocket. So that still is requirement. But now the mechanism that had been used. Was deemed illegal, and no law was passed to correct that. And so the insurers now are on the hook to cover the cost sharing subsidy. And so what they did, what they started to do in 2017, was to inflate the cost of the premium associated with the second lowest silver plan to account for the fact. That embedded in that silver plan, supposed to be 70%, is in fact this cost-sharing subsidy. So it inflated the value of a silver plan. Okay, fine. Like we're, by the way, like deep in the weeds here of like actuarial and health insurance market, you know, peregrination. So but. So then what happens? Well, what happens then is that you get an inflated silver premium. And so, OK, what happens next? Well, along with that inflated silver premium comes an inflated premium tax credit. Because like I said before, that's keyed off the cost silver plan. So silver gets inflated. The premium tax credit gets inflated. Who pays the premium tax credit? Well, obviously, we all do as taxpayers. That's something that happens. Now, the thing that has sort of, I think, caught at least me off guard was the fact that this inflation process has— I don't want to accuse the states of any wrongdoing here because I think they're just dealing with the incentives that they are faced with. Okay. Given the structure, and so what's happening is that states insurance where and insurance regulation happens at the state level by and large. The state insurance regulators are reviewing premiums that premium proposals that the insurers come up with, and they're saying, "Well, you need to up this. You need to up your premium." In order to cover, you know, they're doing actuarial models. There's real actuarial disagreement on how this should be handled. So like, I don't want— I'm not an actuary. I don't have the personality for that job. But that's a real kind of source of tension. And so, but what has happened over time now is that, as I said, And as you noted, premiums for silver plans are now higher than gold in many ACA state marketplaces. So just to put the fine point on that, that is to cover cost-sharing subsidies. But what's happening along the way is that the premium tax credit, the second of those 2 main subsidy arms, is getting inflated for everybody. And so, okay, I think I'll pause there because I dumped a lot out at you. [12:50] Bryan Hyde: Well, you know, I'm looking at your article too on RealClearHealth, and something you point out here is this is not just red state, blue state politics. This is the story about what any state would do when a formula pays it to inflate prices. That's human nature at work, not necessarily politics. [13:08] Tony LoSasso: Yes. No, that's right. So this is not a red state, blue state thing. We're talking about all, all states here. Arkansas, Texas. Yeah. [13:15] Bryan Hyde: Talk to me about the fix. There, there has to be a way to address this. And I think actually you take a pretty balanced approach here. [13:22] Tony LoSasso: Right. So, yeah, thanks. Thanks for the question. I think the— what I suggest is that— and this connects back to some pieces I put out almost a year ago. So last fall, some of your listeners, viewers might remember that there was a big debate and in fact, a government shutdown. It wasn't that long ago. It was less than a year ago. It was the longest government shutdown. And it had to do with the expiration of the enhanced premium tax credits, which were enacted during, admittedly, an emergency during COVID And so we wanted to make extra sure that at a time of great chaos and so on and so forth, employment disruption, that the exchanges were available with ample subsidies so that people could get insurance and stay insured over the disruption period. Now, that's all over. That's all in the rearview mirror, mercifully. And so the enhanced premium tax credits had an end date, and it was this past December 31st. And so those did expire. And so I had written at the time that we should use this, as people say, don't let the crisis go to waste. So use this— that's an old Rahm Emanuel quote. So use this opportunity here to do a temporary extension of the enhanced premium tax credits to prevent sort of this disruptive end of those subsidies, but temporary. Okay. Because, you know, but trade that in effect for a more robust, durable, longer-term solution to how one structures the premium tax credits in general. And so now, obviously, nobody listened to me. But that's just business as usual. But nevertheless, enhanced premium tax credits ended. There has been actually quite a bit of disruption in the marketplaces. Premiums shot up. Enrollment has tanked by millions. I mean, we're still kind of— We're still counting the millions of people who have disenrolled. And we don't know where they went. Did they become uninsured? Maybe. Certainly some did. Maybe others got employer-sponsored health insurance and maybe others went to Medicaid. I don't know. But we'll tally that. That'll be tallied up in the year or two ahead. But it was very disruptive. Premiums are significantly higher. Insurers are exiting. And so, you know, as I said at the outset, like, I think there should be a robust non-group market. And so these disruptions are not good for it. So what I'm proposing now is that, well, first, fund the cost-sharing subsidies in the original way that they were intended, which is, You know, because the thing is, if you do that, if you fund the subsidies outside of this shoehorning it into the premium, the CBO and others have calculated that you actually save money, that literally you save money by paying this subsidy to the insurers. Because you disconnect it from the premiums, because the premiums drive the premium tax credit. Again, this is like, you know, we should be mapping this out on a whiteboard, but I hope people are following this because it is the kind of unexpected, unanticipated piece of this whole policy that has resulted in this problem here, which is Only going to get worse. So, okay, so you do that, fund the cost-sharing subsidies, and now the silver plans are going to go down. They won't be more than gold. You've eliminated that sort of structural perversity, and as a result, The premium tax credits go down. That's the money. That's that's the savings because again, premium more people get the premium tax credit than get the cost sharing reductions. Okay, that's the cost sharing reductions are aimed at really low income people. The premium tax credits ninety five plus percent of ACA enrollees get. Premium tax credits, and so so that's inflated across the board. So so we're talking about like you know fifty sixty billion dollars here in savings. Okay, net savings. So so the proposal then is to use that to to basically like help smooth out this transition, stabilize the market, stabilize the premiums. You know, provide some temporary enhanced subsidies. And again, like, I don't want to— I'm personally opposed to sort of subsidies forever. But nevertheless, like, as a temporary salve on the market to keep— to basically help those who were disrupted with this essentially affordability shock where suddenly their premiums went up 100% or more. So that would be the first part. Use the savings to do that. Then restructure— part 2 of the fix is to restructure the premium tax credit themselves. So right now, it is, as I said, linked to the second lowest silver plan. As premiums go up, subsidies go up to the moon, all the way. They just keep going. And so that price-linked subsidy, I think, creates a real distortion in the market. I think it skews individuals' behavior. It skews insurers' behavior. And it prevents a robust competitive market. for insurance. And I would rather see something like not necessarily a fixed subsidy, but one that's delinked from prices. Link it to— I don't lay out what they should link it to, but link it to something that is not directly the price of the thing you're subsidizing, because that's just a recipe for just continued price increases that are largely paid for by taxpayers. So Link it to medical CPI, link it to CPI, something like that. And then now let the insurers compete, force the insurers to compete on price more directly. If you're going to charge— if you, Insurer A, are going to charge $20 more a month for your policy, the enrollee has to pay that whole $20. What are they getting for it? And the insurer has to make that case to them. Otherwise, go to the cheap— go to the next cheaper plan, who maybe makes a better case for their premium dollars. That's what I'd like to see. [21:09] Bryan Hyde: And I love in your article, you point out, look, Congress could watch that fight just grind out, keep kicking the can down the road, or they could end it. And you've given them some very, very clear ideas for how that could take place. Where would you direct people? if they wanted to check out either your writings or otherwise get more information on this and get their teeth into this subject? [21:33] Tony LoSasso: Yeah, I mean, I think, you know, I go to my website, anthonylosasso.com. I try to keep that relatively current with my writing. I'm a contributor at Forbes. My La Follette homepage also has more details on the work I'm doing. But, you know, in terms of, in terms of the policy landscape, if people are interested in this, I mean, I think there's a lot, there's a lot of, you know, there's a lot of reputable and disreputable sources of information out there. I hopefully try to be one of the reputable sources and try to present things in as clear a way as I can to readers. And I do write, you know, for also my, you know, my academic audience as well. If people really want to dig into things, they can check out my peer-reviewed pubs. And then just if they want, reach out to me if they're interested. I'm always happy to have a conversation, whether you're a health economist or just an interested citizen. I'm really happy. I learn a lot from, particularly from non-economists all the time. [22:57] Bryan Hyde: Again, we are talking with Anthony LoSasso. He is a professor at University of Wisconsin-Madison and an economist. And Anthony, or Tony, thank you so much for joining us today on the Health Policy Podcast.