Tweak the Affordable Care Act to Mandate Backstop Health Insurance

Editor’s note: This op-ed was first published in MarketWatch on September 27, 2022.

Universal health coverage in the U.S.—once considered a hopeless goal without imposing a single payer plan—is surprisingly within reach. Thanks to the Affordable Care Act and enhanced subsidies in the American Rescue Plan of 2021, more than 91% of Americans now carry health insurance.

Closing the gap would be a win-win-win for the uninsured, healthcare providers, and for policyholders who would see lower premiums through wider shared risk.

But using only additional federal subsidies to get to universal coverage would be far too costly. The Congressional Budget Office estimates that permanent extension of the enhanced subsidies alone will cost the government more than $25 billion a year. Pricing subsidies high enough to lure more people to the ACA marketplaces could be several times that figure.

A better answer is to create an individual healthcare insurance mandate that would be politically more palatable than the ACA version. Let me explain.

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The ACA included a tax penalty of up to $2,085 per family for those who didn’t sign up for a plan. Although the ACA’s mandate followed an approach used by a Massachusetts predecessor plan (sometimes referred to as “RomneyCare”), which was broadly accepted in that state, the ensuing partisan battles over whether to repeal the ACA led to a demonization of that approach to mandates. What economists saw as a way to share responsibilities and risks—and keeping down the costs of expanding coverage–was seen by many Americans as government overreach. As a result, Congress repealed the tax penalty in 2019.

A more effective and friendlier approach is “backstop” insurance. Here is how it would work:

Imagine an uninsured individual who seeks care at an emergency room. Once the hospital determines that the patient is uninsured and is not eligible for Medicaid, the patient would be auto-enrolled in a “backstop” plan in the ACA marketplace. Just as in all marketplace plans, the backstop plan would pay claims and scale premiums according to ability to pay through existing ACA subsidies. At tax filing after the end of the year, individuals covered by the backstop plan would be retroactively charged a premium based on the number of months not covered by other insurance.

Auto-enrollment could effectively create universal coverage, since any time that individuals lacked another source of coverage, they would be covered by the backstop plan. The backstop plan would provide temporary coverage, with individuals then transitioning into traditional individual market plans.

Of course, there would be details to work out. Should the backstop plan be run by the government, effectively creating a “public option” insurance plan? Alternatively, private insurers could compete to be designated as the back-up plan for an ACA marketplace. Or multiple private insurers could offer back-up plans on an exchange, with government assigning uninsured individuals to the plans with lower premiums.

Additionally the ACA marketplace would likely need to employ various risk-management tools to account for some individuals opting for backstop insurance rather than paying for coverage at a higher premium level.

The enhanced subsidies in the American Rescue Plan—initially designed to get the country through the COVID pandemic—could make backstop insurance more acceptable than it might have been in the past since the premiums required when taxes are filed could be smaller than those owed under the original ACA. The fact that the enhanced subsidies were extended through 2025 in the recent Inflation Reduction Act makes it likely that they will continue, although Congressional budgeting practices make it unlikely to convert them to an explicit entitlement.  

Other countries that use private insurance to achieve universal coverage, such as Switzerland, the Netherlands and Germany, make effective use of mandating individuals to be covered. The approaches used more closely resemble a backstop plan than the original ACA approach of penalties for those uninsured. It would be a shame, having come so close to the goal of universal coverage, for America to back away when the tools are at hand to achieve it.

Paul B. Ginsburg is a senior fellow at the USC Schaeffer Center for Health Policy & Economics and professor of the Practice of Health Policy at the USC Price School of Public Policy.