America needs more dependable health coverage than recurring subsidy battles can deliver. It also needs a workable transition. Applying the Bernstein Doctrine, I propose coordinated reforms that preserve employer contributions, make insurance portable, share exceptionally expensive medical costs, and strengthen Medicaid and household savings—with better protection and more efficient use of public dollars.
An Economically Efficient Path Towards Universal High-Quality Health Care in the United States
A recent memo published in The Political Prism examined when economic policymakers should advocate a complete restructuring rather than incremental reform. In that paper, I adapted General Colin Powell’s approach to evaluating military intervention into a framework for assessing major domestic reforms.
The Bernstein Doctrine uses a five-part test to assess whether major economic restructuring is warranted.
1. Are the problems serious enough to justify major reform?
2. Can the reform avoid substantial harm to major groups?
3. Is there a feasible transition to the new system?
4. Is the reform economically and politically sustainable?
5. Is there a more efficient way to achieve the objective?
The five questions must be considered together. A serious problem can justify government action without justifying a particular restructuring. Reformers must also explain how they would protect affected groups, manage the transition, sustain the new system, and achieve their objectives more efficiently than available alternatives.
Efficiency matters because resources devoted to one reform are unavailable to address other pressing problems.
This paper applies the Bernstein Doctrine to health care.
The need for substantial reform is clear. People without insurance face potentially ruinous medical bills, while many insured households cannot afford their deductibles, prescriptions, or other necessary care.
Progress towards expanding and improving health insurance coverage has been uneven and politically fragile, with gains followed by reversals, recurring battles over ACA premium subsidies, and rising premiums and subsidy cliffs that undermine affordable coverage.
These failures establish the need for substantial reform, but they do not establish that Medicare for All is a feasible or sustainable solution. The memo “Should Democrats Adopt Medicare-for-All in 2028?” demonstrates that the proposal falls short of the other four requirements of the Bernstein Doctrine.
A rapid transition to Medicare for All could carry substantial risks.
Displacement of private insurers and their employees and losses for shareholders,
Substantial reductions in provider incomes.
Longer waits for some procedures and specialist care.
Political disputes over benefits and covered services, including reproductive care.
The seven reforms proposed here would put the United States on the path towards universal comprehensive health insurance coverage while limiting disruption and addressing foreseeable risks.
The seven reforms are:
1. Building on existing employer reimbursement arrangements to make portable health insurance sold on state exchanges a more affordable and widely used option.
2. The establishment of a subsidized reinsurance program for all state exchange health insurance and Medicaid and CHIP plans to mitigate the costs of high-risk health care cases.
3. The elimination of all short-term “junk” health insurance plans,
4. New procedures governing claim denial decisions, especially those governing claims where the reinsurance program covers part of the cost.
5. A revamping of the premium tax credit and the employer mandate in response to new employer subsidies and new reinsurance subsidies.
6. The modernization of Flexible Savings Accounts and High-deductible health plans.
7. Expanding Medicaid to cover populations where it is better suited and less expensive to taxpayers than private insurance.
The comments that follow examine how these changes create a path toward universal, high-quality, comprehensive health insurance. Some policy proposals address specific problems directly; others work together to solve problems that no single reform can adequately address.
Comment One: Maintaining health insurance during job transitions
Tying health insurance to a particular employer exposes workers to coverage losses during job changes, can discourage them from leaving unsuitable jobs—a problem known as job lock—and increases the risk of becoming uninsured during economic downturns.
Research documents the connection between unemployment and lost coverage. Cawley, Moriya, and Simon found that a one-percentage-point increase in state unemployment was associated with a 1.67-percentage-point decline in health insurance coverage among men during the period encompassing the Great Recession. More recently, Schaller and Zerpa (2026) estimated that involuntary job loss reduced insurance coverage by approximately 16 percentage points before the Affordable Care Act and 10 percentage points afterward. These findings show that the ACA reduced, but did not eliminate, coverage disruptions following job loss.
This proposal preserves employer subsidies for health insurance while building on existing arrangements that allow employers to help finance individually owned coverage including the QSEHRA program for smaller firms and the ICHRA program for firms of any size. The decision to use the employer subsidy for state exchange coverage rather than a firm-specific plan allows households to keep the same insurance when they move to a new employer.
The proposal would allow and encourage wider use of these employer reimbursement arrangements through complementary reforms that make individually owned exchange coverage more affordable and easier to retain. The premium tax credit, reinsurance, and savings-account provisions described below would create incentives for employers and workers to choose portable coverage while helping workers maintain it during job transitions.
A worker who retains an exchange policy after leaving a job would become responsible for the premiums previously paid by the employer but could qualify for the premium tax credit (PTC), with potentially greater assistance if annual household income falls.
The proposed reinsurance subsidy would lower premiums and make continued coverage more affordable. The lower premium and premium tax credit would reduce costs to taxpayers offsetting part of the cost of the reinsurance program.
Subsidized reinsurance would not be available for firm-specific employer coverage, creating an incentive for employers to support portable exchange policies instead.
Several features of the effort to modernize Flexible Savings Accounts and Health Savings Accounts will increase funds available for premium payments during job transitions.
The effort to reduce the loss of health insurance in job transitions is achieved by several of these proposals working in tandem.
Comment Two: Reducing insurance market distortions caused by concentrated medical spending
A relatively small share of patients accounts for a large share of medical spending. In 2022, the highest-spending 1 percent of the U.S. civilian noninstitutionalized population accounted for 21.7 percent of health care expenditures, and the highest-spending 5 percent accounted for 49.7 percent, according to the Agency for Healthcare Research and Quality. This concentration creates several problems for insurance markets.
Cherry-picking: Insurers have incentives to attract healthier customers and discourage enrollment by people likely to require expensive treatment, including through provider networks and benefit design.
Claim denials: Insurers bear substantial financial exposure from expensive covered services, creating incentives to delay, restrict, or improperly deny payment.
Higher premiums: Insurers covering a disproportionate share of expensive patients must charge higher premiums unless risk adjustment, reinsurance, or other payments adequately compensate them.
Loss of healthier customers: Higher premiums can encourage healthier people to remain uninsured or purchase short-term plans with substantial exclusions, leaving comprehensive plans with a more expensive pool of customers.
Subsidized reinsurance would reimburse insurers for part of these unusually high expenses, reducing both expected claims costs and uncertainty. It would lower premiums and weaken financial incentives to avoid expensive patients or deny their covered claims. It would also shift some exceptionally expensive Medicaid and CHIP claims to the new reinsurance program, reducing states’ financial exposure and potentially easing political resistance to expansion.
More affordable comprehensive coverage would reduce demand for inadequate “junk” plans, which should be prohibited. Sharing high-cost claims would also weaken incentives to deny covered care and could increase support for independent review of claims denials.
Lower benchmark premiums would reduce federal premium tax credit spending, offsetting part of the reinsurance subsidy’s cost.
There are several ways to structure this protection. Claims-based programs reimburse a percentage of a patient’s annual covered expenses above a threshold, usually subject to a ceiling. Condition-based programs reimburse claims for patients with designated expensive diseases, while hybrid programs combine these approaches.
Alaska has used a condition-based model. Minnesota initially reimbursed 80 percent of annual claims between $50,000 and $250,000, providing a practical example of a claims-based approach.
The program could expand gradually by lowering the spending threshold, increasing the reimbursement percentage, or raising the ceiling. These changes would increase the public share of health care financing while allowing people to retain their insurance arrangements. Sufficiently broad expansion could gradually shift most financing of covered claims to the public program while retaining private insurance administration.
My goal is to reduce insurers’ exposure to exceptionally expensive cases and reduce reliance on premiums and income-linked premium subsidies to finance comprehensive coverage. That shift matters because withdrawing premium tax credits as income rises increases households’ de facto marginal tax rates and can discourage additional work. There is more discussion on this in the section below on revamping the premium tax credit.
Comment Three: Using Medicaid where it provides better protection at lower cost
The academic literature suggests that Medicaid is better suited to protecting households with very low incomes from premiums and out-of-pocket medical expenses, and that it can provide coverage at lower overall cost than subsidized private insurance.
For example, Saluja and colleagues found that Marketplace enrollees were more likely than Medicaid enrollees to delay or avoid care because of cost and have difficulty affording medications.
Similarly, Allen and colleagues found substantially lower overall spending under Medicaid than Marketplace coverage in Colorado, largely because private insurers paid higher prices.
These findings and similar ones motivate my proposal to expand Medicaid to more lower-income households.
The proposed Medicaid expansion would increase eligibility to around 200 percent of the federal poverty level, compared with the ACA’s effective 138-percent threshold.
Premium tax credits can make private coverage particularly expensive for taxpayers near the bottom of the eligible income range because households contribute relatively little toward benchmark premiums. Moving these households into Medicaid could reduce public spending while improving financial protection, provided Medicaid’s combined federal and state costs—including necessary access improvements—are below the assistance displaced.
The proposed reinsurance program would also make expansion more affordable for states by assuming part of the cost of exceptionally expensive Medicaid and CHIP cases. Payments would need to be coordinated with federal matching assistance to prevent duplicate reimbursement. Separately, reinsurance for exchange policies would reduce insurers’ exposure to expensive claims and lower premiums.
Expanded Medicaid will face ideological opposition and state fiscal concerns, but nationwide eligibility need not depend on overturning NFIB v. Sebelius. That decision rejected threatening states with the loss of all existing Medicaid funding to compel expansion. Congress should pursue a less onerous nationwide requirement, combining substantial federal financing and high-cost reinsurance with gradual implementation and narrowly limited financial penalties for noncompliance. This design would reduce both state costs and the coercive pressure identified by the Court, although its constitutionality would remain subject to judicial review.
Comment Four: Modernizing health care savings accounts
Research identifies three problems associated with higher patient cost sharing:
Discouraging necessary treatment. High deductibles can discourage needed care. Brot-Goldberg and colleaguesfound that spending fell after an employer switched to high-deductible insurance because patients used fewer services rather than shopped for lower prices.
Competing with retirement saving. Medical bills can crowd out retirement contributions. An EBRI survey found that privately insured respondents reported reducing retirement saving and delaying care in response to rising health expenses.
Leaving lower-income households inadequately protected. These households have less capacity to save and receive less assistance from tax deductions. GAO found that approximately 32 percent of working-age adults with high-deductible plans in the lowest income group had linked tax-advantaged savings accounts, compared with 62 percent in the highest group.
My proposals would address these problems by preserving unused savings, making accounts portable, and targeting assistance toward households with limited resources.
FSA reform should begin by ending use-or-lose requirements and allowing unused balances to carry forward in full. Workers could also choose to transfer balances above a reasonable medical reserve into retirement accounts. Transferred funds would remain taxable when withdrawn for retirement and would not generate another deduction. These changes would let households preserve medical savings without sacrificing retirement security or spending unnecessarily to avoid forfeiture.
FSAs are currently employer-established arrangements, although participants do not necessarily have to enroll in employer health insurance. Reform should make these accounts available to people with exchange policies and allow workers to retain their balances when employment ends. The reform would permit portable FSA balances to pay exchange premiums during job transitions, excluding amounts already paid by employers or premium tax credits.
Congress could allow additional employer contributions to a departing worker’s portable FSA to help maintain coverage during the transition.
For households with modest incomes above the proposed Medicaid eligibility range, replacing the individual HSA contribution deduction with a targeted tax credit could provide more assistance per dollar saved. The credit could be deposited directly into the HSA and phased out gradually as income rises. Comprehensive Medicaid coverage would protect households with the fewest resources rather than require them to finance substantial private-plan deductibles.
Together, these reforms would help households afford needed care, preserve savings during employment disruptions, and reduce the conflict between preparing for medical expenses and retirement.
Comment Five: Revamping the premium tax credit
My illustrative Substack analysis, “Why a $20,000 Raise Doesn’t Feel Like a $20,000 Raise,” describes a worker with one child whose earnings rose from $50,000 to $70,000. Reduced premium assistance increased annual health insurance premiums by approximately $2,600, absorbing 13 percent of the raise before additional taxes or student loan payments. My forthcoming Retirement Management Journal article also demonstrates how declining premium assistance increases households’ effective marginal tax rates.
The preceding reforms would reduce reliance on premium tax credits and change where assistance is needed:
Medicaid at the lower end. Expanding eligibility toward 200 percent of poverty would replace subsidized private coverage for many lower-income households, providing stronger financial protection. Exchange assistance should remain available where Medicaid is unavailable.
Reinsurance to lower premiums. Reinsuring exceptionally expensive claims, including pediatric cases covered by exchange policies, would lower family premiums and the premium tax credits needed to support them. Employer contributions toward portable policies would further reduce the assistance required. Reinsurance for CHIP would primarily reduce states’ financial exposure; its effect on exchange premiums would depend on enrollment changes and the remaining risk pool.
The revised employer mandate would allow firms to satisfy their coverage obligation through adequate contributions toward employees’ individually owned exchange policies rather than providing a firm-specific plan. Revised premium tax credits would supplement those contributions where needed to maintain affordability.
Reinsurance would also benefit higher-income households paying full premiums, potentially allowing premium tax credits to phase out at lower incomes while preserving affordability. The remaining credit should decline gradually rather than disappear at an arbitrary threshold. My paper, “Lower Premiums, Fewer Tax Cliffs: Reinsurance and a Better Health Insurance Subsidy,” offers a continuous household contribution schedule designed to avoid abrupt losses of assistance and limit the additional marginal burden as earnings rise.
Concluding thoughts: How the reforms work together
The package changes how coverage is financed, maintained, and used. Medicaid would provide comprehensive protection where households lack the resources to manage private-plan cost sharing. Portable employer contributions would preserve a role for employer financing while allowing workers to retain coverage during job changes. Reinsurance would spread exceptionally expensive claims, including costly childhood illnesses, across a broader financing base, lowering exchange premiums and reducing financial exposure for state Medicaid and CHIP programs. Reformed savings accounts would help households preserve funds for expenses that insurance does not cover.
These changes would make a redesigned PTC more practical. Lower premiums, employer contributions, and expanded Medicaid would reduce the assistance that must be delivered through income-tested credits. A smoother phaseout could then improve work incentives while protecting households still needing help. Reduced PTC spending would offset part of the package’s cost, although Medicaid expansion, reinsurance, savings incentives, and broader enrollment would require financing. The package should be judged on whether these provisions together provide more dependable coverage and stronger financial protection at a sustainable public cost.
Author’s note: My book, A Durable Path Forward on American Health Care, develops these reforms in greater detail, including their financing, interactions, and implementation. It identifies 25 specific provisions for a tax and budget reconciliation bill to expand affordable coverage through reinsurance, portable employer contributions, modernized savings accounts, and a more efficient role for Medicaid.