The Case for a Third Party Health Care Reform Plan
Abstract
The U.S. health insurance system remains plagued by persistent problems: loss of coverage during job transitions, rising out-of-pocket costs, proliferation of junk insurance, limited access to specialists, and growing reliance on prior authorization and claim denials.
These challenges are not fixable within the current two-party system. Democrats and Republicans now operate in entirely separate Overton windows, with no middle ground and no capacity for compromise. Only a third party can create meaningful reform.
This paper outlines a third-party health care agenda that goes beyond the partisan stalemate:
· Employer subsidies redirected to state exchange coverage.
· Reforms to FSAs and HSAs to reduce out-of-pocket burdens.
· A federal reinsurance or high-risk subsidy program to stabilize markets and enable new consumer protections.
· Medicaid wraparound coverage above annual benefit caps for modest-income households.
· Expanded access to specialists and top hospitals through strengthened network rules and out-of-network dispute resolution.
· Limits on prior authorization and claim denials tied to insurer eligibility for subsidies.
· Elimination of short-term junk health plans, replaced with affordable catastrophic but comprehensive options.
Together, these reforms provide a coherent framework for addressing coverage gaps, lowering costs, and improving access — but they can emerge only from outside the current two-party system.
Section One: Introduction
Democrats and Republicans are deeply divided over the future of health care in the United States. The ACA did expand access to coverage for people with pre-existing conditions and created subsidized state exchanges, but universal coverage is still out of reach and progress has been fragile.
The Biden administration built on the ACA with temporary subsidies that substantially reduced the number of uninsured, but many of these gains are now unraveling because of expiring premium tax credits and policy reversals enacted during the first year of Trump’s second term. This cycle of expansion and rollback has produced uncertainty and volatility in the insurance markets.
The ACA did not address many health insurance issues and health insurance outcomes are worsening for many Americans. Unresolved health care issues include:
- Loss of coverage during job transitions.
- High and increasing out-of-pocket costs.
- Proliferation of junk insurance.
- Limited access to specialists through narrow-network health plans.
- Increasing reliance on prior authorization and claim denials.
Many people who are technically “insured” still face substantial financial and medical risks.
The ACA was an important step forward, but it left these structural problems unresolved.
The challenge today is to identify a path that goes beyond the partisan stalemate, addressing both coverage gaps and systemic inefficiencies without imposing unworkable fiscal burdens.
Section Two: No Middle Ground on Health Care Anymore
For a brief period in American politics, there appeared to be room for bipartisan compromise on health care.
Senator John McCain’s 2008 campaign platform included market-based reforms using health insurance exchanges.
Governor Mitt Romney’s Massachusetts reform pioneered a model that became the template for the ACA.
But the ACA itself was enacted almost entirely along party lines in 2010. The deepening polarization was on full display in 2017 when congressional Republicans nearly repealed the ACA, an effort halted only by Senator McCain’s dramatic late-night vote.
Republicans, once open to exchange-based reforms, have largely moved away from serious coverage expansion, preferring instead to focus on tax cuts and deregulation.
Democrats, meanwhile, have been pulled in two directions: centrist pragmatists working to preserve and expand the ACA framework, and progressives pressing for Medicare-for-All or Medicare-for-America.
Progressives argued for universal, comprehensive, government-run coverage with zero or low premiums. Progressive plans would have eliminated or sharply reduced access to private health insurance coverage. Both plans offered by progressives in the 2020 campaign for the Democratic nomination for president proved to be unworkable. A more complete discussion of these proposals can be found in appendix A of this paper.
Moderates argued for incremental reforms that preserved employer-based insurance while strengthening exchanges and expanding Medicaid.
President Biden’s governing strategy reflected the centrist side of this divide. His administration expanded ACA subsidies, increased Medicaid enrollment, and shored up exchanges.
The Biden-era advances were quickly reversed in the first year of the Trump Administration, which was primarily motivated by a desire to reduce government spending and taxes.
A key Biden-era provision, the expansion of the premium tax credit for state exchange insurance was designed to sunset at the end of 2025. Other proposals including an expansion of Medicaid were repealed in the big, beautiful tax bill.
The health care debate in the United States can be defined by two competing Overton windows, one for Democrats attempting to reconcile progressive and moderate visions and the other for Republicans attempting to balance their desire for lower taxes and spending with the needs of some voters who are dependent on government health benefits.
The deadlock in the Democratic party may explain why the Biden Administration did not advance fundamental health care reforms. A centrist reform package would have been opposed both by progressives who are married to Medicare-for-All and Republicans who wanted fiscal restraint.
The smaller debate in the Republican party is defined by a conflict between fiscal conservatives and a small number of influential senators who were concerned with their constituents losing Medicaid coverage. These differences were resolved by slowly phasing in Medicaid cuts to delay the full voter reaction.
These competing frameworks explain why health care reform remains gridlocked and why major breakthroughs are unlikely under the current political configuration.
Section Three: Third Party Health Care Solutions
The existing two political parties are not going to work together to fix problems with the health care system in the United States.
Only a new third political party can create progress on health care.
The third party should reform health care by adopting these seven policy reforms.
1. Employer Subsidies for State Exchange Coverage
Reforms should allow or require employers to subsidize state exchange health insurance rather than firm-specific plans. This would break the link between health insurance and employment, giving workers continuous coverage through job transitions, bankruptcies, or voluntary moves.
Employees would keep their plans and avoid resetting deductibles when switching jobs. Employers would still contribute to coverage, but subsidies would pay for a plan that follows the individual.
The existing preferential tax treatment accorded employer subsidies of private health insurance would remain intact. The subsidy would pay for state-exchange health insurance coverage instead of coverage tied to one employer. The employee would have access to any plan offered on state exchanges.
2. Mitigating High Out-of-Pocket Costs
Tax-preferred accounts such as Flexible Spending Accounts (FSAs) and Health Savings Accounts (HSAs) currently favor higher-income households. Replacing deductions with refundable credits would better assist low- and middle-income families.
Existing rules governing FSAs require forfeiture of all unused funds at the end of the year. This “use-or-lose” stipulation discourages some people from contributing more to their account and stimulates end-of-year spending on low priority items. Ending the “use-or-lose” rule for FSAs and allowing rollovers into retirement accounts would encourage saving.
FSA are tied to employers and are not available for people with state exchange health insurance. The expansion of FSAs for people with state exchange health insurance coverage could mitigate out-of-pocket costs for this population.
Existing FSA rules have employees lose all funds in their account if they become unemployed, switch to a new job, even if they need to purchase COBRA insurance. The regulation ending or modifying the use-or-lose stipulation should clarify that unused funds can be used for COBRA premiums.
High-deductible health plans should be required to exempt prescription drugs for chronic conditions from deductibles, reducing barriers to essential care.
3. Reinsurance and High-Risk Subsidies
A federal reinsurance program or high-risk pool would cover the most expensive cases, stabilize premiums and reduce insurers’ incentives to avoid sick patients. By absorbing catastrophic costs, reinsurance lowers average premiums across the market, protects insurers from volatility, and makes them more open to reforms that strengthen consumer protections.
4. Medicaid Wraparound for Catastrophic Costs
Comprehensive exchange coverage remains unaffordable for many households with modest incomes, even with subsidies. A Medicaid wraparound provision could address this by allowing automatic enrollment into Medicaid once an enrollee’s annual health expenditures exceed a defined cap.
This approach lowers premiums by permitting annual benefit caps while ensuring that households are not left unprotected against catastrophic costs. Similar to earlier proposals in academic literature, it combines the efficiency of capped private coverage with the equity of a public backstop. Properly structured, it would complement rather than compete with reinsurance, offering layered protection without duplicative costs.
The cost of this proposal will be partially offset by reduced enrollments in traditional Medicaid, because more people will afford state exchange insurance and reduced state exchange subsidies stemming from the premium reduction.
5. Expanding Access to Specialists and Top Hospitals
Narrow-network plans lower premiums but restrict access to leading specialists and hospitals. Extending the No-Surprises Act framework to medically necessary out-of-network care would ensure access when essential services are not available in-network. Binding dispute resolution between insurers and providers, coupled with targeted subsidies for high-cost cases, would maintain affordability while expanding access to critical care.
6. Limiting Prior Authorization and Claim Denials
Insurers’ heavy reliance on prior authorization and claim denials undermines the value of coverage. A reform linking reinsurance subsidies to limits on these practices would force insurers to streamline approvals and reduce arbitrary denials. Patients would gain more timely access to care, while insurers would still be protected against catastrophic costs. This alignment of incentives would improve both efficiency and fairness.
7. Eliminating Short-Term Health Plans
Short-term health plans exclude essential benefits, impose arbitrary caps, and often leave patients with catastrophic bills. These products destabilize exchange markets by siphoning off healthy enrollees. A prohibition on inadequate short-term plans, combined with the creation of a regulated catastrophic option on exchanges, would protect consumers while preserving a lower-cost alternative. Medicaid waivers or reinsurance could further protect patients from extreme costs above catastrophic thresholds.
Linking Consumer Protections to Reinsurance
Items 5 through 7—expanding access to specialists, limiting prior authorization, and strengthening patient protections—depend on the financial stability created by item 3, reinsurance and high-risk subsidies. Without reinsurance, insurers would resist these consumer protections as unaffordable mandates. By socializing catastrophic risk, reinsurance lowers the marginal cost of new regulations, making it politically and economically feasible to demand stronger consumer protections. In this way, reinsurance is the linchpin that unlocks the rest of the reform package.
The appendices of this paper available for paid subscribers contains additional information on these health are problems and proposed solutions.
Appendix A: Progressive Plans in Context (Medicare-for-All & Medicare-for-America)
Medicare-for-All
