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03/29/2017

The ACA Survived, Do We Have the Political Will to Make It Better?

by Craig Klugman, Ph.D.

The Republican-backed American Health Care Act was withdrawn before a vote on Friday when it appeared to lack the support needed to pass. The result is that the Affordable Care Act (Obamacare) remains the law of the land according to Paul Ryan. Both Ryan and Trump stated that health care is now on the backburner and they have moved on to other items like tax reform. The problem though, is that the ACA is showing its age and needs some work. With little political will, these needed changes will not happen.

Let’s remember that neither the ACA nor the ACHA are about access to care. They are not about making sure that people can see doctors or get the medical care they need or want. Both of these acts are about making sure that people can purchase health insurance. In the case of ObamaCare, that they must buy insurance and can choose from highly subsidized, and hopefully affordable, plans. On the TrumpCare side, that people can choose to purchase a health care plan but that they receive minimal government assistance if they do.

Where’s the Death Spiral?

The Republicans have claimed that the ACA is in a “death spiral” and they will let it crash. According to Politifact, in order to be in a death spiral, the plan would need to show declining enrollment, healthy people leaving the system, and rising premiums. This past enrollment period saw record numbers with over 12 million people signing up, and nearly 4 million of those being new to insurance. Even more hopeful is that many of these enrollees were young and healthy, exactly the people needed to ensure a positive risk pool. However, in many places premiums did rise. The level of uninsured has dropped from 18% in 2012 to 8.6% this year.

However premiums are going up. The average premium rise was 25% across the country. And many health care insurers have stated they plan to leave the exchanges—Aetna, United Health, and Humana. In 22% of counties (especially rural areas) there is only one insurance provider on the exchange.

Risks to the ACA under 45

So what now? Although not highly touted, the Trump administration has taken a few chunks out of the ACA with their repeal axe. Consider that the IRS has been told they do not have to enforce the mandate. The mandate is the requirement that everyone be enrolled in a health insurance plan. If you are not, then you pay a penalty of $695 or 2.5% of your modified gross adjustment income, whichever is higher. While the IRS collects this fee, Trump has said they are no longer required to enforce the provision. Part of the reason that the ACA can work, is (1) taxes on high earners, pharmaceutical companies and insurance companies; and (2) that everyone has to buy insurance to create a positive risk pool. Such a pool is one in which more people pay money in than take money out. You need a minimum of 40% of enrollees to fit his healthy model. This is why there is such a desire for more young, healthy people to sign—they keep the pool positive. A negative pool pays out more than it receives, necessitating higher premiums or even leaving a market.

This is the last year that the law will offer reinsurance and risk corridors. In essence, these programs provide insurance for the insurance companies. If being in the marketplace exchange costs companies too much money, the federal government comes in and supports them. This program ends in 2017. The result is that insurance companies take on more risk and being a risk-adverse industry, are more likely to pull out of the exchange markets.

Third, the Trump administration is decreasing the enrollment period. For 2017, you could buy insurance on the exchange from November 1 to January 31, a period of 15 weeks. For 2018, that time will be cut to 9 weeks.

Best of the Worst-Making it Better

The ACA is basically a plan that transfers money from US residents and the federal government to insurance companies. This is not the best plan that we can have in the U.S. It’s not the best plan in the high-income world. It is the plan that we were able to politically get approved. The law is complicated, difficult to manage and administer and also has high overhead (remember when insurance companies balked that they could only take 20% of premium costs for administrative overhead?).

After 7 years, we are seeing that the law needs some work. The ACA requires some tweaks to function. Unfortunately, we are in an era where the federal government is more likely to allow the program to fail than to make small changes to help it work. I’ve outlined several suggestions below:

Expand Medicaid expansion – Only 31 states have adopted the Medicare expansion which provides benefits of this Federal-state program to people whose households bring in 138% of poverty or less. By extending this to all states, more of those who are the working poor would qualify for assistance.

Expand Medicare – The toughest spot for people seeking health insurance are those in the 55-64 age group. They may have retired early, or lost jobs and due to their age and skillsets have trouble finding a new one. The ACA allows insurers to charge them 3 times the premiums of a young person under the age of 30 (Trumpcare would have made this 5 times). For someone on a fixed or declining income, this can be a burden. Many simply put off doctors’ visits and medical procedures until they qualify for Medicare at age 65. Thus, when they enter the Medicare system, they cost more because they arrive sicker. Allowing them to buy into Medicare early would alleviate their problems and ensure that their health problems are prevented and treated better, meaning in the long run, their care costs less.

Negotiate with providers and insurers – The ACA forbids the government from negotiating with provides and pharmaceutical companies. Because California runs its own exchange (instead of relying on the federal government to run it for them, as most states do), they can negotiate prices with insurance providers who wish to be listed on the exchange. If we let the states or even the feds to negotiate with health care service companies, there would be more control over pricing and a brake on rising costs.

Sell all plans on the exchanges: Insurance companies can cherry pick their enrollees. For someone who is young and healthy, a company may offer a cheaper plan that does not offer many benefits outside of the exchange. In this way, the young and healthy are moved out of the exchange leading to a poorer risk ration in the exchange. Some plans in the exchange are created to not cover drugs for serious illnesses, an action that does not discriminate against people for being sick but does keep ill people from choosing that particular plan. If all plans are sold in the same place, these issues are moderated.

Public Option – The original ACA plan had a public option. The Nixon health plan had a public option. The Clinton health plan had a public option. The idea is that the government offers a health plan on the exchange. This makes sense for a lot of reasons: The government can more afford to take on the sicker patients; for counties with only 1 option on the exchange, a public option offers a second choice; a public option can be run more efficiently (overhead costs for government plans tends to run about 2%). After all, the government already runs the largest health insurance plan in the country-Medicare, which is beloved by most of its enrollees.

Single-payer Option – Bernie Sanders campaigned on the idea of “Medicare for all” and even Trump has said that he wants “insurance for everybody.” The notion is that instead of this complicated, convoluted law that tries to enroll everyone into a private health insurance plan, enroll everyone in a simple and easy-to-use government-run health insurance plan. The Federal Government would be the single insurer. The good part is the government has experience at providing insurance (Medicare) and does so at low cost. It also dramatically reduces paperwork for hospitals, doctors, and nurses. In fact, a recent study found that doctors spend two-thirds of their time on paperwork, much of it on insurance forms. Just because the government is the insurer does not mean that they control health care. Hospitals, doctors, and other providers maintain their independence. The government does not control health care, only health insurance.

The ACA needs some work to become more effective and more efficient. Rising premiums are a problem and ensuring coverage for everyone is also a problem. With the Republicans walking away from health care issues, the Democrats may be able to reach out to the President to enact some of these suggested fixes. The ACA was never intended to be the final system but was a place to start. The next step is up to us.

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