Almost from the moment of its inauguration in 2009, the Obama administration has struggled, often against adamant resistance, to enact and implement the Affordable Care Act (ACA). The 2016 election has brought to power opponents of the ACA who will control the presidency, both houses of Congress, and many state houses and governorships. ACA repeal, or “repeal and replace,” seems to be a very real, indeed likely, possibility. It is important, therefore, to take a sober look at what the ACA has achieved in its nearly six years of existence, and what repeal, or repeal and replacement, might look like.
This post will describe and assess the ACA in its sixth year, its successes and failures. It will next consider how the new administration might proceed with repealing and replacing it. Finally, it will examine the provisions that the new Congress and administration may adopt to try to replace the ACA and assess how they might improve on or undermine the ACA’s accomplishments.
This assessment will focus on the effects of the ACA and its likely replacements on accessibility and affordability. Other measures could also be used to evaluate the success of health system reform, such as effects on the total cost of the health care system or the quality of the health care it provides. Success could also be judged by the ramifications of health reform on individual choice, or freedom, or on the economy as a whole.
I choose to focus on accessibility and affordability because I believe that these are areas where government intervention in terms of financing or regulation—or most likely both—is most essential. There are two facts about health care that are beyond debate. First, in any given year the vast majority of health care costs are attributable to a small minority of the population and the vast majority of people spend comparatively little on health care. In a given year, the most costly 5 percent of the population accounts for almost 50 percent of health care spending, while the least costly 50 percent accounts for less than 3 percent of spending.
Private insurance can move resources from those who cost less to those who cost more, but there are limits to the extent that it will do so in an unregulated market (assuming private insurance can even exist in an unregulated market). Absent regulatory requirements, private insurers will exclude high-cost individuals and pre-existing conditions from coverage and will set premiums (and cost sharing) at rates that are actuarially accurate given whatever the insurer can predict the likely cost will be to cover the applicant and dependents, considering health status, age, gender, location, and other factors.
Second, the distribution of income and wealth are also sharply skewed in the United States. Given the high cost of American health care, many Americans could not afford even the most basic health care services without government assistance. The vast majority of Americans currently receive assistance for purchasing health care or health coverage not just through the marketplaces, but also through government programs such as Medicare or Medicaid and through tax subsidies for employer-sponsored coverage.
When analyzing affordability of health coverage, it is important to consider out-of-pocket costs as well as premiums. The premium on a catastrophic policy will obviously be less expensive than the premium for a low-deductible policy, but the coverage may be worthless to an individual who cannot afford to pay for the cost sharing imposed by the policy unless that cost sharing is adequately subsidized by the government via direct payments, contributions to a Health Savings Account (HSA), or other mechanism.
The ACA’s Structure
The ACA included a number of measures to ensure access to health care for persons with high-cost medical conditions. First, it required insurers to offer coverage to all applicants and to guarantee renewal for all covered individuals.
Second, health status underwriting was outlawed in all insurance markets. Premiums in the individual and small group markets were only allowed to vary based on age (with a maximum one-to-three ratio), geographic rating areas, tobacco use, family or individual coverage, and plan characteristics such as provider networks.
Third, an absolute ban was placed on pre-existing condition exclusions. Exclusion of coverage for pre-existing conditions had been limited under the 1996 Health Insurance Portability and Accountability Act (HIPAA), but under the ACA it was banned altogether. The ACA did, however, require individuals to enroll in health plans during an annual open enrollment period (unless they qualified for a special enrollment period because of life changes or other special circumstances) to limit their ability to delay enrolling until a medical disaster in fact occurred.
Fourth, the ACA included certain provisions to discourage more subtle forms of discrimination against high-cost individuals. It required all insurance plans in the individual and small group markets to cover a menu of essential health benefits. Qualified health plans sold through the exchanges were barred from employing “marketing practices or benefit designs that have the effect of discouraging the enrollment in such plan by individuals with significant health needs,” and were required to cover an adequate network of providers, including essential community providers.
Fifth, the ACA’s individual mandate required individuals who did not qualify for an exemption (such as for inability to afford coverage) to obtain minimum essential coverage or pay a tax. This requirement was intended to ensure that healthy as well as unhealthy individuals participated in the individual insurance market. An employer mandate also encouraged employers to continue to cover high-cost enrollees rather than dumping them into the individual market.
Finally, the ACA established temporary reinsurance and risk corridor programs, and a permanent risk adjustment program, to encourage insurers to take on higher-risk enrollees and to discourage risk selection.
The ACA also included a number of measures to make health insurance and health care more affordable for low- and moderate-income Americans. First, it mandated coverage under the Medicaid program for all those under age 65 lawfully in the United States with family incomes at or below 138 percent of the federal poverty level (FPL). The Medicaid expansion was seriously undermined by the Supreme Court’s decision to allow states to opt out, but it remains a key feature of the ACA and has been implemented in all but 19 states.
Second, the ACA offered income-based premium tax credits for individuals with incomes not exceeding 400 percent of the federal poverty. The credit amounts were based on the premium of the second-lowest cost silver (70 percent actuarial) value plan in a geographic market. It also required insurers to reduce cost-sharing for individuals with incomes not exceeding 250 percent of the federal poverty level (FPL), with dramatic reductions for those with incomes at or below 200 percent of FPL.
Finally, the ACA included a number of measures intended to make health care more affordable for insured individuals generally. It prohibited the sale of very high cost-sharing coverage in the individual and small group markets with an actuarial value of less than 60 percent (except for catastrophic coverage available under limited circumstances), outlawed annual and lifetime limits, and capped out-of-pocket expenditures for in-network services.
The ACA’s Record
How has the ACA performed so far in terms of making health care affordable and accessible? Its record is sharply contested, but some things can be said that would only be contested by its most extreme critics or supporters.
First, the ACA has dramatically reduced the number and percentage of Americans who completely lack insurance coverage. The most recent government survey found that the uninsured rate dropped from 16 percent in 2010 to 14.4 percent in 2013 to 8.9 percent in the most recent 2016 government survey. The problems that American families face with paying medical bills and the challenges hospitals face with uncompensated care have also been reduced since the ACA’s reforms have gone into effect.
Second, the ACA has expanded Medicaid and individual market coverage without significantly undermining employer-sponsored coverage—the traditional bedrock of American health care financing. The most dramatic growth in coverage has been in Medicaid, both through the ACA’s expansion of coverage for adults and children up to 138 percent of the federal poverty level and through the “woodwork effect,” which has brought new enrollees into the Medicaid program who are eligible through traditional categories. Medicaid enrollment has grown by 13.7 million since 2013.
But the marketplaces have also covered 10.4 million individuals. This is fewer than was initially anticipated, and not all of these individuals were previously uninsured. But if marketplace coverage was terminated precipitously, over ten million individuals would have to find another form of coverage.
Third, the ACA has made coverage available to individuals with pre-existing medical conditions who would have been unable to get coverage or would have faced unaffordable premiums or pre-existing condition exclusions before the ACA. The extent to which pre-existing conditions or people with them were excluded from coverage before the ACA is contested, and insurers retain some capacity for limiting coverage for high-cost individuals through discriminatory benefit, network, or formulary designs, but few contend that the ACA has not largely eliminated discrimination in insurance markets against high-cost individuals. It has also eliminated gender-based discrimination and rescissions (post-claims underwriting).
The ACA has also provided broad benefits to millions of Americans who may not realize the source and scope of these benefits. All health plans and policies are required to cover preventive services without cost sharing, including commonly used services like flu vaccinations or contraceptives. The Medicare doughnut hole is closing. Health plans and insurers are required to offer internal and external review to enrollees who received adverse benefit determinations.
Health care costs generally have grown at historically low levels though most of the time the ACA has been in place, although cost growth has shown signs of picking up lately. The extent to which the ACA has contributed to this trend is debatable, but it has at least not resulted in an explosion of health care costs as some predicted. Employment has grown steadily during the time the ACA has been in force, although some argue that the ACA has contributed to a growth in part time jobs.
The ACA has not, of course, been an unmitigated success. Many individuals who purchase coverage in the individual market and who are not eligible for premium tax credits face high and growing premiums. Health plans in the individual market, and increasingly employer coverage as well, impose deductibles, copayments, and coinsurance that leave health care unaffordable even for individuals who are insured. Choice of insurer is limited in some marketplaces. Insurance offerings in many marketplaces trend toward narrow networks, holding down premiums and costs but limiting choice of provider, impeding continuity of care, and exposing members to surprise medical bills. Access to care and economic security for Medicaid beneficiaries has improved with the Medicaid expansions, but the extent to which it has improved health outcomes remains contested.
Repealing The ACA: What Could Be Done And What Would Happen?
President-elect Trump and some Republicans in Congress focus on the ACA’s failures. They have pledged to repeal, or to repeal and replace, the ACA, and believe they can replace it with something better.
Their proposals bear serious scrutiny. Could they actually improve access and affordability for those who have benefited from the ACA? Might they alternatively improve access for those who have not been helped from the ACA, but impose barriers to access or make coverage or care less affordable for those whom the ACA helped? Might their proposals make health care more—or less—accessible for Americans generally? It is urgently necessary that we find answers to these questions.
An initial question is whether repeal or repeal and replace is legally possible. The brief answer is yes. Total repeal would take 60 votes in the Senate, which the Republicans do not have, unless 1) they abolish the filibuster, which they are unlikely to do, or 2) get eight Democrats to join them, which is equally unlikely. Full repeal is also, frankly, not practically possible, as too many of the provisions of the ACA are interwoven into the fabric of our health care system and cannot be easily extricated. Medicare payments to providers and managed care plans, for example, are based on the ACA and would be seriously disrupted by an abrupt repeal of the law.
But, as I have noted earlier, repeal and possibly replacement of many of the most controversial provisions of the ACA—the individual and employer mandates, the premium tax credits, and the Medicaid expansion, for example—could be accomplished through the budget reconciliation procedure, which would require only a simple majority vote. The extent to which budget reconciliation could be used to this end would depend on the arcane rules of the Senate, but the repeal bill passed by Congress in 2015 passed muster, so it could go at least that far.
President-elect Trump could also do a great deal toward undoing the ACA through executive action, perhaps even by accident. Simply withdrawing the government’s appeal in House v. Burwell could launch the individual insurance market into chaos. A Trump administration could reverse or withdraw many of the rules promulgated to implement the ACA, or simply withdraw or reduce resources from Healthcare.gov and the Center for Consumer Information and Insurance Oversight in the Department of Health and Human Services (HHS). These actions might provoke litigation, but health insurance and health care markets could be seriously disrupted well before the legal issues were settled.
A repeal of the ACA’s coverage provisions without a replacement would leave perhaps 20 million Americans without coverage. A repeal of the Medicaid expansion would not only leave millions of Americans without coverage but would also saddle the states, Medicaid managed care insurers, and health care providers with billions of dollars of obligations and unpaid bills. Similarly, an end to premium tax credits, cost-sharing reduction payments, and the marketplaces would leave millions of Americans without access to affordable coverage and insurers and providers holding the bag.
If the ACA disappeared overnight, insurance would still be regulated and to some extent financed by the states. The effect of repeal would vary from place to place, but the states simply lack the capacity to fully absorb the damaging effects of repeal on lower-income and high-cost individuals. Federal health care reform was enacted in 2010 because the states had after decades of opportunity failed to address the affordability and accessibility problems that the ACA took on.
The current wisdom is that Congress and the administration would not be foolish enough to repeal the ACA without a replacement in place. The 2015 reconciliation legislation delayed repeal of the Medicaid expansion and the premium tax credits and cost-sharing reductions for nearly two years to give Congress time to act. But insurers participate in the marketplaces voluntarily and few of them are dependent on marketplace business for survival. In the end they will have to look to their own financial viability and are not required to offer services as charities. Simply the insecurity caused by the threat of repeal could leave the marketplaces without insurers for 2018.
It is thus necessary that replacement legislation be enacted in tandem with repeal. But what would replacement look like? We do not yet know, and are likely not to know until the administration and Congress agree on legislative language. Although President-elect Trump has mentioned a few components of a health reform plan, which have changed from time to time, he has not begun to put forward or endorse any comprehensive approach.
ACA Replacement Plans
A number of Republican congressmen have, however, put forth plans. The most prominent of these is probably Paul Ryan’s “Better Way” proposal, but Congressman Tom Price’s (R-GA) proposal certainly must be taken into account with his recent selection for Health and Human Services Secretary. Conservative and libertarian advocates and groups have also put forth proposals. Some proposals have even been reduced to legislative language. These proposals contain different provisions but share common ideas.
What solutions do these replacement proposals offer for the problems of access and affordability posed by the disparities in health risk described at the beginning of this essay? The most common approaches they offer for covering high-cost individuals are continuous coverage requirements and high risk-pools, both of which are included in Congressman Price’s and the “Better Way” proposals.
Continuous Coverage Requirements
Continuous coverage provisions would ensure that as long as an individual remains continuously insured, insurers could not refuse coverage or exclude pre-existing conditions for that individual and might not be able to increase premiums to account for risk. This approach was part of the Health Insurance Portability and Accountability Act of 1996, which prohibited the application of pre-existing condition requirements in the group health insurance to individuals who had been insured for at least a year or more. Advocates for this approach argue that it places fewer constraints on individual liberty than the current individual mandate (which it would replace); they also argue that it would prevent the gaming that some believe is occurring in the marketplaces where individuals can under certain circumstances use special enrollment periods to enroll when they need care and drop their coverage when the need passes.
A continuous coverage requirement would work for some people—those who are already covered and who can afford to pay premiums without hardship. But it would likely not help others. First, there would have to be an initial open enrollment period to allow those who are currently uninsured to sign up. But we all know how difficult it has been, despite repeated efforts, to educate the public as to the availability of coverage with generous subsidies through the marketplaces. Why should we expect that it would be easier to reach the uninsured with the message that they must to sign up or face pre-existing condition clauses?
Second, a continuous coverage requirement would necessitate a definition of “coverage.” How skimpy an insurance policy would an individual be able to get away with and still be considered covered? And could persons with a policy that only covered physician and hospital services with a $30,000 deductible and $100,000 cap be able to upgrade to a low-deductible, full coverage plan once they became seriously ill?
Third, a continuous coverage requirement ignores the lived reality of many low-income Americans. Families living at the margin and intermittently employed may be able to cover premiums in some months, but in others they may decide that paying the rent or buying food is a higher priority. Without generous premium assistance, many low-income Americans would no doubt have frequent, sometimes lengthy, gaps in coverage.
Finally, a continuous coverage requirement could be viewed as just another version of an individual mandate. A person who does not maintain continuous coverage is forced to pay a penalty — in this case a surcharge on insurance premiums. This penalty would operate capriciously, however. Healthy people would face no penalty as long as they remained healthy, even if uninsured. Unhealthy people who had remained uninsured could face a prohibitive cost when they tried to get covered. Indeed, uncovered persons who sought coverage once they incurred medical costs could face a much higher penalty than the current individual mandate penalty.
Gail Wilensky (at 3:42) and others have pointed to Medicare’s structure as evidence that the ACA’s individual mandate may be unnecessary. When people turn 65 or lose their employer coverage, they must sign up for the voluntary Medicare Parts B and D in a fixed open enrollment period or, if and when they do enroll, pay a penalty in perpetuity for each month they delay. This is a reasonable argument; as mentioned, such a structure might be perceived as less coercive than the mandate and remove the incentive to delay purchasing coverage until one’s health deteriorates. However, the marketplace-eligible population is poorer, harder to reach, and less risk averse than seniors, and many marketplace-eligible people could miss the open enrollment period and then be locked out from enrolling later by the penalty — although Wilensky notes that the Marketplace penalty need not be permanent, as Medicare’s penalty is.
The second approach to dealing with health-risk disparities is high-risk pools. High-risk pools offer coverage to individuals who are not insurable in the standard coverage market because of health issues. High-risk pools could be an alternative to a continuous coverage requirement or could operate in tandem with it, offering coverage to those who had failed to satisfy the continuous coverage requirement.
We have a lot of experience with high-risk pools, which have operated many states for decades. The federal government also operated a pre-existing condition high-risk pool between 2010 and 2013 to offer a bridge to coverage under the 2014 market reforms.
Experience with high-risk pools has not been encouraging. Although two thirds of the states offered high-risk pools before the ACA, fewer than 200,000 individuals, about 5 percent of the eligible uninsured, enrolled in coverage. Coverage was generally skimpy with high deductibles and low annual dollar limits. Premiums were high, and pre-existing conditions were often excluded. Risk pools were chronically underfunded and in some cases had enrollment caps and wait lists.
The first question a risk-pool program would have to face is who would qualify for risk-pool coverage. Would anyone with a pre-existing condition? Only those refused coverage? Or all those facing a premium mark up of a certain amount or exclusion of a condition? The federal pre-existing condition high-risk pool required that applicants be uninsured for at least 6 months, which excluded individuals who had continued to cling to existing coverage despite very high premiums.
A second question is how comprehensive or limited the coverage offered by high-risk pools would be, and how high premiums would be. Would the program offer only catastrophic coverage, or some kind of basic coverage, or would it offer coverage similar to that offered by most employers? Would the premiums be subsidized for low-income individuals, and would they be set at standard rates or even at some higher rate, recognizing the higher costs of the population?
The most important question would be who would pay for the high-risk pools. Some Republican proposals offer $25 billion a year, yet the Commonwealth Fund estimates that the cost of covering all uninsured Americans with chronic illnesses would be $178 billion a year. If Congress offers capped subsidies to the states for high-risk pools, would the states actually fill the gap between the amount needed and the amount offered? Past experience says no.
Finally, what advantages does a high-risk pool offer over using the same funds to reinsure insurers that offer coverage to high-risk individuals in the general individual health insurance market? Offering reinsurance (an approach used for Medicare Part D and during the first three years of ACA marketplace coverage for catastrophic claims) avoids segregating high-cost individuals and obviates the need for special eligibility standards or screening procedures. It could encourage continuity of care and coverage, and lower premiums generally since insurers would not have to add a risk premium to cover low-risk individuals who become high-cost enrollees on their watch. The only advantage that a high-risk pool offers over reinsurance is that it makes the subsidies that government, and in particular the federal government, would pay for covering the high-risk population completely transparent.
ACA replacement proposals offer a broader range of alternatives for addressing the problem of affordability of health insurance and health care for lower-income Americans. To begin, many of them would continue to offer subsidies through the tax system. These could take the form of either tax deductions or tax credits. They could be adjusted for age and geography, even for health status if health status underwriting were reinstated. Some proposals would retain some level of means testing.
The value of tax deductions depends, of course, on marginal tax rates. Income tax deductions are of no value to people whose income is below the filing limit and of little value to individuals in the 10 or 15 percent brackets, who collectively account for 90 percent of the uninsured. Deductions are most valuable to those with taxable incomes in the half million dollar range, hardly those most in need of federal subsidies. Allowing a deduction from Social Security and Medicare taxes would offer marginally greater assistance to low-income taxpayers, but would undermine the funding sources for those programs.
A fixed dollar tax credit could be an important adjunct to the ACA’s means-tested tax credits. Although the ACA’s means-tested tax credits have made coverage more affordable for millions of Americans, they also have limitations. Many middle-income taxpayers who receive little or no assistance from the ACA tax credits are struggling with the high-cost of coverage in the individual market. Fixed-dollar tax credits are far easier to administer than means-tested tax credits and do not need to be repaid if income estimates are inaccurate. Means-tested tax credits disincentivize efforts to increase earnings, as they shrink dramatically as incomes rise. Fixed-dollar tax credits would remain the same as income increases, or would phase out at much higher levels.
Some fixed-dollar tax credit proposals would expand their reach beyond the individual insurance market, using them to replace the current exclusions for employer-sponsored coverage. Most Americans currently receive health care coverage through their job and employer-based coverage is nearly universal for large employers. The current tax subsidy for employer coverage is widely condemned by commentators across the political spectrum as inefficient and inequitable. It is, however, the biggest and most widely used tax subsidy, amounting to $300 billion in 2016; if it were repealed, it could, depending on the level of tax credit that replaced it, result in a massive middle class tax increase. If the new tax credit were significantly less generous than the current exclusion, it could significantly raise the cost of health coverage for some employers or employees and result in widespread loss of coverage.
Fixed-dollar tax credits would have important distributional effects that would depend on how they were set. Under a simple fixed-dollar tax credit, young people would be better off, older people worse off. Fixed-dollar tax credits would also result in winners and losers depending on geographic location as premiums vary significantly across the country.
A change from the current ACA means-tested subsidies to fixed-dollar tax credits, however, would most dramatically affect lower-income Americans, who have benefited most from the ACA. Fixed-dollar tax credits that could be universally available and could fully cover the cost of first-dollar health insurance coverage, comparable to the coverage now offered to Medicaid beneficiaries or even to the low-cost-sharing coverage available to millions of low-income Americans under the ACA, would cost far more than current programs and are simply unimaginable. But Americans currently receiving Medicaid or cost-sharing reductions lack the resources they would need to supplement less generous universal fixed-dollar tax credits to buy coverage at their current levels.
Low-income Americans might, of course, be able to buy catastrophic coverage with their tax credits—assuming that some level of catastrophic coverage was available for persons of their age, gender, and health status cost. Some proposals would even auto-enroll uninsured individuals in catastrophic coverage. But high-deductible, catastrophic coverage is worthless to an individual who cannot afford high cost-sharing obligations.
Health Savings Accounts
The solution that most replacement plans offer for covering cost-sharing obligations—indeed a mechanism replacement plans offer for a range of health system ills—is the health savings account (HSA). Since 2003, Americans have been able to invest money tax free in HSAs, which can accumulate interest or investment income tax free; users can withdraw money from the account tax free to cover medical expenses. Under current law, an HSA must be coupled with a health plan that has a high deductible (in 2017, $1,300 for an individual, $2,600 for a family) and an out-of-pocket limit not exceeding a certain limit (in 2017, $6,550 for an individual and $13,100 for a family). Money from the account can be withdrawn for any purpose once the account-holder reaches 65 years of age, but prior to that time withdrawals other than for paying medical expenses are subject to a 20 percent excise tax.
Replacement proposals would generally increase the amount that could be deposited in HSAs, make them available for more government programs, and otherwise liberalize program requirements. Some would even offer tax credits to partially fund HSAs. Supporters of HSAs argue that they reduce health care expenditures: When people spend money from HSAs they are effectively spending their own money rather than an insurer’s money; they will spend less and shop around to find lower-cost, and perhaps higher-quality, care.
There is considerable evidence that people with high-deductible health plans spend less. It is less clear that they spend their money wisely. People enrolled in consumer-driven plans may be skimping on necessary as well as unnecessary care. Price and quality information, moreover, are in short supply, and it may often not be possible to know the total cost of complex procedures in advance.
HSAs are a great investment vehicle for higher-income Americans. No other tax-subsidized savings vehicle allows individuals to claim a deduction for money they invest, avoid taxes on the investment’s income, and not be taxed on withdrawals from the account, as long as the withdrawals are for medical expenses. Not surprisingly, households with incomes over $100,000 account for 70 percent of HSA contributions. HSAs have no value, however, for Americans who have no excess income to save absent a mechanism such as tax credits to fund them at levels that would cover cost-sharing obligations under a catastrophic policy.
It should also be noted that setting up a system, presumably through the Internal Revenue Service, to assess eligibility for and distribute tax credits for paying insurance premiums and funding HSAs would take time and resources; it would result in a bureaucracy rivaling in size and complexity of that which currently determines eligibility for and distributes advance premium tax credits and cost-sharing reduction payments under the ACA. It would be difficult or impossible to have such a structure in place within the time frames contemplated by repeal and replace proposals now being considered.
Loosening Benefit Requirements
A common complaint about the ACA is that the essential health benefits package is too expensive and requires individuals to pay for coverage they do not need or want. However, most of the essential health benefits were covered in the individual market before the ACA was adopted. A few services were less commonly covered, including maternity coverage and mental health and substance use disorder services.
Eliminating coverage for maternity and mental health and substance abuse services could certainly make coverage less expensive. And it is sometimes argued that men or women who are not of childbearing age should not have to pay for maternity services. All of us, however, were born at some point in our lives and virtually all of us have some experience with mental illness or substance use in people who are close to us. Most replacement proposals will need some definition of a minimum benefit package that can qualify for tax subsidies and qualify as health insurance, and a serious discussion is needed as to what current essential health benefits can be eliminated and still leave adequate coverage.
Similarly, serious consideration should be given before bringing back mini-med policies with low actuarial value or coverage limits. While plans could be offered with higher deductibles and lower premiums than those permitted by the ACA, complaints that cost-sharing is too high under the ACA are far more common than complaints that cost sharing is too low. Higher out-of-pocket limits or annual and lifetime limits on coverage could primarily have the effect of shifting costs back to providers that provide high-cost care, or simply denying care once coverage expired.
Liberalizing Age Bands
It is widely believed that the 1:3 age ratios (under which older people cannot be charged more than three times the premium charged to younger people) found in the ACA are not actuarially accurate, and that ratios of 1:5 would be more appropriate. In fact, the most actuarially fair ratios would be gender specific, as younger women cost more than younger men and older women less than older men, but there are few complaints about the gender rating equity introduced by the ACA.
Increasing the age ratio to 1:5 might encourage more risk-averse younger people to sign up for coverage, but it would also cost older enrollees more than it would save younger enrollees. Moreover, since younger people tend to have lower incomes and are more likely to be covered by their parents’ policies or Medicaid or to receive generous premium tax credits under the ACA, the increased cost imposed on older enrollees would be far more visible than the reduced premiums experienced by younger people.
Association Health Plans
Association health plans remain legal under the ACA but have lost much of their luster because they are limited in their ability to discriminate based on health status. Their supporters argue that they allow individuals to band together to bargain for lower rates from insurers, but the ACA marketplaces generally offer insurers much larger pools of enrollees. In fact, to the extent that association health plans can offer lower rates, it may be because they can cherry pick their enrollees and avoid covering high-cost individuals, rather than because they can purchase coverage less expensively.
Medical Liability Changes
Medical malpractice reform is a hardy perennial of Republican health policy. It is hard to argue that our medical liability laws could not be improved — despite the fact that medical malpractice premiums are high for some specialties in some areas, it is very difficult for a victim of medical negligence to recover unless the damages are extraordinary. But study after study has shown that medical malpractice, including defensive medicine, accounts for a small percentage of health care costs.
Interstate Insurance Sales
Finally, there is the sale of health insurance across state lines. It is argued that allowing interstate insurance sales will introduce greater competition into insurance markets, bringing down prices. In fact, any insurer can currently sell insurance in any state in which it is licensed, and many insurers are licensed in more than one state. A number of states already allow insurers from other states to sell health insurance in their states. Indeed, the ACA allows interstate sales of insurance with appropriate consumer protections.
Insurers, however, have shown no interest in selling across state lines where it is permitted because health insurance products are almost exclusively network based, and forming and maintaining a network in a state requires a domestic presence. It is conceivable that cheap indemnity products could be sold nationally, but consumers who bought such products would likely lack the protection currently provided by state insurance regulators if problems developed, as would almost certainly be the case. Products sold across state lines would also likely be medically underwritten, which would reduce the cost of coverage for healthy individuals but increase the cost of coverage for individuals with health problems, who would be left behind in domestic insurance markets.
The widespread sale of insurance across state lines would undermine state regulation, including state benefit mandates. As noted earlier, repeal advocates will have to decide if any minimum standards for health insurance are appropriate. But they must recognize that a federal law permitting the sale of insurance across state lines effectively preempts state regulation of health insurance and, if federal regulatory requirements are repealed as well, effectively leaves health insurance unregulated.
Medicaid And Medicare Reform
Replacement proposals would change the Medicaid program from a federal entitlement program to a program in which the states receive block grants or capped per-capita payments, and would give the states much more discretion as to whom they want to cover and how to do it. Some replacement plans would also transform Medicare from an entitlement program to a voucher program.
Changes to the Medicaid and Medicare programs are beyond the scope of this post; their proponents argue they would introduce more competition, flexibility, and innovation into the two programs, but they could have the same effect as some of the changes discussed in this post: removing protections offered to enrollees under federal law and potentially moving costs from the federal to state governments, and from the government and insurers to individuals and providers.
The ACA has made many Americans better off, and can boast of important achievements. In particular, it has ensured that Americans cannot be denied coverage or have their coverage limited because of health problems. Millions of lower-income Americans are receiving health coverage through Medicaid and the marketplaces who would otherwise be unable to afford coverage. But many still face unaffordable cost-sharing burdens and narrow networks, and many middle-income individuals can no longer afford coverage in the individual market.
While there are real opportunities for the new administration and Congress to improve the ACA, it is essential that they not precipitously undo its achievements. Repeal must await a clear plan for replacement. And the timing of repeal must take into account not only the time it takes to adopt replacement legislation but also the time it takes to write the rules, formulate guidance, and create and staff programs to administer a replacement program. If there is anything we have learned from the last six years, it is that implementation is hard work and takes time.
Careful and objective analysis must be given to replacement proposals and their effects. Many of these are not new but rather resurrect policy initiatives of the past that proved problematic in important respects. They have track records that can be studied. The effects of other proposed provisions can be modeled.
What preliminary analysis of Republican replacement proposals shows is quite clear: they would provide considerably less help for lower-income Americans and people with health problems, and could mean increased costs for these groups. They might at the same time lower costs and provide more assistance for middle- and higher-income Americans. They would shift costs from the federal government to the states. They would shift costs from the government to individuals and families, and to providers. They would make health care less accessible and less affordable to those who have been helped by the ACA, but might make it more affordable to some whom the ACA has not helped.
Elections have consequences, and, arguably, to the victors go the spoils. But transparency is important; no one should be under any illusion that an ACA replacement will make everyone better off — it could cause serious harm and disruption to some who were helped most by the ACA. If Congress and the administration are to embrace this harm and disruption, it is vitally important that the American people understand the consequences.