The ACA: What Now?

Folks from all over have asked me my thoughts on healthcare in America and how to fix it. As President Trump acknowledged recently, "it is complicated." Not one individual I know of has all, or even most, the answers. I am going to offer some observations and what I would look to do building off of my article from November 2016.  

First, we must all acknowledge that the ACA is a massive law and transformed healthcare. I am choosing to focus on the insurance aspects of the ACA. However, it is equally critical to focus on Medicaid and Medicare in my mind, I will save that for another article.   

The ACA insurance provisions primarily reformed the individual and small group insurance markets. Individuals must purchase minimum essential coverage or pay a penalty. There are a number of exemptions from the individual mandate such as religious exemptions and affordability exemptions. Large employers are forced to offer affordable minimum essential coverage (bronze level with a 60% actuarial value) or face a penalty, but much of the insurance reforms do not touch the large group market. Small group employers, however, are not required to offer affordable coverage, but the plan designs they offer are similar to the individual plans and the market reforms of the ACA.    The ACA did not do much to change behavior, costs or transparency. It is primarily insurance reform, not really healthcare reform. 

 The individual insurance market was challenging prior to the ACA. The employer market, even the small group market, historically has performed better. To many observers, the ACA is not working as well as it should in many states. In a move to offer predictability the Secretary of HHS recently issued guidance to continue "transitional" policies through 12/31/18. However, the AHCA (or whatever comes after this version) has a two year transition period and takes effect 1/1/20. Therefore, these people may be forced into an ACA market with only one year left. That does not make much sense to me.  

Creating a sustainable individual health insurance market is no small feat. The ACA mandates a tremendous amount for health insurers to comply with. People often quote that the ACA is nearly 3,000 pages in length. However, when added together, all the regulations, letters to issuers, FAQ’s and guidance, I suspect there is nearly 30,000 pages of regulatory requirements and guidance placed upon insurers and an overburdened health care system. This demonstrates the incredible maze the ACA established and illustrates how difficult unwinding will be in practice. 

 The goal of affordable health coverage for all is admirable and an important goal for a civilized society. In Iowa, we have a higher rate of health coverage today than prior to the ACA. This is primarily through the expansion of Medicaid. In fact, fewer Iowans purchase their own individual insurance today than prior to enactment of the ACA. Very few families can afford the current premiums and deductibles of ACA compliant plans without the advanced premium tax credits and cost sharing reduction. Affordability is a huge issue in Iowa. In fact, I just learned from someone recently that his family went uninsured in 2017 after he did a cost benefit analysis. To date, the family has had a doctor visit is all.  

I suspected families in Iowa would face rate shock. In fact, during my confirmation hearing in early 2013, I discussed the rate shock coming for Iowans who would not receive affordability tax credits. The 125,000 Iowans who purchase their own insurance, and are above the 400% FPL, have faced crushing increases under ACA compliant plans. These Iowans and Americans do not receive any tax credit assistance in purchasing their health insurance. If plans cannot become more affordable, the market will crater no matter what occurs. 

The ACA did not change the fundamentals of insurance. Insurance is a business that is subject to moral hazard and adverse selection. In essence, those that need the health coverage will buy it and use it, likely causing premiums to increase greatly. Other healthier people may conclude they don’t need coverage and opt out of purchasing it (like the family I just mentioned). In Iowa, the ACA compliant plans are seeing this phenomenon first hand. A small group of high utilization consumers drive a significant percentage of the increase. This is intuitive because the ACA plans have no annual limits or lifetime limits. With no annual or lifetime limits, a health plan may be subjected to catastrophic claims that seriously impair the balance sheet. We are seeing a market where a handful of claims can literally cause a solvency issue. In fact, Wellmark had one claim costing 12 million dollars a year in 2016. This claim could financially impair a smaller carrier.   

Taking the highest risk claims and shifting them to a high-risk pool or funding a full risk corridor is essential to assuring predictability and a credible risk pool. By shifting to a high-risk pool or funded risk corridor this becomes more of a societal cost. Another thing to review would be to look at a reinsurance pool for the highest cost claims. The individual market will not function well without containing these high cost claims. In testimony before the U.S. Senate, I discussed my views on high-risk pools in 2016.

 Building a credible and predictable individual risk pool is critical to offering a sustainable private health insurance plan. To obtain that goal many things must be considered. I feel it makes sense to push as much as possible to the states to address many of these issues. Each state can look at and determine with ease the following: 

•  Move the age band from 3:1 to 5:1;
•  Define the essential health benefits or a benchmark plan;
•  Install a continuous coverage requirement in lieu of mandate;
•  Enforce special enrollment periods at state level;
•  Shorten grace periods;
•  Review and regulate provider network adequacy;
•  Eliminate the metal tiers; and
•  Bring back innovation and focus on ways to attract better risk. (Some of this is actually in the draft of the AHCA.)

In many states, the individual ACA marketplace is looking shockingly similar to a high-risk pool or Medicaid population. Without moving to address the underlying costs that are driving up premiums and having adequate focus to deal with the most chronic and high utilization patients, the individual health insurance market will continue to not work well and premiums will increase even greater.

While the ACA is not working well in many states, repealing without a replacement will cause incredible chaos. I am not sure how many carriers will even desire to remain in the individual market during the transitional period. If consumers believe a better deal and affordable prices are coming in one or two years, many people will opt out of buying coverage (rampant adverse selection is possible here). If I were an insurance carrier CEO, it would be hard to imagine a scenario where I would stay in the market during the transitional period unless there was meaningful federal reinsurance or a fully funded risk corridor. I simply would not risk the company balance sheet and reserves. Therefore, I believe we need to work on how to maintain access to insurers. Looking at association plans and other solutions may prove critical during the transition period. Senator Rand Paul (KY) spoke about Farm Bureau plans. In full disclosure, I work at a Farm Bureau company now, but in reviewing that health plan it worked well for decades and offered strong coverage for members all over rural Iowa. I applaud people looking at solutions that worked and seeing if there is applicability today.  Any new plan should consider the issues facing rural America as well as other constituents. 

The employer markets appear to be functioning reasonably well in most states. However, to be clear, the reason for that is because the employer contribution to the payment of premiums helps eliminate moral hazard and adverse selection. The cost of employer-subsidized insurance is considerably less than it is for an individual. In addition, the employee gets to make this payment pre-tax. Therefore, costing even less. Another factor for the employer market being less impacted by moral hazard and adverse selection is the mere fact that one can apply for a job, show up for work and stay employed, which helps drive down moral hazard and adverse selection. This is due to the fact that even without underwritten health policies, the fact one can hold down a job is indicative of overall better health status in my mind.  

Things to focus on: (certainly not an exhaustive list)

1.  The cost of health care. The fundamental premise of the ACA was more about providing access to coverage, much less on actually controlling costs. Insurance is easily demonized, but it is simply a financing mechanism. If we do not address costs in the system we are doomed. We need to radically improve overall health status and address what things cost when seeking care from doctors and hospitals. Looking at how to drive better transparency in the health care marketplace is needed. New Hampshire has a tool available to citizens that tries to do this. Visit https://nhhealthcost.nh.gov/ to view the work they have done there. Why not look at a national tool leveraging what New Hampshire is doing? CMS currently provides data on costs via its website for Medicare patients, so the beginning of this tool is in place.   If you look at just the cost of an MRI across the nation and the variances of that simple test, it is amazing to see how different the costs are. I am a huge fan of health savings accounts, but to say the consumer can “be in charge” in a non-transparent market is virtually impossible. Combining those accounts with meaningful data on costs and outcomes would be a big step. I acknowledge for certain procedures and treatments (i.e., cancer) it will be very difficult to have transparent costs posted, but for many tests and treatments that most Americans utilize, it is possible. As part of cost transparency, I would initially focus on prescription drugs. Consumers and many health insurers are largely unsure of the costs. Why is it that the epi-pen, insulin and other products that have been around for years are so expensive? I would start asking lots of questions around this. Why is Sivaldi approaching $100,000.00 a year? If I were a Sivaldi patient in Europe or Canada what would I pay? We need more competition for pharmaceuticals, and possibly review patent laws that will allow for greater market competition.  
2.  Focus on value-based reimbursement. The move to value-based reimbursement is a good policy that needs to continue. Allowing physicians and hospitals to be rewarded for keeping us well, healthy, and out of the hospital is good. Along with that, having the ability to evaluate outcomes at different hospitals is essential for consumers. We must be able to assess the value we receive from those providing the care. If we really want to have a market where people are in charge this is important. 
3.  Human Error Factor Analysis (Safety Systems). Medical errors injure and kill hundreds of thousands of Americans each year. The provider community does not share this information to the public because these errors are often unreported. It also drives a lot of costs in the system. We need a national mandated standard to deal with this issue. One can look at the commercial airline industry as an example here. In the 1950s when that industry was in its infancy the industry came to agreement and created an error reporting system that is immune from legal discovery, creating a culture that supported people reporting anonymously errors of any size. This resulted in an industry that provides the safest mode of transportation in the U.S. Health care needs to undertake the same type of efforts.

 4.    Predictability. Insurance companies hate not having predictable business and   risk management conditions. While insurance companies are comfortable managing unknown risks, it is a different matter to be comfortable with managing both unknown risks and government risks. Repealing and delaying will lead to insurers rethinking business plans and leaving the market. Why would an insurer participate in the market knowing a new market will emerge and not know what that looks like? Therefore, opening up transitional plans and grandfather plans could continue to at least allow consumers choice. It will be imperative to offer predictability to carriers as they are planning on 2018 rate-filings now. CMS recently promulgated a rule effectively disallowing short-term medical plans. While the rule is not an outright ban, it only allows plans to go for three months. A non-enforcement of this rule or a statute overruling this rule would be helpful, as it would allow for another product opportunity for consumers during the transitional phase. My colleagues at the National Association of Insurance Commissioners advised CMS that this rule was not a good thing for our consumers across the nation. 

5. Abandon actuarial values, metal tiers and essential health benefits. I would push all of these issues to the states. States could set up a benchmark plan that complies with state mandates. Under current actuarial value rules and metal tiers, there are respective donut holes within that system. In addition, outlining prescriptive essential health benefits that all plans must maintain makes little sense to me. Allow companies to innovate and come up with plans that make sense for the markets they operate in. This needs to be led at the state level.  Each states knows its market the best. 

6. Push health care to the state. In Iowa, we implemented a Medicaid plan that was specific to Iowa. It was showing some promising results. States can innovate and will. Get CMS out of rate reviews, and all the unnecessary duplication they undertake. States will do a better job overseeing their markets and should be given the opportunity. I read a lot about selling across state lines as a solution. However, that poses problems from a regulatory oversight perspective. It also will do little to drive competition and costs down. A company can sell coverage in any state they want if they get licensed in that state. Health insurance is a unique product. Even if they sell across state lines, each carrier needs to have a network of doctors for that insurance to be meaningful. Also, some states have mandates and those would have to be preempted. 

The challenges facing health care in America are immense and there are no easy answers. The ACA is in a challenging position in many states.  Premiums are increasing by large percentages, deductibles are incredibly high for most Americans, and coverage being offered is becoming more and more narrow network plans. While the ACA is not working by most objective standards, it is incredibly complex to unwind. Without careful redesign and implementation timing, health care in America could easily become worse for many Americans. 

Pushing many of these issues to a state level is a good start.  States are the incubator of innovation and they would continue that tradition in health care if given the opportunity. Ensuring an orderly transition will be difficult by any measure. Pushing health care to the states and allowing them to effectively regulate their insurance markets is the best course of action.  The state could then decide how to address issues during transition and beyond. 

We need to get to the point where health care is a true market for consumers. Transparency, as noted above, is extremely important to obtain a legitimate health care marketplace where consumers could arguably be in charge and health savings accounts reach their potential. Without a move toward that we will not achieve a health care marketplace that functions like any other market consumers enjoy and value in our country.  I have lived this first hand the last year.  Our family has had to experience some health procedures that were incredibly expensive.  (I will be working on a more detailed analysis of this based on my experience for anyone interested.)

Repealing and replacing the ACA is a gargantuan undertaking. I believe that the plans out there right now will face difficulty in halting the significant rate increases in the individual insurance market.  For that to happen, we need transformational improvement of health status, an improvement of the risk pools, consumers to have more say in how their health care dollars are spent, a focus on medical errors and outcomes, a move to value based reimbursement, meaningful dialogue on end-of-life care, significant review of prescription drugs and pricing, improve interoperability of medical records, price transparency, and finally a mechanism to deal with most expensive chronic claims. This list demonstrates how difficult addressing health insurance premiums and costs will be. The ACA did not make health insurance premiums more affordable. 

In my view, the likelihood of a rewrite or replacement bringing costs down without systemic changes to the health care economy is likely not possible. Health insurance is an incredibly personal product that may actually lead to life and death issues. Ensuring a smooth and orderly transition to a new program is critical.