Three Ways to Fix Obamacare

https://www.newyorker.com/news/john-cassidy/three-ways-to-fix-obamacare

New Yorker

John Cassidy

Three Ways to Fix Obamacare

Oct 26 2016

In some ways, the Affordable Care Act is working as planned. But serious problems remain

It has long been clear that many of the health-insurance companies offering policies through the public exchanges set up under the Affordable Care Act of 2010 were losing money. Some big operators, including Aetna, Humana, and United Health Care, have withdrawn from a number of the exchanges, and those insurers that remain have been indicating their intention to raise prices sharply for 2017. "The reality is the Affordable Care Act is no longer affordable," Mark Dayton, the Democratic governor of Minnesota, said earlier this month. So it shouldn’t have come as a surprise when the Obama Administration this week formally acknowledged that prices will go up for plans purchased on the exchanges.

But this is an election season, and Donald Trump and other Republicans used Monday's news as an opportunity to denounce Obamacare as a hopeless failure. "It is blowing up,” Trump told Fox News. “It is out of control. It can't be saved." As usual, the G.O.P. candidate was exaggerating greatly.

In some ways, the Affordable Care Act is working as planned. Figures from the Census Bureau show that between the start of 2014, when the major provisions of the law went into effect, and the end of 2015, the percentage of Americans without insurance fell from 14.2 per cent to 9.1 per cent. That drop of 5.1 percentage points is the largest on record. Among groups that the Affordable Care Act particularly targeted, such as poor families and non-elderly adults, the numbers have been even more dramatic.

Since the Affordable Care Act’s expansion of Medicaid, the government insurance program that serves the poor, more than fifteen million Americans have joined its rolls. If Republicans in nineteen states hadn't refused to go along with the expansion, this number would be considerably higher. Other elements of the law, such as forcing insurers to cover people with pre-?xisting conditions and allowing young people to stay on the their parents' plans until the age of twenty-six, have proved enormously popular.

The issue is the publicly-run exchanges, where people who don’t receive health insurance through their jobs can buy plans on an individual basis. Even here, it isn't all bad news. The exchanges will have about ten million people enrolled on them at the end of this year, according to government estimates, and officials expect enrollment to increase by about nine per cent next year. For individuals and families who qualify for subsidies, the federal government will cover at least part of the rise in premiums for 2017. "Obama administration officials said three-fourths of consumers would still be able to find plans for less than $100 a month with the help of federal subsidies," the Times reported.

Still, real problems exist. For people who don't qualify for subsidies, the costs of buying insurance through the exchanges can be very high. Take a family of four living in Brooklyn and making a hundred thousand dollars a year. Since their income is more than four times the federal poverty threshold, they wouldn't qualify for any subsidies. On healthpocket.com, a Web site that lists the insurance policies offered on the New York state exchange (and others), the cheapest “silver”—that is, mid-level—2017 family plan I could find for such a family was from EmblemHealth, and it cost $1,432.78 a month, or $17,193.36 for the year. The family deductible was $11,600, as was the out-of-pocket maximum.

Figures like these are disturbing. Until policy-holders have covered their deductibles, they have to pay for the full cost of most of the medical services they receive. “I can’t afford to get sick after paying for the health insurance,” Laura Schlett, a forty-four-year-old woman from Brandon, Mississippi, told the Times’s Robert Pear this week. Many people feel the same way.

So, what can be done? Despite their bluster, Trump and the Republicans don’t really have a plan to fix Obamacare. They want to repeal it and rely on the market. A recent analysis by experts at the RAND Corporation showed where the Trump strategy could lead: by 2018, it estimated, about twenty million fewer Americans would have health coverage, and people buying policies in the individual insurance market would face higher out-of-pocket costs, on average.

Setting this non-option aside, there are numerous possible ways to proceed. In a piece for the Wall Street Journal a while back, the economist Robert Litan discussed four of them. Drawing partly on Litan’s analysis, I will confine myself to three:

1. Patch things up: Since affordability is a big issue, the federal government could spend more money to bring down the costs that individuals and families face. This could be done directly by raising the level of subsidies available for plans purchased on the exchanges, or raising the income thresholds at which the subsidies phase out—or both. Alternatively, the government could offer more generous subsidies to insurance companies, particularly those serving high-risk populations, in which case they wouldn't have to raise prices as much, or impose such large deductibles.

[a. Don’t DO THIS - Increasing Subsidies until Competitive Bidding is required by Law for durable Goods and Pharmaceutical Products.VM Competitive bidding could save the government at least $50 billion over the next decade, which could be used to increase premium support for older Obamacare enrollees. S. Brill

b. Taking just 15 percent off the price of prescription drugs would produce more than $600 billion in health-care savings over the next decade, which would lower private premiums while saving taxpayers billions on Medicare costs. S. Brill]

1 c. Tort Reform must be enacted. If tort reform shaved just half of one percent off of health-care costs, that would yield close to $200 billion over a decade. S. Brill

1 d. The savings can be equally substantial if not more if the Principles of Choosing Wisely must be universally adopted by Health care entities Physicians, Physician Assistants and Advanced Practice Nurses, Chiropractors and Pharmacists VM

1 e. Adjusting subsidies to make HC costs affordable is plain dumb because current costs are unsustainable. Therefore simultaneous changes must be instituted that significantly increases efficiencies in delivering care, and maintaining competitive systems of care by intervening in hospital mergers and efforts to buy up practices by hospital and other entities to control markets in ways that bust the Health Care budget year after year. VM]

Lack of competition is now a big problem—according to the Obama Administration, about twenty per cent of the users of the federal exchange, HealthCare.gov, will now find only one insurer offering coverage. One way to tackle this issue would be to subsidize insurers that enter these markets.

Some of Hillary Clinton's health-care proposals fall in this category. To address the issue of excessive deductibles and out-of-pocket costs, Clinton wants to require all insurance plans to offer three doctor visits a year that don't count toward a deductible. For families whose out-of-pocket costs come to more than five per cent of their income, she would also provide a new, refundable tax credit of up to five thousand dollars.

2. Apply some force: One of the big problems that insurers are facing is that too few healthy people, and too many sick people, are signing up for the plans sold through the exchanges. For insurers, that changes everything. Faced with higher claims per enrollee than they expected, they seek to raise their prices, which makes healthy people, especially young healthy people, even less likely to sign up the following year. If unchecked, this process could lead to a spiral of rising prices and falling enrollment.

An obvious way to address this problem would be to drastically raise the fines that people face if they don't purchase insurance. Under the terms of the Affordable Care Act, getting enrolled wasn't meant to be a choice—it was a legal obligation. For political reasons, however, the penalty for flouting this "individual mandate" was set at a very low initial level, which is supposed to grow gradually. In 2015, the fines started at three hundred and twenty-five dollars per adult. This year, they started at six hundred and ninety-five dollars. (The actual figure is set by formula that takes into account a person’s income.)

Since the annual cost of an insurance plan can reach four or five thousand dollars, many individuals—particularly young and healthy ones—may well be tempted to forego insurance, accept the penalty, and hope they don’t get sick.

And actually, they may not end up paying anything. If an individual doesn’t pay the fine voluntary, the only way the government (in this case, the I.R.S., which oversees the system) can extract payment is by subtracting the amount due from a federal-income-tax refund. If the person isn’t due a refund, he or she doesn’t pay anything.

Generally speaking, private insurance markets only work well when there is a large and diversified risk pool. If we are going to rely on them to provide universal, or near-universal coverage, the individual mandate will have to be enforced. That means raising the penalties for non-compliance and enforcing them effectively.

3. The Public Option: The rising cost of health care is an issue all over the world. The way most countries have dealt with it is by enrolling the entire population, or almost all of it, in a single-payer system, and using the bargaining leverage that creates (usually coupled with administrative fiat) to keep down costs. So far, the American political system, which is highly vulnerable to capture by powerful interest groups, such as doctors, hospitals, and pharmaceutical companies, has resisted going down this route. But this may be changing.

In addition to trying to patch up the private exchanges, Clinton has proposed to expand Medicaid further, and to lower the minimum enrollment age for Medicare, the government-run insurance system for the elderly, to fifty-five.

She has also reaffirmed her support for establishing a public option—a government-run insurance plan—which would compete with private insurance plans offered through the public exchanges.

Finally, Clinton has adopted a proposal, initially put forward by Senator Bernie Sanders, to provide more federal financing for low-cost, locally-run community health-care centers.

To be sure, none of these proposals amounts to suggesting that the United States should abolish the Affordable Care Act and adopt a British or Canadian system.

Such a change would require another enormous political battle and a substantial tax hike. But in expanding Medicaid and Medicare, a Clinton Administration could begin a pincer movement around the private exchanges that would eventually see a considerably larger proportion of the population enrolled in government-run insurance programs. And in pressing for a public option on the exchanges, it would challenge the private insurers on their own turf.

Which of these approaches will be adopted? My guess is we’ll probably end up with elements of all three.