Where Both the ACA and AHCA Fall Short, and What the Health Insurance Market Really Needs
By David Blumenthal and Sara Collins
Harvard Business Review, March 21, 2017
To understand the ongoing battles about the individual, or non-group, markets and their reform, three points should be kept in mind.
First, these insurance markets were distressed before the enactment of the Affordable Care Act. Second, the ACA improved their functioning but was not sufficient as passed and implemented to stabilize all of them. Neither, however, is the American Health Care Act (AHCA), the repeal and replacement legislation proposed by House Republicans and embraced by President Trump. Third, the reforms that will improve individual markets, which we discuss below, are known. They include greater balance between premium subsidies and penalties for not taking up coverage, using proven mechanisms for stabilizing risks such as reinsurance, and accelerating efforts to control the costs of health care services. To date, the United States has just lacked the political will to adopt them.
What to do
There is no great mystery about how to shore up private insurance markets.
First, we need to create balanced risk pools that include both healthy and less healthy persons in individual insurance markets. This will require two types of actions. Subsidies for young healthy consumers must be increased without decreasing those for older Americans so that so-called young invincibles find the prices of insurance less off-putting but the neediest customers in individual markets can still afford to participate.
However, reducing financial barriers for good risks will not suffice. Unlike many other purchases in our lives, buying insurance is difficult, confusing, and provides little short-term gratification; so healthy young people will always tend to avoid it. That is why creating healthy risk pools for individual markets will require something like the individual mandate that has been so unpopular with conservatives. Unless consumers are required to purchase insurance — or face a meaningful penalty — individual markets may not function effectively over the long term. By meaningful, we mean a financial penalty that equals or exceeds the cost of buying insurance in the first place.
Second, we need to extend subsidies higher up the income scale than the ACA’s limit of 400% of the federal poverty level. This will enable more non-poor individuals — who tend to have lesser disease burdens — to purchase insurance. Unfortunately, health insurance has become so expensive in the United States that even many middle-income families cannot afford to purchase it without the kind of assistance that employers routinely offer their employees.
Third, if we want private insurers to participate in ensuring that Americans have access to affordable insurance, the business of selling this product must be viable. This means managing the inherent uncertainties associated with selling insurance in comparatively unpredictable individual markets. The most effective approaches — used in the Medicare private drug-insurance market without controversy — are reinsurance and risk corridors. The first of these means assuring that reinsurance is available and affordable for plans selling individual and small group products. Risk corridors protect plans that accumulate unexpectedly high risks by giving them access to funds collected from insurers that experience unexpectedly low risks.
Fourth, and perhaps most important, public and private stakeholders must accelerate efforts to control the costs of health care services, which are the primary determinants of the cost of health insurance in all markets, including employer-sponsored, individual, and public. One reason that other countries find it easier to insure their entire populations is that their costs of care are half or less what ours are.
The key to controlling health care costs in the United States is to implement aggressively the payment and delivery-system reforms that were included in the Affordable Care Act but rarely discussed in current debates.
The facts are clear. We can revive individual markets that were failing even before the ACA was enacted and are vital to making affordable care available to Americans. But we will have to pay for that revival — politically and fiscally.
David Blumenthal, M.D., is president of the Commonwealth Fund. Sara Collins is the Commonwealth Fund’s vice president for health care coverage and access.
By Don McCanne, M.D.
It is quite appropriate that this article was published in the Harvard Business Review since it finds solutions to the deficiencies of both the Affordable Care Act (ACA) and the proposed American Health Care Act (AHCA) in the private health care insurance marketplace. The authors’ proposals are to use government regulations and funds to create a robust market for private insurance plans – an approach that Harvard MBAs understand and support.
They would make the individual mandate more effective by penalizing nonparticipants with a penalty equal to or larger than the insurance premiums. Forcing individuals to buy plans with excessive deductibles and inadequate provider networks is a cruel policy.
They would increase subsidies for middle-income individuals but that would still push individuals into low-actuarial value plans, not solving the problems of impaired access due to narrow networks and unaffordable out-of-pocket costs.
They would relieve insurers of bearing risk through the use of reinsurance and risk corridors. Insurers would be reduced to providing a profusion of expensive administrative functions, while being protected against the usual insurance function of bearing risk, allowing their actuaries to concentrate on profits instead of risk.
They would more aggressively control health care costs but do so through the payment and delivery-system reforms of ACA which have already proven to be quite ineffective. They acknowledge that other countries insure everyone at costs of care that are “half or less what ours are.”
Well how do those other nations include everyone and pay an average of half of what we do? Certainly not by embellishing the private insurance markets and throwing a bunch of government money at them. Yes, some countries do use private insurance but they are so heavily regulated that they qualify as social insurance programs. The governments require that the financing system serves first the needs of patients whereas we structure ours to serve first the needs of insurers while leaving patients exposed to financial hardship and impaired access.
Today we are at a decision point between ACA and AHCA. Absent any last minute back-door deals, the likely outcome will be the defeat of AHCA, and president Trump will walk, leaving ACA in place with little hope for even the very modest changes suggested by Commonwealth’s Blumenthal and Collins. And if it should pass in both the House and the Senate, an unlikely outcome, we will be even worse off than we are.
Instead of a debate between ACA and AHCA, the debate should have been between ACA/AHCA and an improved Medicare for all. We can still have that debate by continuing to educate the public on the deficiencies of ACA and the virtues of single payer Medicare for all, but we will have to make our presence felt lest we get lost in the next agenda item that the Republicans really want – altering the tax system to shift more income and wealth from the workers to the wealthy. That will really be bad for the physical and fiscal health of our nation and its people.