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[While some believe healthcare is not an appropriate role for the federal government, the Affordable Care Act, American Healthcare Act, Better Care Reconciliation Act, and other current and past proposals all presume, to varying degrees, an active government role for ensuring the health and general welfare of citizens. This analysis, therefore, assumes a role for the federal government in health reform without discussing the appropriateness of that role. Moreover, current reform discussions do not substantially alter Medicare, the Military Health System, or the Veterans Health Administration—each large and widely supported federal healthcare endeavors. It is, as they say, difficult to unring a bell, and many millions of Americans have come to rely on the protections offered by the Affordable Care Act and other federal laws and programs.]
The mantra of “repeal and replace” surrounding the Affordable Care Act (ACA), sometimes known as “Obamacare,” has led to two congressional plans—the American Healthcare Act (AHCA) in the U.S. House of Representatives and the Better Care Reconciliation Act of 2017 (BCRA) in the U.S. Senate. Unfortunately, neither plan hits the mark when it comes to fixing the country’s healthcare problem. The Congressional Budget Office scoring shows the most recent Senate bill leading to 22 million more Americans without insurance, and less affordable, lower quality insurance for many millions more (e.g., in 2020, silver plans would cost enrollees 74 percent more on average). The Michigan Senate Fiscal Agency warns that the BCRA would terminate the Healthy Michigan Plan (Michigan’s expansion of Medicaid) in FY2021, and could alternately cost the state around $900 million by FY2025. Michigan (and the rest of America) needs a different solution to improve healthcare.
If we are to improve healthcare in the U.S., the focus should move from “repeal and replace” to “revise and repair” with a fact-based and non-partisan approach. This begins with an honest assessment of the Affordable Care Act (ACA), absent ideology, spin, or political agenda. Because of the Affordable Care Act (which primarily sought to expand coverage and access to healthcare), the number of uninsured in America was reduced dramatically by the end of 2015. Currently, the number of uninsured in the total population is around 5.0 percent in Michigan and 8.8 percent nationally, compared with 12.4 and 15.4 percent, respectively, around the time that the ACA was passed. Additionally, prior to the ACA, 62 percent of personal bankruptcies were caused by medical debt (the ACA cut the total number of personal bankruptcies in half since 2010 and virtually eliminated bankruptcies due to medical debt).
The Affordable Care Act has improved Americans’ access to healthcare and overall health and financial security, particularly so for low-income, working families. On the other hand, the ACA underestimated pent-up demand for health services and did not completely address the various factors that increase healthcare costs (ironically missing the target on affordability). Both the AHCA and BCRA, however, will unwind the gains made by the ACA in health, access to care, and financial security without fully addressing its shortcomings.
What did the ACA do?
Medicaid Expansion was created by the Affordable Care Act and provided a means for the working poor to acquire health insurance. Expanded Medicaid has achieved its goals in the states in which it was implemented, covering millions of people at a lower cost than would be possible through private individual health plans, substantially reducing uncompensated care, and improving the health, well-being, and financial security of its beneficiaries. States that expanded Medicaid (including Michigan) have fared better financially than states that didn’t. Medicaid expansion helped remove coverage gaps, and many governors in expansion states (both Republicans and Democrats) have worked to keep the program. In Michigan, the Healthy Michigan Plan has given more than 678,000 people access to insurance and quality healthcare. The insured have lower mortality rates and greater financial security, and Medicaid expansion has demonstrated improved health and reduced mortality for the previously uninsured. Health insurance can also encourage incremental care (regular screenings, check-ups, and preventative medicine) that is more beneficial than episodic, emergency care. In many ways, Medicaid expansion has been the most successful aspect of the ACA.
On the other hand, the individual, non-group marketplace established by the Affordable Care Act could use improvement. Many insurers have lost money on non-group plans, and rates have generally increased, quite substantially in some areas, rendering the ACA’s “Affordable Care” unaffordable for many. While over 300,000 people in Michigan have benefited from the ACA’s individual market and related subsidies, plans remain costly and thus either undesirable or unaffordable for many, causing some adverse selection (meaning only the sickest individuals purchase insurance). This leads to higher average utilization and correspondingly higher premium costs—a phenomenon that the ACA’s individual mandate was intended to prevent.
Young adults aged 19-34 make up a disproportionately large share of the uninsured. Because of the high cost of insurance, coupled with a low penalty for remaining uninsured, too few young and healthy individuals have elected to purchase insurance, opting instead to remain uninsured. Spreading risk over the largest possible population is the only viable way to ensure optimal functionality of a private, market-based system of insurance (public insurance systems avoid adverse selection by including total populations regardless of health status). While some express concern about the loss personal freedom due to the mandate to purchase insurance, everyone enjoys the benefits of lower insurance costs that result from spreading risk. Drawing younger and generally healthier individuals into insurance plans would improve risk pools and lower average costs, objectives that should be a focus of efforts to either revise or repair the ACA. This is especially true for states like Michigan with aging populations.
Both the AHCA and BCRA make some positive changes in this regard, for instance changing allowable age band ratings from a ratio of 3:1 to 5:1. Currently, the oldest and sickest health plan beneficiaries may be charged 3 times the cost of a plan for the youngest and healthiest individuals, and this would change to 5 times the cost under the new plans (5:1 was the most common standard in states prior to the ACA). Broadening the age banding reflects a more actuarially sound estimate of the cost of care for older Americans who consume much greater shares of healthcare resources.
The Affordable Care Act attempted to subsidize the high-cost of healthcare for the oldest, pre-Medicare population at the expense of younger, healthier people to an arguably excessive degree. Because many younger individuals have eschewed the high cost of individual plans and remained uninsured, costs are now higher and less affordable for everyone: a lose-lose scenario for both young and old. Moreover, because 19-34 year olds tend to have lower household incomes than 50-64 year-olds, expanding the age band ratio to 5:1 addresses concerns of equity and fairness. Tangentially, this illustrates another important point: sound public policy isn’t always popular public policy.
The AHCA and BCRA keep many popular but flawed aspects of the ACA, such as allowing young adults to remain on their parents’ insurance plans until age 26. This is arguably a mistake made by the ACA that should now be rectified. Allowing young adults to remain on their parents’ plans keeps these young and potentially healthy beneficiaries out of the individual market where they could be empowered to take charge of their own health insurance (this would require adequate subsidization for those in need, but would again improve the risk pool and lower costs for all beneficiaries).
Conversely, eliminating the unpopular individual mandate will not increase the health of the risk pool in the non-group market. Most experts agree, a less popular yet better public policy would be to retain the individual mandate and increase penalties on the uninsured to exceed the cost of a basic health plan. Penalties created by the ACA were small and did not lead enough healthy individuals to purchase non-group market plans. Alternative provisions included in the AHCA and BCRA to combat adverse selection (such as waiting periods and higher premiums for those with lapses in insurance coverage) are also inadequate, and may actually create further incentives for healthy individuals to remain without insurance.
Increasing the number of insured, improving the overall health of the non-group market risk pool, and avoiding adverse selection would have broad public benefit. In reality, this could be done either by enhancing the private market with policies that correct existing market failures (like the ACA’s individual mandate attempted) or, alternately, by further expanding public coverage (like Medicaid expansion). Our legislative leaders should consider the merits of each alternative by assessing corresponding costs and benefits to the public.
Lastly, traditional Medicaid (unlike the expansion) has existed for 50 successful years and long predates the Affordable Care Act. Any change in structure to the Medicaid program (e.g., block granting) that reduces federal support for traditional beneficiaries is therefore unrelated to a repeal of the ACA. By making large cuts to traditional Medicaid, the AHCA and BCRA would either force states to reduce services for vulnerable populations to avoid budgetary strain from diminished federal payments or strangle state budgets with the increased financial responsibilities of providing care to the chronically disabled, nursing home residents, and children—generally poor children—who would otherwise be uninsured. Currently, 2.3 million Michigan residents (nearly 1 in 4) receive some form of Medicaid coverage. Beyond any social or moral obligation a society may have to care for its most vulnerable individuals, placing the poorest and/or sickest individuals in private health plans will drive up costs for all plan beneficiaries—in essence, Medicaid has always functioned as a kind of public sector high-risk pool by providing long-term care, care for the disabled, and care for the poorest and sickest.
What do we do now?
These aforementioned changes under consideration (and really the vast majority of changes made by the ACA) address issues of access, coverage, and affordability at the individual level. The ACA did not (and the AHCA and BCRA do not), however, tackle the ongoing macro problem of increasing healthcare costs and spending that consume an ever-growing portion of U.S. gross domestic product (GDP), currently around 18 percent.
Overall, healthcare spending comes down to a rather simple equation:
As we in the U.S. (and Michigan) have arrived at a general consensus that it is unacceptable to lower healthcare spending by denying care to some (ostensibly, rationing care on the basis of ability to pay, and pricing more and more people out of good health), we need to address the issue of cost in two remaining ways: 1) reining in the cost of expensive health services, either through increased transparency and competition, through government negotiating power and regulation, or (perhaps ideally) some combination thereof; and 2) changing the way Americans approach healthcare by encouraging continuous and preventative care, by fostering a greater sense of personal responsibility, and by addressing external causes of poor health (such as poverty, pollution/environmental hazards, and stress, to name a few).
This type of cultural transformation will not happen quickly nor easily, and will require difficult conversations to reach consensus on policies that maximize both efficiency and equity in healthcare as much as is possible. At present, our ideological squabbles and political grandstanding have taken us so far afield that we cannot even discuss the true drivers of health care costs, namely: poor health, unnecessary care, and the high price of healthcare services. (For a discussion of health care cost drivers in Michigan, see Citizens Research Council, Report 383.)
Unfortunately, placing the goal of “repeal and replace” above the goal of sound health policy (i.e., keep what is working, change what isn’t, and do so based on evidence) has left us with a pair of plans that will likely transition us to a worse healthcare environment than we had before the ACA was adopted. Americans need reforms that will bolster a faltering, cost-prohibitive individual market without dismantling other key coverage and protections like Medicaid. Proposals that begin from the premise that insurance companies and medical providers are inherently greedy and/or malevolent or that public programs can never achieve (let alone surpass) the efficiency or quality of private service delivery are ultimately unproductive and undermine the non-political goal of achieving better care through factual analysis. Healthcare—upon which our life, liberty, and pursuit of happiness quite literally depend—should be a policy area where there is ample room for collaboration and non-partisan achievement.
At the end of the day, it seems germane to the subject of health reform to reflect on the fact that, in spite of the Affordable Care Act, the U.S. is still the only developed nation that does not guarantee access to basic healthcare for all citizens – evidence that we have far to go before claiming victory on health reform. Years of expensive care and high rates of uninsured individuals have led to poor health behaviors and poor management of chronic conditions (leading in turn to more cost). In the U.S., we spend far more on health care than any other developed nation, both in per capita dollars and as a percent of gross domestic product (GDP). Our healthcare spending is nearly twice the average of other countries in the Organisation for Economic Co-operation and Development (OECD), and yet we achieve only mediocre health outcomes from this spending as evidenced by measures of population health, such as our shorter life expectancy and higher rates of infant mortality relative to peer nations.
Health reform is a multi-faceted structural problem that will only be solved by fact-based, purposeful action, shared sacrifice, and potentially unpopular decisions. Politicizing healthcare policy or tying its reform to any specific political ideology will only make the task of achieving consensus more difficult.
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