The rapid increase in premiums for Affordable Care Act plans that the Department of Health and Human Services now says it expects for 2017 is a reminder of a very simple — but politically extremely challenging — problem with the way the final version of the law came together. The issue was that the tyrannical and unpopular individual mandate to purchase health insurance was so tyrannical and so unpopular that Congress wound up watering it down considerably. The executive branch then further watered it down with very generous special exemptions to the mandate.
The result is that while the mandate stands as a legal fact, noncompliance is actually extremely widespread. There are few consequences for healthy people not buying insurance.
As Caroline Pearson of Avalon Health told Vox, “The mandate penalties are not working to compel people into the market.” Her company’s research suggests the penalty would have to be several hundred dollars higher to make buying insurance a more compelling option for young and healthy people than simply paying the fine.
That’s an enormous long-term challenge for the vision of health care embedded in the law. After all, mandatory health insurance was never a popular idea — the reason Obamacare’s architects put it in there is that they thought it was necessary to make the system work.
Obamacare is a three-legged stool
The essence of an insurance system is that some people need to be getting more in benefits than they pay in, while others are paying in more than they are taking out.
- The key goal of the Affordable Care Act was to redress the situation in which people with substantial health care needs either could not buy insurance (denial of coverage due to preexisting condition) or else wound up losing it as soon as they really needed to claim benefits (recession). So one major leg of the stool is a set of consumer-focused regulations that require insurers in the marketplaces to accept all customers and offer a certain minimum set of benefits.
- The trouble is that plans that meet that regulatory standard could be very expensive to operate, meaning premiums would have to be very high. Consequently, the second leg is the individual mandate: All those who don’t get insurance through their job or a government program have to go buy a plan. That means the average cost will be relatively low.
- The third leg, then, is the provision of generous subsidies so that lower-income people will be able to afford the premiums they have to pay.
This is broadly how universal insurance coverage works in Switzerland and the Netherlands, and it struck many American wonks as an appealing pathway to universal coverage for the United States. One big advantage of it is that it doesn’t require people with existing job-based plans to give them up. It simply creates a new parallel system for those who aren’t well-served by the job-based system.
The mandate is a weak leg
One big problem with the stool is that as legislators were putting together the law, they got nervous about slapping people with draconian penalties for not buying health insurance. One way that expressed itself was through “hardship waivers” for people whose post-subsidy premiums would cost more than 8 percent of household income.
That makes a lot of sense as a basic exemption, since in practice it shouldn’t impact very many people.
But the other thing they did was make the fee for not abiding by the mandate pathetically small. If you decline to buy health insurance, you must pay a fine of $695 per adult and $347.50 per child up to a household maximum of $2,085. The downside is, obviously, you don’t get health insurance. But insurance plans come with deductibles anyway, and if you do get sick, thanks to the first leg of the stool you can now go get insurance at the next open enrollment period.
Consequently, remaining uninsured is a reasonably good financial option for many younger and healthier Americans. Of course, subsidies change this picture. If your income is low enough to qualify for generous government subsidies, then buying insurance is a no-brainer. But the original vision of the Affordable Care Act was for exchange plans to be mainstream middle-class health insurance that subsidies would let lower-income families access. What’s emerging instead is more like a strict subsidization program for needier households.
The Medicaid-ization of Obamacare
The kind of program that results from this lopsided stool isn’t necessarily unworkable. It just looks a lot like America’s existing program to provide health insurance to low-income families. As Sarah Kliff has written:
Medicaid has, since the 1960s, served low-income populations that lack health insurance, largely women with children and the disabled. The program usually pays low reimbursement rates to hospitals and providers, so it doesn’t get big brand-name facilities into its networks. In 2011, one-third of doctors nationwide said they didn’t accept Medicaid patients.
At the same time, surveys generally find that Medicaid enrollees tend to be especially happy with their coverage. One recent Gallup poll found that Medicaid enrollees are just as satisfied with their plans as people who receive health insurance at work.
The population that has flocked to the marketplaces looks pretty similar to the Medicaid population. The vast majority of Obamacare’s enrollees are low-income: 81 percent earn less than 250 percent of the poverty line ($29,000 for an individual or about $60,000 for a family of four).
There’s nothing wrong with this outcome per se. Indeed, one of the Affordable Care Act’s main provisions is a large expansion of Medicaid eligibility. The law’s authors could, in theory, have scrapped the whole exchange framework and just made the Medicaid expansion even bigger.
They didn’t do that, though, because their original aspiration was bigger than a social assistance program for low-income families. They wanted to truly lick the problem of uninsurance for Americans of all economic classes, and potentially even create a model so appealing that over time workers and employers would gradually transition out of the current job-based insurance market and over to the new exchanges.
But to do that job properly, the stool needs its third leg.
Dreaming of a grand bargain
The system simply can’t work as intended without a strong mandate that pushes the overwhelming majority of the eligible population onto the exchanges. Some of that will happen naturally over time, as old non-exchange plans expire and their customers drift onto the exchanges. Some of that can be done by HHS unilaterally moving to tighten the screws on various special exceptions to the normal rules. But fundamentally, for the Affordable Care Act to work as a mainstream insurance option, Congress is going to need to implement stiffer penalties.
The prospects for that obviously look bleak in the short run. But the prospects for the conservative alternative of full repeal and the progressive alternative of single-payer also look bleak.
As is usually the case in American politics, the best bet is probably that we’ll simply muddle through. But in the unlikely event that a magical spirit of compromise washes over Congress, you could imagine a three-way bargain that gives multiple stakeholders things they care about. To bring the left around to vote for a stiffer mandate, you’d almost certainly need to go back to the old idea of including a public option on the exchanges to ensure consumers have choice. Then since both a stiffer mandate and a public option would tend to reduce the average premiums, you could offer conservatives mildly stingier subsidies.
It would be a political three-legged stool to bolster the substantive three-legged stool of the policy. But to get it done, members of Congress would need to actually want to make incremental progress toward their core policy objectives, at a time when many prefer to bolster their talking points and dream of the day when more radical change will be possible.