One pillar of Obamacare is in crisis — but just how serious a crisis remains debatable. Insurance companies have been fleeing the highly regulated "exchanges," created by the Affordable Care Act, through which people who lack coverage buy plans.
Today, The Big Idea features dueling pieces examining the cause of the problems, and potential solutions. Avik Roy is president of the Foundation for Research on Equal Opportunity and a Republican policy adviser. In a companion piece, Bob Kocher and Ezekiel Emanuel, who worked in the White House on the Affordable Care Act, offer a rosier take.
On March 23, 2010, President Barack Obama signed the Affordable Care Act into law. It was a triumphant moment for the progressive movement, a moment in which the century-long quest for universal coverage in America passed an important landmark — and seemed headed for the final goal. "A big fucking deal," as Joe Biden famously summarized it.
Six and a half years later, health reform no longer feels like a steady forward march toward progress. It feels more like World War I: dotted with landmines, lined with trenches, and ending inconclusively. In 2010, the Congressional Budget Office predicted that 21 million people would be enrolled in the ACA’s insurance exchanges by 2016; as of now, only 12 million are. That gap between hype and reality is likely to further expand over time.
What happened? It’s a long story, of course. But the simple answer is that the ACA’s exchanges were designed poorly and implemented poorly, by overconfident advocates who dismissed any and all criticism, no matter how well-reasoned.
Left-leaning health-policy bloggers played a key role in the debate. Three weeks after that 2010 signing ceremony, veteran health care journalist Jonathan Cohn closed down his blog at the New Republic, "The Treatment." Its purpose — the passage of the ACA — had been achieved. Cohn’s valedictory post centered on a key episode that took place as the bill that would become the ACA was being debated in the Senate Finance Committee.
The left shot down reasonable criticism
In October 2009, analysts at PricewaterhouseCoopers published a report estimating that by 2016, the Senate Finance Committee bill would increase individual-market health insurance premiums by 47 percent. Today, we would describe that figure as a lowball estimate. In fact, cumulatively, median premiums for "silver plans" have nearly doubled in the ACA’s first four plan years (49 percent in 2014, 7 percent in 2015, 11 percent in 2016, and a projected 10 percent in 2017).
But in 2009, the ACA’s cheerleaders described it in much different terms.
"We couldn’t stop intellectual saboteurs from introducing new lies into the debate," wrote Cohn. "But I think we were able to expose those lies just a little more quickly." Cohn and others slammed the PwC report as the work of corrupt health insurance lobbyists seeking to sink reform — as an example of "the insurance industry declaring war." In the Washington Post, Ezra Klein, who went on to found Vox.com, compared the PwC report to lies promulgated by the tobacco and oil industries.
What was remarkable about all this controversy is that PricewaterhouseCoopers' findings were quite reasonable. The ACA’s insurance market regulations were going to drive up the underlying cost of individually purchased insurance.
For example, forcing insurers to charge their youngest customers no less than one-third of their oldest customers meant that premiums for young people would double, because on average, 19-year-olds consume one-sixth as much health care as 64-year-olds. Mandating that insurers cover a federally-prescribed suite of health care services, regardless of whether enrollees need coverage for those services, meant that premiums would go up. Requiring that insurers charge the same prices to the healthy and the sick meant that healthy people in particular would pay more.
By contrast, the law’s individual mandate, forcing consumers to buy that costlier insurance, was going to be phased in over time. As a result, premiums would spike and enrollment would suffer.
But Obamacare’s cheerleaders, fearing that this information might sink the bill’s fate in Congress, decided to shoot the messenger. They brought in Jonathan Gruber, the MIT economist, to assure everyone that "what we know for sure the bill will do is that it will lower the [underlying] cost of buying non-group health insurance" — that is, the cost before any subsidies.
As a political matter, the aggressive critiques of PwC worked. "Within hours of [the report’s] publication," Cohn recounted, "several blogs, including this one, had published critiques … [they] circulated in Washington and provoked a backlash against the insurers. Wavering Democrats said they were offended by the effort at political sabotage; the Finance Committee went on the pass the bill, as it had originally planned."
The exchanges punish middle-income Americans
But as a matter of policy, PwC was right and the cheerleaders and Democratic policymakers were wrong. The ACA’s exchanges were designed poorly, and premiums did become unaffordable for millions. It is true that many people with incomes near the poverty line, whose premiums were nearly fully subsidized by other taxpayers, gained coverage through the law, many through the deeply flawed Medicaid program, whose health outcomes are no better than those of people without health insurance.
But millions of uninsured, taxpaying Americans don’t qualify for Medicaid or the ACA’s exchange subsidies. Still others — typically those with incomes between 250 and 400 percent of the federal poverty level — qualify for partial subsidies that don’t make up for the fact that ACA exchange insurance costs so much more. As Bill Clinton put it, "You’ve got this crazy system where … people that are out there busting it —sometimes 60 hours a week — wind up with their premiums doubled and their coverage cut in half." That’s why ACA exchange enrollment has fallen 9 million short of initial estimates.
The people who implemented the markets were ignorant and arrogant, too
And Obamacare didn’t suffer only from a flawed blueprint. It was also implemented by people with poor knowledge of how health insurance markets worked.
In May 2010, Harvard economist David Cutler wrote a letter to Larry Summers, then heading President Obama’s National Economic Council, warning that the Obama administration was "far behind the curve" on delivering affordable health care. "I do not believe," wrote Cutler, that "the relevant members of the Administration understand the President’s vision or have the capability to carry it out."
Cutler, who made clear that he was a supporter of health reform, observed that key officials in the Obama administration were ideologically hostile to the existence of private insurers, and were therefore disinclined to hear out their concerns regarding the law’s implementation. "If you cannot find a way to work with hesitant states and insurers, reform will blow up," said Cutler. "I have seen no indication that [the US Department of Health and Human Services] even realizes this, let alone is acting on it."
"The overall head of implementation inside HHS, Jeanne Lambrew, is known for … her mistrust of insurance companies," Cutler wrote. "She is not known for operational ability, knowledge of delivery systems, or facilitating widespread change. Thus it is not surprising that … exchange administration [is] receiving little attention … valuable problem solving time is wasted on internal fights … no one I interact with has confidence that your current personnel and configuration is up to the task."
Cutler wasn’t subjected to the same level of criticism as PwC had been, in part because his letter didn’t become public until 2013. But his concerns were dismissed all the same. The administration threw exemptions and exceptions in every direction in order to goose the exchanges’ initial enrollment numbers. When insurers pointed out that these improvisations would destabilize the exchanges and increase premiums, because they encourage people to enroll only when they were sick, insurers were politely ignored.
As those higher premiums started to become public, ACA cheerleaders engaged in another round of shoot-the-messenger, hoping that ignoring rate shock would make it go away. That didn’t work either. Instead, policymakers came upon the "solution" of simply rejecting insurers’ proposed rate increases, and forcing them to lose money. Insurers, having exhausted their options to participate in the exchanges and remain solvent, began heading for the exits.
A "public option" would only add to the problems
The ACA’s problems do not undermine the fundamental nobility of striving to make health insurance affordable for every American. But they should give the ACA’s most strident advocates some humility. They don’t appear to have done so.
Instead of reconsidering the ACA’s thicket of costly and contradictory regulations, the law’s cheerleaders remain romantically attached to the unlikely notion that a "public option" could lower premiums — unlikely because it would only succeed if the government-run insurer paid doctors and hospitals far less than private insurers do, and forced providers to accept those lower rates. Contrary to the naïve belief of some on the left, "insurer profits" are not the driver of high health care costs. Health care is expensive because hospitals and doctors charge high prices.
Neither Democrats nor Republicans will get another chance, anytime soon, to ram partisan health care legislation down America’s throats. In the near term, we’ll have to find smaller areas of common ground. Congress should consider targeted reforms, like repealing the ACA’s age-based community rating provision, which sets an unreasonable limit on the differences companies can charge older people relative to younger people. Such a bill would reduce the cost of ACA-based coverage for the younger, healthier individuals who represent the bulk of the uninsured.
There is a broader, bipartisan approach to health reform that’s available to policymakers, if they want it. It involves bolstering the private insurance market, and focusing federal subsidies on the poor and the vulnerable. We’re not there in 2016 — but, with more modesty on both sides, we can get there someday.
Avik Roy is president of the Foundation for Research on Equal Opportunity, and a former policy adviser to Marco Rubio, Rick Perry, and Mitt Romney. Follow him on Twitter: @Avik
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