As a friend once told me, “Government is about compromise.” That friend was Tommy Thompson, a four-term governor of Wisconsin who went on to serve in George W. Bush’s cabinet as secretary of Health and human services.
With the failure of the American Health Care Act, recently proposed by Republicans in the U.S. House of Representatives, it is clear that the Affordable Care Act (ACA) will continue to serve millions of Americans for the foreseeable future. Of course, the ACA (or Obamacare) remains a flawed law. But rather than allow it to “implode” or “collapse,” as some suggest it will (e.g., President Trump), a group of Republican and Democratic leaders in Washington should take action and fix the broken elements of the ACA for the good of the millions of Americans who depend on it. It is time for a compromise.
What might such a bipartisan agreement look like? Here are some ideas.
In most industries, more competition lowers cost. Not in health care, which is not structured for true market competition. With the advent of mergers and acquisitions, the big have gotten bigger. In many markets, there is only one main provider, at the most two, and they shadow-price each other, meaning they make sure prices charged to Insurance companies are similar. This sounds like monopolistic behavior because it is. It is one reason why commercial health care premiums are so high.
The same lack of true competition plagues the health insurance industry. Many states (Michigan, Massachusetts, and Iowa, to name a few) have one dominant health insurance payer. What’s more, the primary insurer in each state dictates insurance coverage rates no matter what prices they negotiate with health care providers. And insurance companies write discounted price “deals” with large companies that employ thousands of people, leaving smaller companies and individuals left to pick up the tab in various ways (e.g., by paying higher monthly premiums).
If any one player tries to disrupt this monopoly, it is punished in the marketplace. For example, in Pittsburgh, the Blue Cross plan (Highmark) decided to fight back against the exorbitant prices the provider UPMC was demanding. UPMC terminated the Highmark contract. HighMark had no significant provider network and was forced to purchase components of the former Allegheny Healthcare, a provider system of hospitals and clinics that was in financial trouble. But this left many patients with huge bills and no access to their doctor. In the wake of intense media coverage of the dispute, the governor intervened and required UPMC and HighMark to renegotiate.
To solve the problem of ever-increasing premiums, lawmakers are going to have to take a lesson from actuarial science. This means creating a risk pool for insurance coverage that is large enough and diverse enough to spread the differences in health costs across the entirety of the population, lowering the average cost and making big insurers and big providers willing to negotiate lower prices. Given that it is unlikely that Republicans and Democrats can agree to increase the penalty for those who choose not to purchase insurance, thereby eliminating the possibility of populating the risk pool with needed healthy individuals, we need another idea. One is cross-border risk pools.
In states where a large number of people use the health exchanges, the exchanges have worked well. One example is California. Its exchange, Covered California, selects the plans it sells and standardizes the deductibles and other elements of the offered plans, making it easier for consumers to compare competing plans. Insurers want access to this large pool of new customers, and those insurers negotiate better deals from hospitals and doctors because they can guarantee more patients. In 2016 the California exchange saw a modest 4% increase in premiums.
Compare that to how the federal health insurance marketplace and other state exchanges work. Instead of selecting the Health Plans offered on these exchanges, they take all comers, and do not require insurers to improve health plans to get their products onto the exchanges.
Because Covered California has a large pool of patients, it can negotiate directly with health insurers on prices. In other states where numbers are smaller and have federal exchanges, which are more passive, insurers can essentially charge what they want.
One way to enable other states to do what California has done is to allow states to create cross-border risk pools. This is different from simply allowing insurers to sell across state lines. States would pool patients. If Minnesota, Iowa, and Wisconsin pooled their patients, it would be possible to create a large number of patients in the exchange. This would get the attention of big insurers and big providers. A multistate risk pool such as this would potentially create more price competition, which could put a lid on premium increases.
Continue to Reduce the Cost of Care
Health care in the United States is the most expensive in the world, but it doesn’t result in the best health outcomes or longevity of its citizens. Studies estimate that from 30% to more than 50% of health care spending is wasted. The fee-for-service payment system contributes to the problem, rewarding health care providers for the quantity of procedures they perform and paying for medical errors as well.
Under the ACA, there is a movement to abandon fee-for-service payments and to transition to pay-for-value, which rewards care providers for improving patient health outcomes. These payment changes should be accelerated so that providers have a clear direction on where financing of health care is heading.
As care providers make this shift, a dramatic change in operational and management systems will need to happen. Hospitals and clinics must reinvent how patient care is delivered — and they must do it as a team. This means enabling frontline workers to make cost-effective decisions that are best for patients. This change will help hospitals identify and reduce errors and design new, innovative care models.
Cover the Poorest Americans
It’s clear that the moderate factions in the Republican Congress are not supportive of reducing the federal commitment to Medicaid expansion, which has added 15 million to its rolls since the ACA went into effect. The argument rages around who is going to pay for it, not whether people should be covered. But the two are inextricably linked. The remedy, which might be palatable for both Democrats and moderate Republicans, is to provide the poor with sufficient tax credits and other financial help to afford insurance.
If the federal government defunds Medicaid or provides reduced block grants to states, states will increase eligibility requirements, and coverage will be dropped. Presently, the law says that if your income is below 138% of the federal poverty level (FPL), which is $12,000 for individuals and $24,600 for a family of four, and your state has expanded Medicaid coverage, you qualify for Medicaid based only on your income. If your income falls below 100% of FPL and your state hasn’t expanded Medicaid coverage, you won’t qualify for either income-based Medicaid or savings on a health exchange insurance plan. You may, however, still qualify for Medicaid under your state’s current rules. You do in Wisconsin.
Wisconsin did not expand the federal Medicaid program, but it has experienced a drop in uninsured rates, from 9.1% to 5.7%, the sixth best in the nation, and similar to that of the states that did expand Medicaid coverage. In 2013 the state expanded eligibility for the BadgerCare Plus Medicaid program (the state’s safety-net health plan) to include adults who previously were not always eligible (those who did not have dependent children) and who have incomes below 100% of the 2013 FPL, or $11,770 for an individual. This expansion was offset by adults who had accessed BadgerCare Plus Medicaid in the past, who now were eligible for subsidies under the ACA to purchase health plans sold on the federal insurance marketplace.
One aspect of the ACA that works, and that Wisconsin has leveraged, is to give people who qualify a tax credit to help them pay their health care premiums. This year, more than 80% of those purchasing health plans on the insurance exchanges received tax credits. The credits are used to make insurance premiums affordable. In some cases, individuals can purchase a health plan for as little as $100 per month.
But a study by the U.S. Department of Health and Human Services found that about 2.5 million people bought their health plans on the independent market rather than on the exchange in 2016. These consumers were not eligible to get the available tax credit. A subset of this group, 1.1 million people, could also receive financial help to pay for out-of-pocket health costs because of their income levels, but since they enrolled in off-exchange health plans, they weren’t eligible to get this benefit.
Clearly, more education needs to happen across the country so that Americans can take full advantage of tax credits and financial help available to them when they purchase health plans on the exchange. One size does not fit all, and lawmakers should think about creating flexibility, not rigidity, so each state can manage the insurance expansion in the way that is best for that state. But it should be made clear that each state must reduce the uninsured rate. Texas and Florida stand out as two that haven’t — and they also haven’t expanded Medicaid.
Legislators can go one of two ways. One is to leave the ACA as it is — and have Americans lose their health coverage and let premiums skyrocket. The alternative is to do something better, as I’ve outlined above. Improvements to the ACA will lead to expanding coverage, containing premium and Medicaid costs, and providing security for all Americans. The choice is clear.