Jonathan Gruber is Ford Professor of Economics at MIT and worked on both the Massachusetts health-care reform and the Affordable Care Act.
The primary rallying cry for this week’s passage of the American Health Care Act was the claim that the Affordable Care Act was “imploding.” Republicans argued the rapidity and lack of clarity with which this radical bill passed the House was necessary given how quickly the ACA was “falling apart.” They cited as evidence the recent large premium increases and the growing number of counties with no insurers.
What supporters of the AHCA are not admitting, however, is that the ACA’s current failings are due to the misguided policies of Republicans and particularly the Trump administration. Before Donald Trump was elected, there were no places in the country where individuals could not buy insurance on the exchanges. The large premium increases announced last year were a one-time correction to make up for insurers’ dramatic underpricing in the first years of the ACA. The problems we are seeing now are due to the uncertainties injected into the market by the Trump administration’s actions to undermine the ACA’s success.
The ACA introduced a new insurance market, and insurers who participated had to largely guess at what the underlying risks would be. They guessed too low: Premiums in 2016 were 20 percent below what was projected when the law was passed, according to research from the Brookings Institution. The ACA recognized this uncertainty and had a mechanism to help absorb those insurers’ losses. But the Republican Congress refused to authorize the money for the insurers, so companies had no choice but to raise premiums in 2017 — to prices just slightly higher than had been projected before the law’s passage.
As a result, going into 2017, insurers appeared to have achieved some stability in the exchange markets. Reports from the Kaiser Family Foundation and Standard & Poor’s found that insurers had seen a turnaround overall in their financial performance. Kaiser found that for insurers on the individual market, gross margins had rebounded to their highest level since 2013 and were trending upward.
And then Trump took office. Since his first days as president, the new administration has undertaken repeated actions to undermine the ACA. During the crucial final days of open enrollment, he cut off advertising for HealthCare.gov. Research has shown repeatedly that it is the healthiest enrollees who wait until the end of open enrollment to sign up. He signed an executive order that suggested his administration will not enforce the individual-mandate penalty, which is crucial to ensure that young and healthy “free riders” (as Republican Massachusetts Gov. Mitt Romney called them) sign up. These two actions are estimated to have resulted in about 500,000 people not enrolling, worsening the health mix and raising premiums.
Most significantly, the administration has continuously waffled on whether it will honor the roughly $8 billion of payments for “cost- sharing reduction ” subsidies, payments to insurers to protect our lowest-income citizens. Estimates from the Kaiser Foundation suggest that without these payments, premiums will have to rise by 19 percent.
Insurers don’t like uncertainty. As the recently ousted head of Molina Healthcare stated, “The Trump administration is destabilizing [the marketplaces]. Health plans need to plan ahead. He can pull the rug out from the health plans at any minute.” As a result of these uncertainties, there have been a large number of insurer exits throughout the country, and for the first time we face a large number of counties with no insurers. Premiums may once again rise rapidly this year as the remaining insurers protect themselves from further uncertainties created by the White House.
To be clear, things were far from perfect on the exchanges before Trump took office. Many areas in the nation had limited choices, and premiums were often unaffordable for middle-class families not eligible for subsidies. But we know how to fix this: First, honor the reinsurance and cost-sharing reduction payments owed to insurers and expand Medicaid in states that did not do so. The government could then increase reinsurance to insurers — perhaps lifting the language from the AHCA that does exactly that — to bring premiums down further.
But in the meantime, let’s be clear that any problems with exchanges in 2018 are on the Trump administration. It inherited an improving exchange market and had at its disposal the tools to make the market work even better. Instead, the administration undercut enrollment and sowed uncertainty that has insurers panicked and leaving the market. Trump broke it — so now he owns it.