The Washington PostDemocracy Dies in Darkness

The Affordable Care Act is neither imploding nor collapsing

Democratic leaders join a rally on the Capitol Hill on May 14 to oppose the House Republicans’ bill to repeal the Affordable Care Act. (Oliver Contreras for The Washington Post)
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Senate Republicans appear to be solidly rejecting their House colleagues’ health-care plan. That shouldn’t be a close call, given the Congressional Budget Office’s findings that the American Health Care Act would increase the ranks of the uninsured by 23 million, while raising the cost of coverage for older and sicker people. Compared with current law — the Affordable Care Act — the out-of-pocket cost of coverage for an older, low-income person would rise by a factor of eight to nine under the AHCA.

So, drop-kicking the House plan is a no-brainer. But we then have Senate Majority Leader Mitch McConnell declaring that “the Obamacare status quo is unsustainable” and “indefensible.” Thus, Republicans have no choice but to craft an alternative.

They’ve made these negative claims about the ACA since its inception, and far too often, they are uncritically repeated in the media. But they’re false. Obamacare is not collapsing. There are problems in parts of the nongroup markets — the ACA health-care exchanges — but these problems were in the process of getting worked out as insurers figured out how to profitably set prices. That progress is actively being undermined by the Trump administration.

Still, here are a few reasons to discount Republicans’ claims of collapse and implosion:

Coverage gains remain the clearest evidence of the ACA’s success: The number and share of the uninsured fell to historically low levels — from about 15 percent to 9 percent of the population — thanks to the ACA. But, as the figure below reveals, both the old and new versions of the AHCA would reverse those gains.

The individual marketplace is stabilizing: The most common motivation for claims of collapse is the individual market. Importantly, most Americans get coverage through their employer or the government (Medicare, Medicaid). The Kaiser Family Foundation notes that the “individual market is where just 7% of the U.S. population gets their insurance (and thus also represents a small share of most health insurers’ business),” but it also correctly notes that “the stability of the market and willingness of insurers to continue to participate is essential to the ACA’s success.”

The problem in this part of the market is that too many private insurers have pulled out of the exchanges, leaving some parts of the country with too few coverage options. However, this problem, initially caused by the insurers pricing coverage too low to maintain profitability, is improving. Metrics of their profitability that showed earlier deterioration, including medical loss ratios (the share of premiums insurers are paying out in claims) and profit margins, are correcting, thanks in part to premium increases for 2017. One careful analysis of major insurers finds that they “… have now largely recovered from initial underpricing for the ACA marketplaces, and their individual-market premiums are now generally in line with costs.”

After a few years of the experience with the ACA, private insurers are figuring out how to profitably price coverage. But many moving parts make this process an ongoing challenge for them. Some of that was expected, like the phaseout of reinsurance subsidies. But others, like the Trump administration’s flirting with the loss of cost-sharing subsidies that private insurers depend on to hold down premium charges, are pure sabotage.

These payments reduce deductibles and copays for low- and moderate-income people, and their loss could lead the average premium for a benchmark plan to go up almost 20 percent. Just as they’re getting the pricing calibrated, the uncertainty around whether the government will continue to make these payments has surfaced as one of the main reasons that private insurers are asking themselves whether it makes sense to continue to offer coverage in the exchanges.

Let’s pause on the irony here for a moment. Conservatives’ flawed ideology (explained below) that the private sector is the most efficient delivery mechanism for health coverage kept a public option out of the ACA. But the private insurers themselves said at the time, and maintain to this day, that they can’t serve the exchanges without government subsidies. Now, Republicans want to block those subsidies, because … you guessed it … the private market blah, blah, yada, yada.

There is no death spiral, and that’s part of the ACAs design: Above, I noted how private insurers have raised their premium charges to achieve profitability. Well, good for them, but what about their customers? How can the ACA maintain affordable coverage amid these increases, many of which were in the double digits this year? Death spiral, right??!!

Wrong. An essential part of the ACA’s architecture is subsidies for the majority (85 percent) of purchasers in the exchanges, of whom about two-thirds, according to health economist Matt Fiedler, “are eligible for tax credits that rise dollar-for-dollar when premiums in their area rise.”

Aviva Aron-Dine finds that among enrollees eligible for tax credits, “premiums after accounting for premium tax credits increased by just $4 per month between 2015 and 2017, from $102 to $106.” Such magnitudes are grounds for neither collapses nor implosions.

Finally, here’s the CBO’s most recent assessment (my bold):

“Although premiums have been rising under current law, most subsidized enrollees purchasing health insurance coverage in the nongroup market are largely insulated from increases in premiums because their out-of-pocket payments for premiums are based on a percentage of their income. … The subsidies to purchase coverage, combined with the effects of the individual mandate, which requires most individuals to obtain insurance or pay a penalty, are anticipated to cause sufficient demand for insurance by enough people, including people with low health care expenditures, for the market to be stable in most areas.

Bottom line, there is as yet no collapsing, imploding or death-spiraling.

But through repealing the Medicaid expansion and undermining private insurers in the exchanges, the Trump administration and the congressional majority are fully capable of engendering those very outcomes. Why would they do that?

To answer that question, you must understand the fundamental myth and the fundamental flaw of conservative “health-care reform.”

The Fundamental Myth: Republicans are not interested in actual reform of the health-care system, one that would control costs and promote affordable, quality coverage. They want to cut taxes for wealthy people, for which “health-care reform” is a mere stalking horse.

The Fundamental Flaw: Because hospitals must treat the sick, regardless of their ability to pay, health care is not a normal market good. Thus, market solutions alone cannot solve the health-care problem. Comprehensive coverage implies risk-pooling, which implies mandates, which implies subsidies and/or controls on market costs. International comparisons show that no system achieves full coverage without some combination of these components.

We can either shore up the ACA or give the resources needed to do so to the wealthy in the form of tax cuts. In the meantime, let’s hear less phony rhetoric about implosion and more straight talk about what’s really going on.