Politics aside, we know how to fix Obamacare

The following originally appeared on The Upshot (copyright 2016, The New York Times Company). I wrote it before the election. Had I not done so, I probably wouldn’t have written it at all. It would surprise me very much if the Republican Congress and administration gave any consideration to something that could so easily be viewed as fixing Obamacare.

President Obama’s Affordable Care Act marketplaces were supposed to give consumers choices of health plans from insurers that compete to keep premiums down. But fewer insurers are participating, and premiums are increasing sharply.

Fixing this problem will obviously be politically difficult with a Republican-controlled Congress that has vowed to “repeal and replace.” President-elect Donald J. Trump has also said he wants to get rid of the Affordable Care Act, although he amended that recently by saying he’d like to keep some elements. Replacing the law, without a Senate supermajority, would also be politically difficult.

From a policy standpoint, however, some solutions to problems facing the marketplaces are ones that Republicans have endorsed before: for Medicare.

The number of insurers participating in the Obamacare marketplaces is falling. This year, 182 counties had only one insurer offering plans. Next year, that will be true of nearly 1,000 counties, or almost one-third of the total. An average marketplace will offer 17 fewer plans in this fall’s open-enrollment period than last year’s. Fewer choices make it harder for consumers to find plans that meet their needs, like including doctors and hospitals they prefer and covering the drugs they take.

Shrinking choice isn’t the only problem facing the marketplaces. On average, the most popular type of plan will cost 22 percent more next year than this year. However, in some regions, premium increases are much larger; residents of Phoenix will see a 145 percent rise. (In some regions, increases are low; Columbus, Ohio, is facing only a 3 percent increase.)

Insurers’ exits and rising premiums are related. Both are happening because the number of enrollees and their health care needs are not what insurers expected. One piece of evidence that this occurred is that the Obamacare marketplace plans attracted more older people than the administration’s initial projection. Another factor: In states that did not expand their Medicaid programs, some sicker, higher-cost consumers that would otherwise be Medicaid-eligible are in marketplace plans.

If insurers attract too few consumers with little or modest health needs and, instead, attract a larger proportion of sicker ones, health care costs outstrip premium revenue. In the worst case, an insurance company throws up its hands and exits the market. Some insurers that have left Obamacare markets stated they did so because they could not earn enough money to keep up with costs.

Increasing premiums might close the revenue-cost gap. However, premium increases can further discourage consumers, particularly healthier ones, from enrolling, worsening the problem.

As competition decreases, the remaining insurers have greater market power to increase premiums. States with the fewest insurers have the largest premium increases while those with more insurers have more modest premium growth. These facts are consistent with findings from both government and non-government organizations.

A study done in part by Leemore Dafny, a health economist now with the Harvard Business School, also illuminates the competition-premium connection. She and co-authors found that premiums in the first year of the marketplaces were 5.4 percent higher just because one national insurer opted out. Another study, published in Health Affairs, found that premiums fall by 3.5 percent with the addition of another insurer.

“Marketplaces will only succeed if enough insurers participate, and many are running away from what they perceive as a high-risk, low-reward market opportunity,” she said.

All of this — insurer withdrawals and sharply escalating premiums — was avoidable and is fixable. We know how to draw insurers into markets, keep them there, and limit premium growth. We can do so by subsidizing plans more and by limiting their risk of loss. We’ve done both before.

In the early 2000s, Medicare+Choice — then the name of what is now the Medicare Advantage program, which offers private plan alternatives to traditional Medicare — was struggling. The proportion of Medicare beneficiaries with access to a Medicare+Choice plan declined from 72 percent in 1999 to 61 percent in 2002. The number of plans offered dropped 50 percent, and enrollment dropped 21 percent. Insurance industry representatives said that the problem was that government subsidy payments to plans were not keeping up with costs.

After payments to plans drastically increased as part of the 2003 Medicare Modernization Act — passed by a Republican Congress and signed by President George W. Bush — insurers flooded the market. This was controversial. Members of Congress from both parties expressed concern that plans were overpaid, wasting taxpayer resources.

By 2007, every Medicare beneficiary had access to at least one plan. The market stabilized, so much so that even as payments to plans were cut by the Affordable Care Act, plan enrollment continued to grow. Today, about one in three Medicare beneficiaries is enrolled in a private plan — a record high. Increasing the subsidization of Obamacare plans might have the same effect — reducing costs to consumers and drawing more of them, and insurers, into the market.

The Medicare Modernization Act also established Medicare’s prescription drug program, Part D, which offers another lesson. It’s also run entirely through private plans. They’re cushioned against large losses by a risk corridor program. This helps plans stay in the market if they miscalculated the mix of patients they’d attract, and it allows them to keep premiums lower than they might need to if they had to hedge against the full brunt of potential losses.

The Affordable Care Act included a risk corridor program for marketplace plans, too, but it expires at the end of this year. So does a reinsurance program that compensates insurers for unusually high-cost enrollees. Following the model of Part D and making the risk corridor program permanent, as well as the reinsurance program, could help stabilize the marketplaces.

There are other ways to shore up Obamacare. Including a public option in the marketplaces would increase competitive pressure. A public option means having the federal government offering insurance plans, providing an additional choice (or choices, if the government offers multiple plans). If plans included more doctors and hospitals in their networks, it might pull more expensive patients from private plans, reducing the risks.

Another idea is to require insurers to participate in broad regions, which would limit their ability to selectively work in more profitable ones and shun ones that are less so, like rural areas. This would be consistent with Medicare Part D, which requires insurers that offer stand-alone drug plans to do so in multistate regions.

Yet another approach is to increase the penalty for eschewing coverage, which for many people is cheaper than buying insurance. Here again, we could look to Medicare, which includes penalties — which grow the longer one waits — for failing to enroll in coverage for physician services or drugs.

There’s one significant problem with all these ideas, of course: They’d need to pass the Republican Congress and be signed into law by Mr. Trump. Though the G.O.P. has endorsed some of the ideas before — for Medicare — it’s a safe bet they won’t do so for the Affordable Care Act.



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