Milan Korcok assesses the current situation in the US concerning healthcare policy reform, and looks to the not-too-distant future to see its effect on the spiralling cost of healthcare.
The ignominious failure of America’s new political leaders to ‘repeal and replace Obamacare’ has left healthcare providers and consumers still feeling imperiled by unsustainable rising costs. Just minutes before the Republican-designed American Health Care Act (AHCA) was due to be voted on by the House of Representatives on 24 March, President Donald Trump, chief advocate of ‘repeal and replace’ pulled the bill from the table, admitting it didn’t have the votes within his own fractious Republican party to approve its passage to the Senate. In effect, it was dead, and the Affordable Care Act (ACA) remained the law of the land.
Ironically, the death of the AHCA was attributable not so much to any perceptions of success or failure of the Obama administration’s ACA (which remains a fiscally-troubled vehicle), but to the inability of House Republicans to agree on a proper balance between free market choices and government mandates, and defiance of Democrats still stunned by their loss in last November’s general election. Not one Democrat would vote for the new bill – even though it reinforced many elements of the ACA they passed into law seven years earlier, and which they gleefully subtitled ‘Obamacare-Lite’.
Forced to keep their prices low to remain competitive on the exchanges, insurers took huge losses and eventually vacated many of the markets
According to the independent, non-partisan Kaiser Family Foundation, the AHCA would have retained the health insurance marketplaces; maintained Medicare inviolability; required coverage of pre-existing conditions (except for short-term non-renewable policies); maintained coverage of young people to the age of 26 on their parents’ plans; prohibited lifetime dollar caps on services; and maintained comparable coverage of 10 ‘essential’ categories of healthcare needs (with only a little trimming).
On the other hand, it would have repealed almost all of the ACA’s taxes on prescription drugs and health insurance plans; reined in future Medicaid expansion (the state-federal programme for the poor) by gradually converting federal funding to a per capita basis as opposed to lifelong entitlements; reconfigured tax-based individual subsidies to lower the costs of premiums for younger adults and increase them for the elderly; prohibited federal Medicaid funding for Planned Parenthood clinics and prevented tax credits from being applied to plans that cover abortion services (the hottest of hot buttons in American political discourse). That’s what House Speaker Paul Ryan, chief architect of the AHCA, was prepared to put to the House floor for a vote, which likely would have passed with a small majority, except for the stubbornness and solidarity of the far-right House Freedom Caucus, a group of approximately 25 Republican hardliners who insisted ‘Obamacare-Lite’ was an insufficient response to the American voters who elected them to ‘repeal’ and ‘replace’, with emphasis on the ‘repeal’. If that meant scuttling the President’s keystone election promise, so be it. Given that Democrats were galvanised in their conviction to avenge their shocking election loss to Trump and were sworn not to give the ACHA one vote – which they did not – it took relatively few Freedom votes to defeat their own party’s bill.
What now?
For the foreseeable future, and for all stakeholders and participants in the most expensive healthcare system in the world – including international insurers and their cost containment arms – it means a continuation of the ACA and mounting anxiety about its affordability, and by extension its contribution to the overall costs of healthcare – a spiral that eased somewhat over the past decade, but is on the rise again. According to the government’s own National Health Expenditure Projections for the years 2016 through 2025, health spending is projected to grow at an average rate of 5.6 per cent per year through the next decade, rising from 17.8 per cent of GDP in 2015, to 19.9 per cent by 2025, or, put another way, peaking at close to $10,000 for every adult and child residing in the US.
As for the uninsured and underinsured, the ACA’s main charge is to provide low-cost private insurance to low income families, many on state Medicaid rolls, as well as individuals working for small businesses whose employers can’t afford existing private insurance. It is not intended to substantially alter the existing insurance framework for coverage of the majority of employed, non-Medicaid insureds – the American mainstream.
price spikes will moderate in future years
Though the ACA is a vast programme that reaches into all parts of the health system, its most visible component is the creation of health insurance exchanges – or marketplaces – in which competing health insurers showcase and offer their products to prospective consumers online. The exchanges are run either by the states alone, by the federal government under HealthCare.gov, or a combination of the two. The insurers set their own premium prices, but they must reveal details about their provider networks, deductible requirements, co-insurance and co-pay limitations, and other such details for four ‘affordability’ levels of which the ‘Silver’ category (not the lowest premiums, but lower deductibles than the category below) has proven the most popular, being chosen by 70 per cent of purchasers – some, but not all of whom, are eligible for tax-based subsidies to help them pay for the premiums. (About 80 per cent of ACA exchange products are said to qualify for government tax-based subsidies.) Silver level plans nationwide, however, averaged 25 per cent increases nationwide from 2016 to 2017.
But premiums are only half the equation. The other half is the deductible, and that’s what trips up many applicants looking for ‘cheap insurance’. According to an analysis of ACA exchange policies done by HealthPocket (a healthcare research firm), deductibles for the most popular Silver plan level average $3,572 in 2017 (15 per cent more than last year). And for families they average $7,474 per year, a situation many critics have convincingly argued is akin to having no insurance at all.
Health insurers’ lost revenue
Part of the reason for the relentless spiral in the price of premiums is the elusiveness of universality: the inability to spread risk across the universe of applicants to cover the costs of the few. This inability was exacerbated by the ACA promise to provide pre-existing condition coverage for all plans – which only encouraged young healthy people to hold off getting insurance until they felt a spot of trouble coming on. Then, they could sign on and get coverage instantly.
To discourage these delayed sign ups, the ACA instituted mandates – hard-fought all the way to the Supreme Court – requiring all individuals and families to have health insurance or pay a fine when filing their federal taxes. For 2017, the penalty for a single applicant is $695, or 2.5 per cent of income (whichever is greater), and for a family it’s $2,085 or 2.5 per cent of income, up to a maximum penalty of $13,100. The Republican AHCA bill would have eliminated this penalty, but that’s now history.
For many young people, the choice is easy – pay the penalty and wait to get sick. That’s cheaper than paying premiums every month. And for the 45 million Americans who pay no federal taxes, most of whom file no IRS (tax) forms, the choice is just as easy.
As a consequence, health insurers lost the revenues they needed to pay for a lot of sick people and were forced to trim back their benefits, by severely narrowing consumer choice of providers, access to prescribed drugs, and other non-essential, but important benefits. Forced to keep their prices low to remain competitive on the exchanges, insurers took huge losses and eventually vacated many of the markets in the 36 states that offered exchanges.
Aetna, which claims it lost more than $430 million on the exchanges, is pulling out of 11 of the 15 states in which it was offering exchange products. This means that approximately 670,000 people who were covered by Aetna last year will have to shop for another carrier, and in the process, possibly lose the doctor they have grown accustomed to seeing, or the hospital they may have been using for years.
though the costs of healthcare in America will continue to rise, their trajectory will not be as steep as it is right now
UnitedHealthcare is scaling back its exchange programmes dramatically and will operate them in only three states in 2017. Humana is withdrawing from nearly 1,200 counties in eight states. One third of the counties in the US now have no exchanges. And in states that use the HealthCare.gov portal, the average number of insurers participating in an individual marketplace is 3.9 in 2017 (down from 5.9 per state in 2015). A Kff.org survey shows that Alabama, Alaska, Oklahoma, South Carolina, and Wyoming have products from only one company to choose from, and such heavily populated states as North Carolina, West Virginia, New Jersey, Hawaii, and Delaware have only two each. So much for competition.
Price spikes to moderate?
The combination of spiralling premiums and deductions, the continuation of mandated penalties, the withdrawal of major insurers from the exchange marketplace, and the reduction of provider choice, has been likened to a ‘death spiral’ by some of the ACA’s critics, among them Robert Laszewski, a prominent blogger on health financing issues and president of Health Policy and Strategic Associates, a policy and marketplace consulting firm. Laszewski chides the health insurance industry for completely ignoring the financial problems they are having in the ACA marketplace: “Too many sick people have signed up and not enough healthy people because the insurance plans the carriers are offering are so unattractive to all but the sickest because of the tight regulatory box [the ACA] puts them in.”
The ACA’s defenders, however, insist that any attempt to insure all, or virtually all Americans, without resorting to a single payer model, is complicated and challenging and will take time. They contend that the price spikes will moderate in future years, and though the costs of healthcare in America will continue to rise, their trajectory will not be as steep as it is right now.
No one argues however, with the prediction that by 2025, almost one- fifth of the total value of the goods and services produced in the US in that given year (GDP) will be spent on healthcare – $10,000 for every adult and child. That’s some trajectory; some price tag. ⬛
