Aetna had decided to pull out of many states, and refuse to offer health insurance on the exchange. Some suggest that this was because of disputes between the US administration and Aetna, who were refused a merger with Humana. (How crazy is it that so few companies have so much power over the national well-being of citizens?) United Healthcare, the biggest private insurance company in the US, had decided earlier this year to rescind their insurance offerings in many markets. This would suggest that the hoped for advantage of creating a competitive market place in the US health insurance industry will not work out. The overall question, however, is whether the Affordable Care Act as it stands is good legislation. I argue that while it is better than repealing the legislation, there is no insurance system that is better than a single-payer, Medicare-for-all system.
To decide whether it is good legislation, we may look at the overall cost of health care, which has grown at less than 4% per year between 2008 and 2013. Studies suggest that the 2015 health care cost growth projections (2014-9) come at 2.6 trillion dollars lower than the 2010 baseline estimate when the Affordable Care Act was first passed (Robert Wood Johnson Foundation 2016). This might sound like good news, but the report also suggests that the slower growth may also be linked to the recession, which essentially means that people skipped necessary medical care because they could not afford it. Even as people want to increase their consumption of health care by acquiring insurance via the exchange (which before the ACA did not exist), people face higher deductibles (Fortune 2016), which also tends to reduce the consumption of necessary medical care. Even employers are increasingly shifting to high-deductible plans (ranging from 1,300 to 13,000 dollars a year) to offload the responsibility of health care to individual workers. 84% offer high deductible plans, and one-third of employers offer only high-deductible plans (CNBC 2016). In any case, the share of workers covered by their employer’s health care plan decreased from 65 to 63% from 2009 to 2015 (Kaiser Family Foundation 2016).
Critics of non-cost-sharing health care (as would be the case for generous employer plans or single-payer in most industrialized countries) warn of the moral hazard involved in it. The idea is that people will over-consume medical care if they don’t have to pay for it. But I am not really convinced of this, because young and healthy people are unlikely to go to the hospital or the doctor just for the heck of it, and even if they did, it is better to be safe than sorry when it comes to personal health. The bigger problem actually accrues to the high-deductible, high cost-sharing health insurance options which reduce medically necessary treatment. To the extent that this would reduce the use of preventative health care, it actually raises the cost of health care by delaying treatment.
The ACA that is focused on the exchange tends to favor the growth of high-deductible plans, because healthy individuals seeking to sign up look for the cheapest option (NY Times 2016). Insurers react to this collective behavior by increasing the premiums, because healthy people cluster in some cheaper health care plans, and the sick cluster in the more expensive plans. As more healthy people shift to cheaper plans, the cost of the sick insurance pool increases, resulting in more and more healthy people to shift to ever cheaper plans. The cost will rise so exorbitantly that the sick health plans will be ultimately dissolved. Health care economists describe this situation as adverse selection.
Kaiser Permanente looked at the premium increases, and they go up by an average of 4.4% in 11 states, but taking into account the tax benefits and subsidies that go to low- and middle income people the premium increases was only 1.2% from 2015 to 2016 (NCSL 2016). But these numbers tend to cover up large variation, ranging from a 13% decrease in premiums to 25% increase. Rhode Island and Indiana are among the few markets in the survey, where health premiums are expected to decline, while many other states (DC, Tennessee, Oregon) will expect substantial premium increases (Kaiser Family Foundation 2016). In Colorado, one insurer has requested to increase their premium by 41% (Gazette 2016). No wonder, there is now a ballot initiative there for single-payer health care. Also, premiums cover up the share of health spending coming from deductibles, which is increasing. The average deductible for people with employer-provided health coverage rose from 303 to 1,077 dollars between 2006 and 2015 (Claxton et al. 2016).24% of non-elderly households cannot pay for deductibles when they need the health care (WSJ 2015). Dissatisfation with annual deductibles increased from 32 to 46% from 2014 to 2016 (Kaiser Family Foundation 2016).
My prediction on costs is, thus, of a more skeptical nature. The market exchange relies on the availability of sufficient number of insurers to keep the prices competitive, but the market failure of adverse selection, where the sick self-select into high risk pools, has not been resolved with the ACA. In fact, the existence of multiple tiers (bronze, silver, gold) of health care plans would actually favor such adverse selection. Expect more large, profit-oriented insurers to withdraw from the market and/or raise prices. The rise of high-deductible plans is only seemingly limiting health care spending, because to the extent that medically necessary care is prevented, overall health outcomes would be worse. To the extent that overall health care costs keep on growing (which experts do not preclude even with the ACA), there are additional costs that consumers will face. The government, using the subsidy system, can shelter low- and some middle income people from the added cost burden, but increasing tax liability will make the health care issue come back to haunt the politicians in not too-distant future.
But cost is not the only thing that matters: the ACA has reduced the number of uninsured from more than 50 million to less than 30 million. The failure of the ACA is that because the law is focused on the exchange, subsidies, penalties and the mandate, there is no universal coverage, which a single-payer plan could easily mandate, akin to the British NHS system. The 20 million people that did receive health care coverage are a combination of additional Medicaid recipients (for people below 133% of the federal poverty level) in states that chose to expand it (i.e. not in some Republican states), and the new people benefiting from the exchange.
What is more difficult to measure is whether the ACA had positive patient outcomes. We might say that it is too soon to tell, but there are comparisons between Medicaid-expanding states (Kentucky, Arkansas) and those that did not expand it (Texas), showing that low-income people in the former states experienced better health outcomes than the latter (NY Times 2016). It goes almost without saying that people with health insurance tend to report greater health than those without it, because the latter are more likely to have access to a primary care doctor and actually visit the doctor when they need it. But the peculiar thing to me in here is that the health benefits are most clearly visible in the public provision of health care (Medicaid) rather than in anything that private insurance companies would provide.
I am not suggesting that it is not possible to produce good health outcomes with private insurance, but that it is simpler to accomplish in the public-sector than in the private-sector. Because of the market failure that is inherent in the health care system (insurers not knowing how to price the insurance correctly given the differing health profiles of the patients), and the administrative bloat and profit motive, the private health insurance system will always be less efficient than a single-payer, Medicare-for-all system. Walter Tsou, former Philadelphia health commissioner, told me that he predicts that the ACA will not be able to hold down the cost increases that are inherent to a private insurance industry. If this thing falls apart, do we have a good alternative on the pipeline?
Republicans have made clear that the ACA is a failure, and I partly agree with them, but their solution is even more insane. They want to repeal the ACA and replace it with nothing. The more sensible Republicans will talk about additional tax breaks so people can pay for their own health care, but given that the problem is supply-side driven (i.e. private insurers eager to hike prices for profit), there is no real mechanism by which costs would be contained or a guarantee that people can receive insurance in the absence of Medicaid expansion or an exchange.
The obvious solution is to create a single-payer, Medicare-for-all system. It would get rid of the administrative bloat and profiteering (Medicare only spends 2% on administration compared to up to 30% in the private insurance business), while guaranteeing to all people universal health care. The Wall Street Journal (2016) has disingenuously attacked Bernie Sanders’ single-payer health care proposal for costing 15 trillion dollars, and therefore becoming unaffordable to the federal government.
First, the spending is spread over 10 years rather than 1, which puts the annual cost at a more manageable 1.5 trillion dollars. If that sounds like a lot of money, we have to question how the figure is calculated to begin with. Second, even if that figure were true, the Journal conveniently chooses to ignore the tremendous savings that businesses and individuals generate from not paying for private insurance. If the deductibles and co-payments of tens of thousands of dollars disappear and become replaced by a few thousand dollars in tax increase, then the American people are generating net savings. I know that people don’t operate on economic foresight- no understanding of behavioral economics needed. But people have to realize the potential of providing universal health care at a lower cost, because there is a clear loser of single-payer: the private insurance industry.
The United States has the audacity to be the only country in the industrial world that does not guarantee health care to all people as a right. Yet, fully 58% of Americans say that they favor a federally–funded health care system over the ACA (Gallup 2016). The discourse is based on how do we tinker with the ACA so that it saves some more lives and saves us just a little bit of money, and ranging to how do we repeal the ACA? As Chomsky writes, “The smart way to keep people passive and obedient is to strictly limit the spectrum of acceptable opinion, but allow very lively debate within that spectrum.” We can do better than that.