Five years old, going on ten: The future of the Affordable Care Act

Anniversaries are times for taking stock. And so it is with the Affordable Care Act—aka the ACA or Obamacare.

On this, the fifth anniversary of the law’s passage, the law remains in existential jeopardy. The Supreme Court is considering whether the law, as drafted, permits payment of tax credits in the 34 states that use HealthCare.Gov as their administrative agent. These credits make insurance affordable and the law sustainable. Should the Court rule that these credits cannot be paid, millions will find insurance unaffordable. Insurance markets in most of those states will be thrown into chaos. Congress could easily amend the law to prevent these consequences. Alas, partisan gridlock makes such legislative action unlikely. A Supreme Court decision disallowing the tax credits would threaten the law’s survival.

So would the election of a Republican president in 2016, given the virtually unanimous GOP opposition to the ACA. A Republican president would almost certainly seek to scale back, repeal, or dismember the ACA—either directly or by empowering each state to modify the law. Allowing each state to go its own way, would violate a fundamental objective of the ACA—to assure that all Americans, wherever they live, have access to insurance on similar terms.

Thus, despite having reached the age of five, the ACA continues to live on a precipice. Nonetheless, I think the law will survive. More than twenty-five million people already enjoy insurance coverage as a result of the ACA. Even more will be covered by January 2017 when the next president takes office. All major elements of the health care system—insurers, hospitals, doctors, drug and device manufacturers—have an interest in continuation of the ACA. This alignment of forces suggests that Obamacare will survive current threats.

It is important now to look ahead, rather than counting up past achievements. What will its tenth anniversary look like?  Here are three developments to watch.

1. Will the slow-down in growth of health care spending continue? 

For decades, U.S. health care spending outpaced income growth. That is why the share of national output devoted to health care rose from 5 percent of gross domestic product in 1960 to 17.4 percent in 2009. Continuation of that growth posed grave fiscal challenges. On the eve of enactment of the ACA, budget projections indicated that continued pell-mell growth of health care spending would cause ever larger budget deficits and explosively growing national debt.

Starting in 2008, however, growth of health care spending slowed. No one yet knows for sure why. The recession probably was partly responsible. No one is yet sure whether recovery will bring renewed spending growth. So far it hasn’t. Part of the explanation may be provisions of the ACA that are intended to slow the growth of health care spending. By year ten, we will know whether the ACA’s cost control provisions have been sufficient to permanently ‘bend the curve’ of rising health care spending.

Should the slowdown persist, ACA supporters will have good reason to claim credit. Such reforms as ‘bundled payments for health care and accountable care organizations will be hailed as successes. The ACA will have catalyzed important and enduring changes in the way health care is paid for and delivered. The opposite is true if rapid growth of health care spending resumes. Health care spending would once again put pressure on the federal budget. Future Congresses would be driven to do something. They might listen to conservatives who have long sought to increase the financial exposure of patients when they buy insurance and when they use care. Calls for reforms along those lines would intensify. Or they might head the call of progressives, who have long favored a shift to a single-payer system. Under such a system government would have more power than in now does to set rules for what services are covered, how much is paid for them, and how service delivery is organized. Which side might prevail would depend on political considerations outside the health care debate, but changes in the ACA would be likely.

2. Will employer-sponsored health insurance survive?

Health policy analysts of all political persuasions have long agreed on two points. First, if health insurance covers all or nearly all expenses, users will demand some services that provide negligible benefits and cost far more than they are worth. Industry provides marginally better innovations at greatly increased costs. To reduce this problem, the ACA’s designers persuaded Congress to discourage very high-cost plans by imposing a tax on them. That tax starts in 2018. Analysts also agree on a second point—linking health insurance to one’s place of employment makes little sense. So, ACA designers created a system under which employers could continue to pay for health insurance for their employees, but their employees could buy insurance through exchanges. Under some circumstances employees can keep the same plan even if they change jobs.

This new system starts gradually. The ACA initially allowed employers of fewer than 50 workers to arrange to have their employees buy insurance through exchanges. Starting in 2016 employers with up to 100 employees will have this option. In later years the health exchanges may, at their option, authorize larger employers to use the exchanges. Already, two exchanges require small employers to use the exchanges. Were all employers to use the exchanges, employees might never have to switch health insurance plans when they change jobs. In short, the ACA could eventually be used to end the linkage between workers’ health insurance and their places of employment.

It is still too early to tell whether that evolutionary process will occur. Some groups like the current linkage of workplace to health insurance. Some unions view their ability to collectively bargain for generous fringe benefits as one of their key roles. Some employers view generous fringe benefits as a way to attract the kind of work force they seek. But as the U.S. workforce becomes increasingly mobile, the inconvenience and downright hardship resulting when workers who change jobs are forced to change their health insurance and often their doctors will grow. By the time the ACA reaches its tenth anniversary, we will know whether the health reform law is gradually breaking the chains binding one’s job and one’s health insurance.

3. Will the health exchanges make private health insurance markets work—at last?

For nearly all Americans, U.S. health insurance ‘markets’ have been markets in name only. It may come as a surprise, but Medicare beneficiaries are the only large group that currently has a wide choice among plans. They typically may choose among many private health plans under Medicare Advantage and traditional Medicare for their basic coverage. And those enrolled in traditional Medicare may choose among clearly defined alternative plans for so-called ‘medi-gap’ coverage. In contrast, workers who receive health insurance as a fringe benefit of employment typically are offered only one or a few plans. Before enactment of the ACA, individuals in the non-group market typically faced a bewildering array of alternatives with myriad subtle differences that made informed comparison virtually impossible.

The ACA has created the possibility of genuine competition in the individual insurance market. It creates health insurance exchanges that can structure insurance offerings and present information in a clear and comprehensible fashion. Nothing like this existed in the past, with the exception of the Federal Employees Health Benefit Program for federal civil servants and their families.

The ACA gives the exchanges broad additional powers, as well. They can regulate insurance offerings in numerous ways to promote competition and encourage rational choice—for example, by limiting the number of plans on offer, by requiring companies to offer certain standardized plans and by mandating plans to provide accurate and up-to-date information on available services and providers in simple format.

To date most exchanges have used these powers sparingly. Most exchanges have been preoccupied with basic administrative challenges arising from defective software that has threatened to derail enrollment, calculated tax credits incorrectly, and failed to process insurance applications. Most have kept afloat with manual ‘work-arounds.’ Some state exchanges have switched to software developed by other states. Some have turned the job back to the federal government. None of these problems is insuperable, however vexing they have been to both administrators and clients. With time, all will be solved.

At that point, the exchanges can exercise the regulatory powers they have been given to help make insurance markets operate the way other well-functioning markets do. In so doing, they can help achieve goals long sought by both conservatives and progressives. They can help make insurance markets a place where consumers can choose among competing insurance plans armed with clear information. That has been a dream of conservatives, who have great faith that competitive pressures will help to hold down prices and goad insurers to provide high-quality services. At the same time, the exchanges would be a public entity that could help to control the growth of spending by disallowing sale of plans that charge excessive premiums and can set enforceable standards on providers to delivery high quality services. That is a goal that progressives have claimed a single-payer health insurance entity would achieve. Exchanges can achieve both goals. But they can do so only if they become the focus for the purchase of insurance by a large proportion of the U.S. population and aggressively use the powers granted to them under the ACA.

It is still too early to tell whether the ACA will be the engine for controlling spending growth as well as for extending insurance coverage. It is still too early to tell whether the exchanges will make one’s insurance plan and the doctors one sees independent of where one happens to be employed. It is still too early to tell whether the health insurance exchanges will become the instrument for rationalizing the market for insurance. By the tenth anniversary of the ACA it will be clear whether these goals are on their way to being achieved. The process will not be complete even then. Both the evolution of the health insurance market and improvement in the efficiency of health care delivery have a long way to go. By the ACA’s tenth anniversary, Americans will have clear signals on whether that journey is well under way.