The Future of the Affordable Care Act: a Debate on Its Effects

Editors’ note: Henry Aaron delivered the following remarks at the Conference on Equity and Choice in Health Care Access, hosted by the University of Chicago on April 12, 2013. The conference focused on issues related to health care access post-Affordable Care Act.

It’s late in the day. Everyone is probably a bit tired. And most everything has been said, although, as former Representative Morris Udall once said late in a conference, “not everyone has said it.” You are probably more interested in getting to the airport or going home than in anything I might say. So, I have decided that instead of giving a talk, I’d host a debate.

The two debaters are here with me. I’ve known them so long, I feel they are part of me. The topic is “Prospects for The Affordable Care Act.” The first debater is a happy soul, a real “glass is half-full” person, optimistic and upbeat. The first part of her name is Polly; you can guess the last part.

The second speaker sees problems and threats around every corner. He thinks that anything that can go wrong will. He goes by just one name: Murphy. We will hear from them in turn and you can then ask them questions. Polly?

Thank you, Henry.

Let’s agree on one thing…the nation is politically polarized. Half of us supports the Affordable Care Act. Half of us don’t.

That said, the health reform law has survived its two greatest existential threats. The Supreme Court sustained the core element of the legislation. And, of course, the 2012 presidential election reelected Barack Obama, its champion. So, we know that implementation will proceed.

We know some other things too. Analysts have agreed for decades that coverage should be expanded. They have also agreed that costs have been growing too fast. But they disagreed about just what to do to solve those problems. So, for many years the status quo was the winner.

Meanwhile, it was pretty clear that the public was not much interested in radical change. One minority on the political left wanted some form of single payer system—Medicare-for-all. Another minority on the political right wanted individual consumers to buy insurance aided by some sort of voucher.

But most people were insured. They liked what they had. They feared change would harm them. That meant that replacing the current system was a nonstarter. The only politically feasible way to reform was to build on current insurance arrangements.

And that is just what has happened. A lot of us have come to recognize a paradox. Implementation would have been easier had Congress adopted one of these more radical policy options. President Obama and those then in control of Congress were Democrats. They tried very hard to be conservative—in the sense that they sought to disturb current insurance arrangements as little as possible.

The Affordable Care Act contains elements on which there is broad agreement. The current fee-for-service system needs to be replaced. So do certain current practices of insurance companies that are both understandable and deplorable—charging the sick or the old premiums that are unaffordable except for the well-to-do, denying coverage to those in greatest need, canceling coverage for heavy users of services. Fragmented delivery of care makes high quality hard to establish, maintain, and verify. The tax breaks for employer financed health care need to be curbed or eliminated.

On all of these goals liberals and conservatives mostly agree. On all of them, the Affordable Care Act contains, in at least embryonic form, provisions to move the nation in the right direction.

I want to quote from a recent talk by Alice Rivlin on these matters. I—that is, Polly—sit next door to Alice. She is pretty hard-headed and experienced. But, as far as optimism about the ACA is concerned, she is my—that is, Polly’s—soul mate. Alice writes:

“One of the persistent criticisms of the ACA rings absolutely true: it is a complicated law, not easily explained in sound bites. Its effectiveness will depend heavily on how well it is implemented by numerous players, especially the states. But the complexity is not attributable to its radical nature. On the contrary, the ACA is complex because its authors aspired to tweak our complicated, fragmented system of delivering and paying for health care without changing the system in any drastic way. It takes a lot of words to write that tweaking into legislation.”

Further quoting Alice Rivlin:

“In sum, I believe we are close to a workable bipartisan solution to the health care dilemma that could … provide universal coverage … and reduce the growth of health spending to sustainable rates. The elements of such a compromise involve retaining and improving the ACA…. These reforms will not involve blowing up the current system and replacing it with either a European-style single payer model or a fully market-based model. At this point in our history, publicly acceptable changes in health delivery must retain and improve the mixed public-private financing structure, including employer-based insurance coverage, Medicare, Medicaid, and federal subsidies to help low- and moderate-income households purchase health insurance coverage. They must focus on gradually altering incentives to providers and beneficiaries to participate in cost- and quality-oriented health delivery systems.

“These reforms will not give us a perfect health care system—just one that we can keep tinkering with and improving on in order to ensure that the system offers good quality care to almost everyone at sustainable costs. We won’t discover the perfect health care system, but we do have a shot at accepting the main features of a pretty satisfactory status quo and continuing to adjust it around the edges–constantly trying to make it more effective, fairer and less costly to the combination of public and private entities that are paying the bills.”

Thank you, Polly—and Alice. Things may look good to you, but while you were talking Murphy has been grimacing and squirming hin his seat. Now it is his turn. Murphy.

I don’t really disagree with Polly’s political analysis of how we have gotten where we are today. I do want to say that I thought that president Obama’s decision to go after full-blown health reform can fairly be described as either gutsy or rash.

• Gutsy, if one looks at the history of health reform failure, the analytic complexity of the task, and the political minefields that had to be safely negotiated.
• Rash, if one recalls the other problems he faced.
• Rash if one recognizes that he was betting his administration on an issue where the chances of failure were—and I will argue, still are—high.

But as one close advisor remarked “those are the kinds of decisions we elect presidents to make.”

Polly says that the 2012 election determined that the Affordable Care Act will be implemented. I don’t think that is quite right. The 2012 election determined that we will try to implement the Affordable Care Act. It didn’t guarantee that the effort will succeed, nor did it assure that the Affordable Care Act will survive. The 2012 presidential kept the Affordable Care Act alive. The 2016 election will determine whether it survives.

Seventeen states and the District of Columbia are now trying to set up state health exchanges. Seven states are partnering with the federal government to perform the same functions. Twenty-six states are leaving the job largely to the Federal government.

Five and one half months from now, the exchanges must start enrolling individuals and small groups in insurance plans that, as of January 1 next year, people must carry. Many of the states started very late. And the federal government’s implementation efforts are short of money.

The tasks that all of the exchanges have to perform are myriad and complex. I agree with Polly that the job would have been easier had Congress tossed out the whole current, messy system. Things would have been easier if the Affordable Care Act were simpler, as it would have been had it gone to a full conference committee.

But we have to go to implementation with the health system and the health law that we have—[why doesn’t that paraphrase comfort me?].

So here is a sample of items on the “to-do” list that we have five and one-half months to complete.

• Software must be written and computers purchased to enable people, most of whom know little of insurance and some of whom are close to innumerate, to choose sensibly among perhaps dozens of insurance plans and enroll in one of them— on-line, over the phone, or in person. Data on age, family status, income, and employment status will be used to compute premium subsidies to be paid to the enrollees’ chosen insurance companies and cost sharing subsidies that will be paid to the enrollees.
• Data systems have to be developed to permit enrollment officers to check all of that information in real time.
• State insurance regulations need to be conformed to the new national law.
• Insurance companies must design the plans they will offer through the exchanges and, in most states, the separate products that they will offer outside the exchanges.
• The health exchanges must decide what conditions health insurance plans must satisfy in order to be classified as qualified health plans.
• The federal law defines four levels of coverage based on the proportion of health care costs for the specified benefits the insurance must cover. Insurers have to provide the middle two, but the state health exchanges may require them to offer plans at the lowest and highest levels.
• Small businesses will have to decide what plans to offer their employees. Individuals and employees of those businesses need to be informed of the options they face and decide what products to buy.

Millions of people will start applying for coverage on October 1, 2013. We don’t know exactly how many. That will depend in part on the rules various exchanges apply. It will also depend on whether the public education campaigns yet to be launched, succeed, and on how the press, bloggers, spin-meisters, state officials, and members of Congress handle the mistakes that will inevitably be made by inexperienced officials, overwhelmed call centers, and confused applicants.

Nothing approaching the complexity of this “roll out” has ever taken place in U.S. peacetime history. People will be eligible for coverage in the following ways:

• through Medicaid, if their income is below 138 percent of the federal poverty level in those states that choose to extend Medicaid coverage as permitted under the ACA, but only for those with incomes up to 100 percent of federal poverty level in those states that do not extend coverage;
• through a “basic health plan” if their income is between the Medicaid level and 200 percent of the FPL in those states that adopt such a plan (but the federal regulations for such plans have not yet been released);
• through ordinary insurance purchased through the exchange, with subsidies, if their income is less than 400 percent of the federal poverty level and without subsidies if their income is higher.

The health insurance exchanges have the authority to require insurance sold to individuals and small businesses to be sold through the exchange. So far, only Vermont and the District of Columbia are considering such a requirement. In most places, everyone will also be able to buy insurance directly from insurance companies.

Different people within the same family may be eligible for coverage under two or more categories of coverage. Each person may be covered by one or two insurance carriers, as dental benefits may be offered separately. The category of coverage may change during the year because incomes fluctuate and family composition changes.

The subsidy payable to an individual depends both on his or her own income and on the coverage categories of other family members. Premium subsidies are based on current income or income expected over some future period. These subsidies are paid directly to the particular insurer that the enrollee selects.

But at the end of the year, a final reckoning based on the enrollees’ actual incomes, which may have risen after application, may require enrollees to repay some or all of the subsidy themselves, although they never laid hands on the overpayment.

The federal government has to set up data systems to enable the exchanges to verify earnings. Tax returns and Social Security earnings records won’t do, as they are available now only with delays of many months or even years.

People who fail to carry required insurance are subject to a fine if they fail to do so. The fine is excused if premiums net of subsidy exceed a fractions of income that themselves vary with income. People may pay the fine voluntarily. But if they don’t, the law authorizes no way to enforce the fine other than by subtracting it from tax refunds due people who over-withheld. And many potential enrollees do not file tax returns.

Mistakes and confusion are inevitable. That is the lesson from the rollout of the Medicare drug benefit and the Massachusetts universal coverage plan that closely resembles the Affordable Care Act. One might draw comfort from the fact that after rough starts, they succeeded. But this challenge is vastly harder for at least three reasons.

First, the Medicare drug benefit and the Massachusetts health plan were both passed with substantial bi-partisan support. The same cannot be said of the Affordable Care Act. Opponents have tried, with some success to deny the administration funds for implementation. This year’s budget asks for $1.5 billion—which Congress will probably not give. Opponents will pounce on the normal start-up glitches as proof that the law was a mistake and should be repealed.

Second, even if the ACA were flawlessly enforced, many people and businesses are going to find themselves facing big price increases. Why?

• The new law limits premium variations based on age to no more than three to one. Current variations are much larger.
• The law permits exchanges to impose community rating, which can mean that age-based variations in premiums are barred altogether. That means that the young will tend to face price increases.
• The law permits states to charge smokers a 50 percent surcharge. Some states have announced that they will do so. And none of that surcharge will be covered by subsidies.
• The ACA benefit standards will force many individuals and employees to buy more insurance than they are accustomed to having, and that will boost cost.
• Small businesses will all be pooled in the exchanges. That means premium decreases for businesses employing older workers, but price increases for those with young workers.

What this all means is that even if overhead expenses are reduced, as I believe they will be, and even if administration were perfect, which I am sure it will not be, a lot of people are going to have high-voltage sticker shock. And what that means in turn is that the exchanges may face nasty adverse selection problems, boosting premiums still more.

Third, real errors will be made. This law is complicated. People don’t understand it. Phone banks will be staffed by inexperienced people. The software will be insufficiently tested. There are only three things absolutely certain in this life: death, taxes, and the law named for me, Murphy.

Wow, Murphy, I don’t know whether to thank you for those comments or crawl into a cave. One thing is for sure…you took a lot more time than Polly did. So, I am going to give her a few moments to respond before we take comments from the audience.

Murphy is right to point to the ferociously challenging implementation problems that we will face. I don’t minimize them. But despite all of these threats, I remain hopeful. Seventeen states and the District of Columbia are running their own exchanges. One of those states is Minnesota—and everything works in Minnesota. And the DC exchange has some pretty good people working for it.

More seriously, I believe that some of the states, or the federal exchanges, are going to get things right or almost right. That is all it will take for those who support the Affordable Care Act to make a persuasive case that, given time and patience, all states and the federal government can do the job right.

They can and will point to the stunning advances that have been and will be achieved under the law—improved coverage of adult students, elimination of the donut hole in drug benefits, the end to practices by insurance companies that everyone deplores—charging staggering premiums or denying coverage altogether for those with preexisting conditions or who are just old, and cancellation of policies for those who need coverage most. They will be able to point to the millions of newly insured and to the hard cash that helps them afford it.

And, there is an increasingly good chance that in one area we might just get lucky. The health cost juggernaut stopped abruptly in 2009. The onset of this respite wasn’t attributable to health reform. The calamitous recession gets some of the credit. And also independently of the health law, hospitals and physicians have been reforming the way health care is delivered and paid for.

But the Affordable Care Act promises to extend this respite. It contains pilots, demonstrations, and experiments of virtually every cost control mechanism that any analyst has thought of. If these trends continue, the new law will get credit if the cost climate stays benign. Some of that credit will be undeserved. But who cares? If even a few of the ACA’s innovations in payments and delivery of care pan out, it will deserve much of that credit.

So, when the presidential election of 2016 rolls around—the one that I agree will really settle the fate of the health reform legislation—I think that there is a good chance that most people—not just Democrats and Independents, but Republicans as well—will realize that the administrative clouds are lifting and that the United States is moving ahead to become a fairer and healthier nation because of the Affordable Care Act.

Now, on behalf of all of you who have listened so patiently, I want to ask you to give Polly and Murphy a big hand. I trust that they will take any questions that you may have.