As the Affordable Care Act moved into its second open enrollment period on Nov. 15, critics seized on the fact that some beneficiaries are in for unpleasant surprises. Some of those who enrolled last time will face higher premiums if they stay with their current plans. They will have to shop around on the exchange to find a plan with a lower price. When they return to the Web site, they are likely to find more plans to choose from than they did last year. More choices – how confusing!
When shoppers find a cheaper plan, they may find they have to pay more of their health-care bills out of their own pockets. The cheaper plan may also have a narrower network of providers. If they want to stick with a more expensive doctor or hospital, they might have to pay more. If they opt for the higher costs and are eligible for a federal subsidy, they will find that the subsidy will leave more of their premiums uncovered than it did last year.
Oh, dear! That all sounds complicated, inconvenient and unfair. What have these “socialist Democrats” done to us? But wait a minute: Isn’t that how markets are supposed to work?
The United States never adopted a simple national health plan to cover everyone. Instead, we have relied primarily on employer-based health insurance, generously favored by tax laws. In 1965, we covered older people by enacting Medicare and lower-income people by enacting Medicaid. But there was a huge hole: Millions of people were left out of employer-based coverage and were not old enough or poor enough to qualify for the public programs. For 50 years, we have been arguing over how to fill that hole. Meanwhile, health care became more effective but also more expensive, and the number of people without coverage grew.
In general, Republicans argued that relying on market forces would give people what they wanted while also putting pressure on the health system to offer more effective care for less money. They argued for subsidizing Health Savings Accounts combined with high-deductible (catastrophic) insurance. Their theory was that, if consumers were spending their own money for normal medical expenses, they would demand information on providers’ prices and success rates. Providers would respond by offering better care for less. Some Republicans advocated turning Medicare, with its fixed benefits and prices, into a premium support plan in which the government would pay a fixed subsidy (sometimes called a voucher) and consumers would choose among private health plans, shopping for the best deal. They believed competition would raise the quality of care and hold down costs.
In general, Democrats argued that government should set benefits and the prices it would pay, as in a “Medicare for all” program. They feared competition among profit-seeking entities as much as Republicans feared government control. They pointed out that markets didn’t work well in health care because consumers didn’t know enough to choose what was best for them, putting them at the mercy of providers and insurers. They pointed out that competition in health insurance drove insurers to compete for healthy patients, dumping people who got sick or cost too much and refusing coverage to those with preexisting conditions.
The compromise was to combine markets with regulation, sometimes called “managed competition,” now called “the Affordable Care Act.” Health plans would compete on electronic exchanges, but there would be rules. Plans would have to offer a minimum set of benefits. People who had very cheap plans that didn’t meet the standards would have to buy adequate plans at a higher price. Plans would have to accept all comers, not cherry-pick the healthy. Individuals would be required to buy coverage, not freeload by waiting until they got sick to purchase insurance or by just showing up at an emergency room. There would be subsidies based on income to make the mandated insurance affordable. The theories of the market enthusiasts would be tested within the limits set by the government rules.
Markets, especially new ones, involve continuous exploration. Prices and offerings shift as buyers explore what is available at various prices and sellers explore what they can afford to offer at those prices. If the market works well, the process should lead to greater consumer satisfaction and more efficiency; in this case, better care at lower cost. The proponents of the Affordable Care Act don’t claim the law is perfect. The act’s markets are in their infancy. Both buyers and sellers need more information. The rules will have to be adjusted as experience accumulates.
But millions of people do have health coverage who didn’t have it two years ago. The markets are working pretty well and exploration is happening, consumers are learning and more insurers are testing the market. Should believers in market forces try to gut the Affordable Care Act? Heavens, no. They should seize this huge opportunity to prove their case by helping to make the law’s markets work effectively.