As we watch for a new version of a Senate health care bill today, an outside observer might think that Congress is just dysfunctional, lurching from one extreme to another in search of something that works for health care reform.
The latest development has been the inability of Republicans to even agree on their own proposal and, worse yet, what should come next if it fails. Should they repeal the Affordable Care Act and worry about a replacement later or just try to “fix” the ACA now?
But the problem is much deeper than just a policy fix. As a former health insurance CEO and professor of health finance, it seems clear to me that Republicans are making five key implicit assumptions that are inherently problematic:
1. If it’s your own money, you’ll be more careful in how you’ll spend it.
This foundational belief rests on general experience in markets for most goods, and it has led to Republican support for Health Savings Accounts (HSAs), in which people set aside their own money to pay for their health care costs.
Landmark research showed that this approach could work – but under special conditions. The RAND Health Insurance Experiment is the basis for current HSAs. It demonstrated that people could save money – with no worsening of their health – if the cost sharing (deductibles and co-pays) was completely prefunded in individual HSAs. The only major exceptions were for kids and some chronic conditions.
But current proposals have extended this logic to populations, such as those with low incomes and few assets, where these findings are not applicable. Furthermore, HSAs generally are not fully funded to the levels used in the RAND research.
Yet, the Better Care Reconciliation Act, as the current Senate bill is officially called, adds a substantial boost to HSAs, and most state-level Medicaid proposals include a modestly funded health savings account. The problem with this Republican approach is that poor people don’t have any money to begin with and typically can’t afford to buy insurance or pay deductibles.
Furthermore, even those with more money aren’t very good at using their HSA money to shop for care, due to opaque prices for services and lack of information about treatment requirements.
2. Many or most poor people (Medicaid recipients) can work and should contribute to pay for insurance.
While the Medicaid expansion enrollees are working already (by definition, they have income above the poverty line), their job prospects and history are marginal. The 30,000 Medicaid recipients in the health insurance plan that I ran as CEO, for example, had about nine months of Medicaid eligibility before they got a job and lost coverage.
But the myth persists that Medicaid is loaded with moochers who simply do not choose to work and won’t pay for coverage anyway.
The fact is that very few fall in this category. Work requirements and required premiums may be simply a way to reduce Medicaid rolls using a faulty assumption.
3. Government restrictions are holding back insurers from competition that would drive costs lower.
Both the Senate and House alternatives cut restrictions and taxes on insurers. Most important of these are the broadening of the range of premiums allowed and the elimination or weakening of required essential health benefits, such as preventive care and maternity coverage. Undoubtedly, these changes will allow premiums to drop – but primarily for the healthy population that needs insurance less while others pay more.
Cross-state competition among insurers is a big Republican talking point. The rules of Congress exclude consideration for this particular legislation, however.
What’s more, it is wishful thinking that, with less regulation, there would be a flood of out-of-state insurers entering new markets and driving health care costs down. Insurers are able to compete on premiums by obtaining favorable contracts with providers. New entrants simply won’t get rates comparable to those already in a market.
In any event, the fact is that it is recent government-induced uncertainty that is driving insurers out of the market and forcing huge increases in premiums filed for 2018 offerings.
It is more than ironic that Senate Majority Leader Mitch McConnell now suggests that they may need to “shore up the individual market” when the Congress is the main reason for the instability.
4. Physicians should be the only ones making care decisions (with the consent of their patients) since they know best.
Health and Human Services Secretary Tom Price, an orthopedic surgeon, was a vocal advocate of this view – before he accepted the Cabinet job.
Recently, however, from my observations, he seems to have discovered that payment incentives and organizational innovation actually do improve quality, satisfaction and cost.
Perhaps acknowledging this, the Senate plan seeks to extend these payment incentives and other ACA innovations through a new “Medicaid Flexibility Program” under its block grant options to the states.
Unfortunately, however, the total amount of funds available to state Medicaid programs will be cut dramatically under current proposals. On the principle, however, the Republicans seem to have conceded that health care is a team sport requiring action regarding incentives, organization and knowledge, much like the Democrats, albeit with less funding.
5. Government should help people – but not too much.
The original flat premium subsidies proposed by the House are both inadequate and regressive – hurting those with lower incomes. They would have covered almost all of the premium for young people but perhaps half for older enrollees. Also, they would go to everyone regardless of income, unlike Obamacare subsidies, which were based on a defined percent of the purchaser’s income.
The Senate partially corrects this bad arithmetic – and economics – by allowing subsidies to vary somewhat by income. Unfortunately, the base level is far lower than under the ACA. Subsidies are cut substantially for the poor while giving the wealthy tax relief.
So the bottom line is that the implosion of the Obamacare exchanges that Republicans have predicted may become a self-fulfilling prophecy under replacement legislation.
Unfortunately, even if the Senate bill doesn’t pass, it is likely that the grand experiment of Obamacare – advancing the social objective of a fully insured population using a competitive but regulated marketplace – will fade away as insurers run away from unpredictable markets.
We may come full circle. We could end up with a dysfunctional individual market and a much smaller Medicaid population with many more uninsured people. Once again, Republicans and Democrats continue to debate specifics – rather than deal with differences in beliefs – in an evidence-free brawl.