Ten Tradeoffs in Replacing Obamacare

Sepatuads.com   Februari 06, 2017   Affordable Care Act, Donald Trump, Lamar Alexander, Republicans, tradeoffs, Wharton   Comment  

Donald Trump told Bill O'Reilly yesterday that it could take a year to develop the Obamacare replacement, and Lamar Alexander has started to talk about "repair" instead of "replace."  That's heartening -because there are so many difficult tradeoff decisions to make - and these require study, thought, deliberation, and process.  That clearly wasn't going to happen if the alternative was revealed right after Tom Price is confirmed as the Secretary of Health and Human Services.

I taught a session at Wharton about these tradeoffs.  See here for a copy of the deck.  The tradeoffs include:

1. How should health care be funded?
• The US has used a hybrid funding system, combining government, employer, and out of pocket funds. 
• Obamacare increased the portion of government funding - with no appreciable decrease in employer funding, and a decrease in the uninsured and a decrease in out of pocket liabilities.  
• Some Republican plans want to sharply decrease government funding - arguing that this creates moral hazard (people value less what they don't have to pay for) and increases the federal deficit.   The Cruz replacement plan, for instance, eliminates Medicaid expansion and ACA subsidies and replaces them with.. Nothing.
2. How should the government fund its contributions to health care spending
• The Affordable Care Act used a combination of taxes on providers (hospitals, health plans, drug companies, medical device manufacturers, and even tanning salons), reimbursement decreases (elimination of disproportionate share fees to safety net hospitals, lower Medicare fee indexing for all hospitals), taxes on the rich (increase in Medicare Part A premiums, tax on unearned income), and penalties (individual and employer mandates, Cadillac tax) to fund the Medicaid expansion and subsidies for individuals in the exchanges. 
• No one likes their fees being cut or their taxes being hiked.   Many on the right decry the redistribution of Obamacare (although all insurance is redistribution).   Hospitals and others are agitating to be sure that if the promised coverage increases are revoked they get back the fees they lost with the ACA.
3. How should government frame its contributions to health care spending.
• In the US, the federal government delivers some care (VA, Military), pays for some care (Medicare), pays health plans for care (Medicare advantage), and pays states for care (Medicaid).  
• Obamacare added 16 million to the Medicaid rolls, and uses an advanceable tax credit for subsidies for exchange plans for those in Exchange plans.  Virtually all of those added to the Medicaid rolls are in private managed care plans contracting with states.
• Many Republican plans want to change tax credits (available to all) to tax refunds (available only to those who have high enough income to pay taxes>
• Some Republican plans offer subsidies to all (but presumably this will mean much lower subsidies for the working poor - so they would be most likely to drop their insurance).   Other Republican plans cut subsidies out altogether.  
4. How should we pool risk?
• In the US, we pool risk via employer.  We pool risk for those over 65 across the community (Medicare), and for the poor by state (Medicaid).
• We seem likely to maintain multiple risk pools - although larger risk pools have greater actuarial stability.
5. What should be covered?
• Historically states have regulated fully insured health insurance, and there has been little or no regulation of benefit design in employer sponsored health insurance.
• The ACA created 10 essential benefits -and mandated that all qualified insurance would offer all of these services. The ACA also mandated first dollar coverage for preventive care.
• Pre-ACA, the majority of individual health plans excluded maternity care.   (That's great for the 60 year old single man who doesn't need to pay for coverage he will never access. But it means that a lot of young women will have no coverage for delivery -  likely leading to much foregone prenatal care and a continued increase of our maternity  mortality rate
• Many Republican plans favor repealing these mandates  in an effort to make insurance more affordable.   They are right - first dollar coverage for high value services means that all other services have higher deductibles or are uncovered altogether.  But eliminating these mandates means that fewer people will get these high value services, leading to lower overall quality of care.    These mandates also decrease the opportunity for risk selection - where health plans design benefits to appeal only to those unlikely to use expensive services.
6. How should we encourage healthy people to get insurance?
• Health insurance is the transfer of wealth from healthy people to sick people - so the only way to keep premiums down is to have a lot of healthy people in the risk pool.  
• The ACA accomplishes this by subsidies for those with modest or low incomes and by an individual and an employer mandate (not yet enforced) to penalize those who do not obtain insurance.
• An insurance plan that allows people to purchase anytime will encourage participants to sign up only when they are sick - and such plans are grievously expensive because of their adverse selection.
• Most of the Republican plans do away with 'guarantee issue" for those with preexisting illness - and replace it with  a guarantee of issue only if the person has uninterrupted coverage
• Incidence of preexisting conditions is widespread.   KFF reports that 27% of those under 65 would be uninsurable in the individual market, and the Rockefeller Foundation has found that 53% of households include at least one member with a preexisting conditions  Source
7. How should we cross subsidize within insurance pools?
• Cross subsidies must always be from the healthy to the sick.  
• The ACA requires that the maximum differential in the cost of health insurance is 3:1 - which is a subsidy from the young to the old (and the healthy to the sick)
•  Obamacare also does a substantial amount of subsidization from the rich to those who are poorer through the taxes that fund the subsidies and Medicaid expansion.
• Many Republican plans increase the differential to 5:1, which would make insurance much more affordable for the young and healthy.  The tradeoff: it will make insurance much more expensive for the older and the sick. Some of these plans might be able to increase insurance coverage among the healthy (who least need it), but they would all likely decrease insurance coverage among those who are older and have existing illnesses.
8. How should we pay providers?
• There is widespread agreement that we should migrate away from paying providers fee for service.  However, this migration is hard, and providers are pretty satisfied with the current arrangement, which matches expenses and efforts with reimbursement.
• The ACA includes the Centers for Medicare and Medicaid Innovation to sponsor and evaluate payment reform trials, and authority for CMS to experiment with payment reform.
• The Republicans have not been happy with CMMI, and replacement plans so far don’t have much payment reform baked in. 
• Providers hate payment reform - and Tom Price has been an outspoken critic of payment reform efforts. 
• All payment reform requires careful evaluation.   Intelligent design doesn’t guarantee favorable outcomes!
9. How should providers be arranged?
• There has been substantial provider consolidation going back for over a decade -before the ACA was passed.
• The ACA encourages providers to join to form Accountable Care Organizations - which are able to take population payment and work to improve population health.  These organizations need more capital, so most are hospital- or health system based - which has led to increased consolidation.
• Increased consolidation leads to higher leverage, and some worry that the ACA will inadvertently contribute to higher prices
• Systems have made large investments in population health, and some providers worry that  if the ACA is repealed they will need to stop these efforts.  (WBUR interview with Tim Ferris of Partners in Boston)
10. How much should the federal government intervene?
•  The government pays over half the cost of health care (if you include the $250 billion annually spent on employer sponsored health insurance tax deductibility).  It has historically been deferential to the states
• The ACA took much more federal control, although the Supreme Court Decision that allowed states to opt out of Medicaid expansion diminished this.
• The Republican plans largely increase the state role, potentially changing Medicaid into block grants, and doing away with ACA mandates.   At the same time, allowing insurers to sell across state lines without substantial federal regulation could make it difficult for states to exert their own control.
• Some believe that the invisible hand of the market would do fine in terms of being sure that high value care was maximized and we didn't spend precious resource on snake oil.  (Some of the FDA Commissioner candidates even want the FDA to approve based on safety alone - without regard to efficacy.).  I fear that health care continues to look unlike a classic market, with information asymmetry, barriers to entry and exit, and poor standardization.

These are a lot of weighty decisions about tradeoffs - and considering them carefully will take time.  I'm heartened that it appears we will be more thoughtful than "repeal and ignore the consequences." The conclusions of a reflective process will likely be different thanwhen the Democrats held the White House and Congressional majorities - but ignoring tradeoff decisions will not lead us to good public policy.