The Affordable Care Act is in the midst of the death spiral critics have long predicted. Before it enters the final death throes, Republicans must publicize viable market-based alternatives to replace it. That is the only way to avoid the potentially disastrous government-run, single-payer health care system that would result from Hillary Clinton’s and President Obama’s policy proposals.
The Death Spiral
The ACA’s individual mandate is not working for either insurers or consumers. Three out of the big five insurers – Aetna, United Healthcare and Humana – have effectively pulled out of the exchanges after losing hundreds of millions of dollars. Seventeen of the ACA’s 23 non-profit health-insurance co-ops, which received $2.4 billion in taxpayer funds, have failed and five others are on the brink of collapse.
According to a recent analysis by the consulting company Avalere Health, in 2017 nearly 36 percent of markets may have only one insurer participating in the exchanges, up from 4 percent in 2016. Nearly 55 percent may have two or fewer choices, up from 33 percent. Based on contacts with state officials, Bloomberg recently reported that at least 1.4 million people in 32 states will lose their current Obamacare plans due to insurers quitting the exchanges.
The reason? Fewer people are enrolling and those who do have high medical costs. Young healthy individuals (18 to 34-year-olds) failed to sign up in the numbers required to make the program viable. According to researchers at the Kaiser Family Foundation, this group was supposed to make up 40 percent of the exchange market. But, according to the Department of Health and Human Services, the number has reached only 26 percent.
Fewer insurers on the exchanges and sicker insureds means higher premiums for everyone else. According to Charles Gaba, the average insurance premium increase for 2017 is expected to be roughly 25 percent. This is on top of double-digit increases in previous years. Compare that with current overall inflation running at about 1 percent.
In many cases deductibles have also doubled or tripled to several thousand dollars a year.
Perhaps not surprisingly, according to the IRS, in 2014 roughly 12 million people claimed exemptions from the ACA and another 7.5 million paid the penalty for not having health insurance, meaning that for every one person enrolled, two others declined.
As former-President Clinton recently stated, working-class Americans who fail to qualify for subsidies “are out there busting it, sometimes 60 hours a week, [and] wind up with their premiums doubled and their coverage cut in half. It’s the craziest thing in the world.” Even Minnesota’s Democratic Governor Mark Dayton has acknowledged “the reality” that “the Affordable Care Act is no longer affordable to increasing numbers of people.” So much for President Obama’s oft-repeated statement that the average family would see the cost of its coverage decline by $2,500 a year.
The ACA’s massive regulations have played a major role in driving up health care costs, forcing doctors and administrators to prepare unproductive paperwork with patients footing the bill. One study shows that administrative costs are set to add $274 billion to health care costs through 2022. The statistics tell a scary story: The number of people supporting each doctor has increased from 10 in 1990 to 16 today. Among these, half are currently administrators handling the burgeoning paperwork.
The ACA’s employer mandate is not faring any better than the individual one. A March 2015 survey by the consulting firm Mercer found “virtually no change between 2014 and 2015” in the average percentage of employees signed up for employer-sponsored health plans. It is clear that even with employers covering the vast majority of the cost, employees are not interested in the type of coverage the ACA mandates.
The Fix
More competition, not more government, is the answer. In fact, the ACA’s burgeoning costs are already causing the private sector to develop cost-effective means for providing health care services outside of the traditional insurance model. Many patients are now paying cash for routine procedures such as fixing a broken nose, getting X-Rays and other tests, or even minor surgeries, increasing pricing discipline and transparency.
As the Wall Street Journal and the Los Angeles Times have documented, this proliferation of cash for services cuts both bureaucracy and costs and often, making such services cheaper than when insurance is involved.
Consider also the growth of app-based health care such as Doctors on Demand. Entrepreneurship and technology are bringing back doctor house calls. Transparent prices and operation outside of the general health-industry complex mean that you can get a doctor to your door in less than an hour and for about $100.
Such fee-for-service innovations cut out the red tape, administration costs and over-insurance that are responsible for so many of the current problems. In the words of Doctors on Demand, it’s “more Hippocratic, less bureaucratic.” In other words, more patient focused, less government focused.
Then there is MinuteClinic, a subsidiary of CVS, the largest retail clinic provider in the country. It has cared for more than 20 million patients and has a 95 percent customer satisfaction rating. MinuteClinics are staffed by nurse practitioners and physicians’ assistants who can handle routine diagnoses and treatments and can write prescriptions for common family illnesses. They are affordable walk-in clinics, open seven days a week (including evenings) and conveniently located inside CVS stores.
These are just some examples of how the market – burdened and shackled as it is by the ACA’s 20,000 pages of regulations – is working to fix health care and lower costs across the country, one innovation at a time. Legislation must strip away the thousands of regulations and mandates in order to make these health-care success stories the norm.
John Goodman, a leading health care policy analyst, offers the following principles that could make this a reality:
1) Abolish the ACA mandates.
2) Repeal all of the ACA’s anti-job provisions.
3) Repeal thousands of pages of additional regulations.
4) Deregulate and denationalize the health-insurance marketplace in every state.
5) Offer all Americans a universal (refundable) tax credit (similar to the child tax credit) for health-insurance premiums and deposits to Health Savings Accounts.
In 2016, House Rules Committee Chairman Pete Sessions and Senator Bill Cassidy, R-La., introduced legislation incorporating these principles.
Tax credits and health savings account are the keys to workable health care reform. They would allow individuals to purchase insurance that works for them and incentivize insurers to compete to provide the services buyers actually want, driving costs down and quality up. They would also incentivize individuals to purchase insurance because they would not receive the tax credit unless they do so.
According to health care economist Sally Pipes, a reform that includes a sizable age-based tax credit would increase the funds available to purchase health care. The credit would be paid to individuals and not insurance companies. For those who do not pay income taxes, the credit would be refundable (the individuals would get a check to buy insurance or deposit in their Health Savings Account). This would allow true universal access to health care while keeping the market functioning, overcoming opponents’ objections that such reform only benefit the rich.
The Choice
There is no question that the ACA is a failure. A market-based replacement would jump-start the nascent health care fixes already taking place in the incredibly resilient American economy, provide more efficient and less expensive quality health care and remove the ACA’s daunting obstacles to economic growth. Perhaps most importantly, a market-based, patient-centered approach could actually work. Donald Trump and Paul Ryan have outlined proposals that indicate a willingness to adopt such a plan. For the sake of all Americans, let’s hope they will have the opportunity.