Don’t Forget, Healthcare Pre-ACA Was Absolutely Atrocious.
In his 2008 campaign, Barack Obama ran on changing healthcare. Why would the public have been receptive to that? Because healthcare sucked before 2010. Prateek Agarwal documents healthcare before ACA.
Pre-ACA, there were three types of private health insurance markets, all regulated by the state: large groups, small groups, and individuals.
Large Groups were most large employers who do not buy their own health insurance. They were self-insured and employed insurance companies to be their administrators. Small Groups ranged from 2 to 50 or 50-99 individuals. Individuals were citizens not in large or small groups. The largest insurer of the small and individual group market insured a group larger than those two markets even though there are thousands of insurance companies. Choice? Pre-ACA? What choice?
Coverage and Premiums
Pre-ACA, employer sponsored healthcare covered 58.4% of people. Medicaid covered 17.7% of people. 7.3% of people paid themselves. 4.9% were covered through Medicare, the VA, and other forms of insurance. 17.7% of people were not covered by anything. Premiums of $200-$1000 for small and individual coverage are common even with high deductibles. They also have limited coverage. It is very common for people to be denied coverage or excluded from some coverage.
Premiums have two costs, expected costs and a loading fee. Loading fees are administrative and marketing costs plus the payment for bearing risk. Economies of scale play a part in lower premiums for large groups.
Under this system, spending could be higher than predicted. The problem pre-ACA was limiting adverse selection or those who want health insurance are likely to need it the most which means costly patients for insurance companies. In the individual and small group market, a larger than expected number of people with extremely high costs, share a disproportionate amount of cost.
Limiting Adverse Selection
Insurance companies used techniques like market segmentation which specialized in small employers or individuals selling to a target group, one that is far less likely to be sick. Medical underwriting allowed companies to charge more for people whose medical history correlated with high costs, like old people. There was always straight denial coverage. Companies could exclude coverage for pre-existing conditions meaning they didn’t cover many diseases. Pre-ACA, companies also used different benefits and cost sharing to attract people who would have lower expenses and discourage people with high costs. An example of this is offering a health club benefit which is attractive to people who consider themselves healthy versus discouraging to someone who is old and overweight.
Pre-ACA, 50 million Americans were uninsured. 1 in 6 people under 65 were uninsured. 28% had household incomes above the median household income of $50,000. 90% of the uninsured had incomes less than 400% of the Federal Poverty Level. These households will get premium subsidies under the ACA or Medicaid coverage depending on their incomes. 75% were younger than 45 years of age (15% of them were children). Half of them had incomes below $30,000.
Premiums had doubled between 2002 and 2012. Premiums for small employers had more than doubled. This is all pre-ACA.
John Toussaint writes how The Institute of Medicine estimates that 30%–40% of that care is waste. In other words, 30%–40% of the activities of care delivery are essentially unnecessary to the health outcomes of patients. These wastes include unnecessary procedures, waiting for tests and appointments, duplicated services, and medical errors. There are parts of the Affordable Care Act that were specifically designed to attack waste. Some of those activities are just now coming to fruition and should be retained.
What’s Working: Payment System
Toussaint explains how the present fee-for-service system rewards the wrong behavior. It’s a system that focuses on treating sickness and does not reward providers for keeping people healthy and out of the hospital. Hospitalization drives 80% of the overall cost of care. Reducing it can lead to large overall reductions in cost for caring for populations.
The ACA legislation addressed this by establishing different financing models. These new mechanisms have been aimed at paying for value, not volume of services. Administered by the recently created Center for Medicare and Medicaid Innovation (CMMI), the models have created rewards for care-delivery organizations that deliver better health outcomes for populations of patients.
CMMI has introduced many payment model changes, including accountable care organizations (ACOs), medical homes, bundled payments, the Comprehensive Primary Care Initiative, and the Comprehensive End Stage Renal Disease Initiative. Other payment-model changes are on the way.
ACOs have grown rapidly, with over 800 now registered with CMMI. They are designed to bring hospitals and physicians together in a structure that delivers more-coordinated, less-wasteful care. The program is early in its life cycle, but the results are showing improved quality with a small but meaningful reduction in the overall cost of care. They are extremely important because providers are paid to avoid unnecessary care, reduce errors, and keep Medicare beneficiaries out of the hospital — ACOs share in savings created over a pre-established target.
CMMI is now introducing full-risk-sharing models with providers in the Next Generation ACO Model. This can include a per member, per month payment for large populations of Medicare beneficiaries. Allowing providers to have the payment up front will remove the fee-for-service world completely and unleash the creativity of provider systems to design radically new care models that are patient centered.
Public Reporting of Quality Performance Data
Toussaint also notes that as a direct result of the ACA provision to publicly report hospital performance, the Centers for Medicare and Medicaid Services (CMS) released overall rating systems for hospitals in July of this year. As its announcement explained, “The new Overall Hospital Quality Star Rating summarizes data from existing quality measures, publicly reported on Hospital Compare, into a single star rating for each hospital, making it easier for consumers to compare hospitals and interpret complex quality information.”
MACRA also established similar public reporting activities for physicians. By releasing the Medicare data to certain qualified entities in states, the public has access to comparative reports on individual physicians. In addition, this act gives physicians incentives to move away from fee-for-service to alternative payment models like those described above. This aligns physicians and hospitals to deliver higher-quality, lower-cost care for the populations of patients they serve.
Focus On Improvement
Collaborative learning networks have been established throughout the country and are producing encouraging results according to Toussaint. CMS has facilitated these networks by committing resources to establish them. An example is the Hospital Engagement Network (HENs). Seventeen HENs were created in 2011, which include more than 3,000 hospitals. Together, they worked to reduce the rates of 10 types of harms, such as patient falls and pressure ulcers. This was part of CMS’s Partnership for Patients Initiative, which was designed to improve the quality performance of hospitals. It was a partnership between the government and the private sector, including many consumer groups.
The U.S. Department of Health and Human Services has touted the program’s overall success. For example, it stated that 50,000 fewer patients died, 1.3 million adverse events were avoided, and $12 billion was saved at hospitals because of reductions in hospital-acquired conditions from 2010 to 2013. There has been some controversy as to the accuracy of these results, as there was some variation in measurement from hospital to hospital, but overall this improvement initiative delivered real results. The CMS renewed the effort in 2015 for one year.
Similar collaboratives were established for physicians — for example, the Transforming Clinical Practice Initiative, which was designed to support clinician practices through nationwide collaborative, and peer-based learning networks that facilitate practice transformation.
Eliminating Pre-Existing Conditions And Staying On Your Parents Plan
There are two elements of the ACA that appear to have clear bipartisan support. One is allowing people to purchase insurance even if they have a pre-existing condition. This has reduced the insurance rates for this group of people considerably. The other is allowing children up to the age of 26 to stay on their parents’ insurance plan. Of course, the irony is that without a risk pool that includes everyone, the uninsurable become so expensive that insurance premiums skyrocket, something that just happened for people who purchase plans on the exchanges.
What’s Not Working: Exchanges
The cost of insurance is driven by the actuarial risk of the insured. The fundamental flaw of the ACA insurance exchanges was that people could easily opt in and out.
Toussaint explains how; for example, healthy young people are allowed to opt out of the requirement to pay for insurance by paying a penalty that was extremely low compared to the actual cost of purchasing health insurance — even with government subsidies and the relatively low original premium rates. At this point, there are millions of healthy young people, and others, who prefer to take their chances without insurance. They then jump into the exchange at the long open-enrollment periods if they get sick. This skews the overall risk pool and is leading to some of the exorbitant premium increases this year.
A Rand study recently found that between 2013 and 2015, 22.8 million people gained coverage and 5.9 million people lost coverage, resulting in a net increase of 16.9 million people with insurance. The number of uninsured Americans fell from 42.7 million to 25.8 million. The risk pool is an issue that must be addressed as we continue to make progress. Here are three possible alternatives:
The first option is to continue the exchanges in their current form but make the penalties close or equal to what the least expensive policy on the exchange costs. This will reduce the number of healthy people who don’t sign up. Shorten the enrollment period and make it mandatory that people stay in the pool for at least a year. This will tighten the risk pool and help insurers better predict the cost of coverage each year.
The second option would allow states to create and manage insurance exchanges but also give states “the ability to band together in regional pooling arrangements, as well as the creation of robust high risk pools, reinsurance markets, or risk adjustment mechanisms to cover those deemed ‘uninsurable.’” Paul Ryan has been advocating for this.
The third option is Medicare for all. Some have referred to it as the “public option.” Designed for those who don’t have employer-sponsored health insurance, it would be administered much as Medicare is administered today. Employers could opt in to the plan for their employees by paying a fee that covers most of the cost of their employees, but they wouldn’t be mandated to do so. Some have argued this would allow the government to negotiate better prices. Having a single administrator would also reduce administrative expenses.
To put the exchanges in perspective, over 4 million of the newly insured people enrolled through the exchanges, but 6.5 million of those with coverage were due to Medicaid expansion. There are 20 states that have opted to not accept federal funding to expand Medicaid. It is estimated that 3 million more people could be covered if these states would expand Medicaid.
One option is for the CMS to provide block grants to states for Medicaid, with the states taking control of managing the population. This would only work if states don’t increase eligibility requirements.
Parts of the ACA are clearly on the right track to address health care reform. Other parts need to be significantly improved. Of this, there is no doubt as the focus should be on improving the affordability of health care for every American. Just remember, we have ACA because insurance was so bad pre-ACA. We are definitely better off now than before.