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By Jeff Adams, May 8, 2017
What would you do about health care if you were president? This article rolls out what I would do if I were president in the current environment. Keep in mind that my background is 34 years as a health care actuary. I do not pretend to know all of the answers, nor does anybody know all of the answers, but this should give the reader an idea of some of the issues that should be addressed in the next few weeks or months. Two of my strengths are: 1) I know there are many people smarter than I am, so I live by the motto “It is not what you know, the key is to know where to go to get the answers” and 2) Objectiveness so that I do not hear what I want to hear or act based on preconceived notions of truths. No matter where the reader stands on the political spectrum, there will likely be ideas in this article that are not popular. Health care reform will not be easy. It will take a decade or so to do the hardest work, but the work will also never end as we keep pace with the changing health care environment.
I am one of the growing group of Americans who believes health care is the biggest issue facing America today. Our health care as a percent of Gross Domestic Product (GDP) is 20% to 30% higher than other developed countries (12% to 14% of GDP for the most expensive other countries versus 18% in the United States), while the quality of care in the United States is at best average versus these same countries according to several independent surveys. The issue cannot be blamed on one party or the other. The statistics that follow are from the Centers for Medicare and Medicaid (CMS) and show the issue’s disregard for the party in power.
In 1977 health care represented 9.0% of Federal government expenses, increasing to 27.9% in 2015. This means that 18.9% (27.9% – 9.0%) no longer could be used to pay for defense spending, infrastructure improvements, arts, education, parks, environment, or other programs but had to be redirected to pay for health care costs. The average annual rate of increase was the same between the years of Democratic presidency and the years of Republican presidency. The figures for the Obama period fell in line with the other years as there was no difference in the annual rate of increase under the Obama administration versus his predecessors.
Similarly, in 1977 health care costs represented 8.3% of GDP, increasing to 17.8% of GDP by 2015. Annual increases in this figure were actually higher in years in which the Republicans had the presidency. The rate of increase for the Obama administration was the second-lowest of the six presidents who served during the period 1977 to 2015. Health care as a percent of GDP is projected to increase to 19.9% by 2025. A figure this high will cause issues in the United States economy as the increased costs will cause the uninsured rates to increase substantially as employers drop coverage due to high premiums, government spending on health care takes up a much larger portion of its budget taking money away from other programs, or, most likely, both.
Former President Barack Obama and the Democrats passed the Affordable Care Act (ACA) as a beginning to the health care reform process. Since our health care system is extremely complicated, as is the process of passing legislation, ACA was only a first step designed to provide a transitional four-year program that would substantially lower the uninsured rate and implement a couple of very basic programs that would be designed to slow the rate of increase in health care costs for the long term. As with many pieces of legislation, ACA was dependent on future legislation to enhance and strengthen it. It was known that ACA would start to fail in 2018 if significant additional legislation was not implemented to bring out of control health care cost increases back into line. I was one of the actuaries who pointed out this weakness at the time but it was already known by the creators of the legislation. Not only has there been no legislation passed that has been designed to strengthen ACA, but partisanship has caused a substantial weakening of the legislation to be exploited and not fixed. ACA is by no means perfect, but it is the baseline now. There are no proposals that I have seen that are better than the current flawed approach, so my plan would build on ACA for now.
The Bipartisan Health Care Plan
The Reset of the Four Year ACA Transitional Period
On day one, I would reset the four-year transition period. This would mean postponing the implementation of the cap on subsidy increases from 2018 to 2022 so that premiums for those with Marketplace subsidies do not increase each year substantially. In 2018 the government subsidy increase will be capped at the increase in the Consumer Price Index, so the subsidized enrollee will be forced to pay the difference between the trend (maybe 12%) and CPI (say 3%), which comes to 9% of the new premium. If the new premium for 2018 were $5,000 per year, then the increase in enrollee cost would be ($5,000 x 9% or) $450 for the year. Add another $450 in 2019 that would mean the enrollee would have to pay an additional $900 per year. Very soon, these costs would be unaffordable for most individuals. The restart would keep the enrollee premium contribution at the original low levels for the new reset transition period while the cost-saving programs are implemented.
Reinsurance (or high-risk pools) would need to be set up again to lessen the high cost of individual coverage in the Marketplaces. There would need to be the reinstatement of the Reinsurance Fee on commercial policies, mainly employer policies that cover its employees. This was not at all popular when it started as employers complained loudly about how ACA was increasing its costs so much. I saw examples where employers saw their cost of $400 per person be increased to $425 per person, so they switched to a self-insured plan that cost $450 per person, so they did not have to pay the fees. Yes, they ended up paying more for health care coverage because they did not want to pay the fees. Implementation of the reinsurance or high-risk pool fee would again be controversial but necessary unless the government was willing to put up the cost.
The two steps above would stabilize many of the Marketplaces. Actuaries now have an experience base upon which to calculate future rates, a scenario not present in 2014. This resulted in very wide rate swings as the claims patterns became more apparent for these markets in late 2015 and 2016 and were built into the 2016 and 2017 rates. Actuaries found it next to impossible to calculate good rates for 2014 and 2015 because these markets were different than anything they had valued before. There was a wide range of actuarial estimations (and often guessing) involved in these rate calculations.
The inclusion of the co-op provisions in the original ACA legislation was a mistake, as I said back in 2012. Although well-intentioned, the co-ops were doomed to failure, and many of them did go out of business, as predicted. The original hope was that a couple of these co-ops would develop unique ideas in providing health care coverage that would be mimicked by the rest of the health care community. I am not aware of this happening to any significant degree.
Other changes might be needed on a state-by-state basis to make that particular state’s Marketplace stable, such as in Iowa. Some states were much more involved in their state exchange than others. It seems that the more involved the state was in its own Marketplace, the better the Marketplace performed, not surprisingly.
Improvements to ACA
Once the marketplaces are stabilized, modifications would then need to be made to ACA reasonably quickly. The proposals would take into account the different components of the health care system as these components are interdependent. For example, a reduction in the Medicare physician fee schedule to lower Medicare costs would likely have the impact of cost-shifting to employer plans making them more expensive, a scenario that has occurred often over the years.
I would put together a task force that would be charged with coming up with ideas to make our health care system more efficient while increasing the quality of care. Due to the complexities of the task, I would devote substantial resources and ask all parties (insurers, physicians, hospitals, pharmaceuticals, vendors, consumer groups, legal field, brokers, etc.) to help in supporting the work. The more involvement, the better the output and the more cooperation when the final product is released. The decisions will be difficult, and all parties will have some disappointments, but these parties will hopefully realize why the decisions were made as they were.
Some of the precise topics that I would have researched are:
Not all the analyses above would lead to action. For example, in number 8, it may be determined that the education element is more important than the additional unnecessary cost. It also may be that the recommendation might be to educate the physician further and do more Comparative Effectiveness.
I would require the task force to come back with recommendations by December 31, knowing that additional analysis would be done the following years with the same deadline of December 31. I would also make it easier for the task force to implement its ideas. For example, it could be made law that the recommendations of the task force become law unless 60 votes in the Senate override the recommendation. In that way, politics will play a lesser role in health care.
Although the Marketplaces represent a relatively small portion of our health care system, it supports millions of uninsured individuals and is the most vulnerable piece right now. That means a reset of the transitional ACA rules regarding subsidy increases and reinsurance should be performed to stabilize these Marketplaces along with some state-specific modifications.
The United States needs to implement changes to its overall health care delivery system to improve efficiency and quality of care as it lags other nations in these categories. This can be accomplished by setting up a task force that has the authority to analyze information and develop recommendations that would be implemented unless overruled by 60 of the 100 Senators. By doing this, it is hoped that the role of politics will be lessened in the normal decision-making processes regarding treatment protocol.
A significant slowdown in the rate of increase in health care costs would result in a corresponding slowdown in out-of-pocket costs, employer and individual premiums, and government expenditures without cost-shifting. Most of the proposals over the past few years are not designed for actual cost reduction but cost-shifting, such as cost-shifting to the employer market or government, which is unsustainable in the long term.