In less than three weeks, Americans will head to the polls to pick their next president. With the start of the open enrollment period for Obamacare, millions of them will also soon be selecting health care coverage for 2017.
By most measures, the Affordable Care Act which made health insurance possible for some 25 million Americans has been an overwhelming success. More than 10 million people have purchased private insurance through the Obamacare marketplaces, with about three-quarters receiving subsidies to help cover the cost. States which chose to expand Medicaid have, as predicted, extended coverage to millions more of their residents, slashed their costs for uncompensated care for the uninsured, and improved the financial stability of their hospitals. At less than 9 percent, America's uninsured rate is at the lowest level on record. And the ACA hasn't just remained under budget even as the rate of health care cost growth has slowed. Obamacare, it turns out, has helped reduce income inequality.
But that doesn't mean Obama's Affordable Care Act is not facing serious challenges. Most of Obamacare's health insurance co-ops have failed, as actuarial misjudgment and Republican sabotage of the ACA's "risk corridors" program left them exposed by billions of dollars the federal government had promised to provide. The withdrawal of major carriers and minor players from some states has left more than 1 million Obamacare subscribers needing to select a new insurance plan for 2017. As a result, many counties (especially in rural areas) are down to a single insurer offering exchange plans, the very kind of market consolidation the GAO and American Medical Association warned about years before the passage of the ACA. Combined with the insurers' ever-narrowing network of providers and the rapid pace of hospital mergers and acquisitions, higher deductibles and pre-subsidy premiums are making affordable care unaffordable for many.
There is no mystery regarding the diagnosis and prescription for the ailing American health care system. Ultimately, the United States must treat health care less like a market and more like a utility. As we'll see below, that means doing the very thing every major economy outside the U.S. does to control health care costs: set rates. But in the near term, the president and Congress can take three steps to help American consumers and stabilize the Obamacare exchanges:
- Establish a "public option" for health insurance
- Increase the insurance subsidies provided to individuals and families
- Redesign the ACA's risk corridor program along the lines of Medicare
Luckily, Speaker of the House Paul Ryan—like President Obama—supports all three.
*Well, not exactly. As it turns out, the very measures President Barack Obama recently outlined in the Journal of the American Medical Association (JAMA) to improve Obamacare are ones Ryan has long advocated to gut Medicare as we know it. You read that right. The same Paul Ryan whose "Better Way" plan would take away health insurance from 20 million Americans wants to use many of the same elements of Obamacare to privatize Medicare for tens of millions of future elderly and disabled.
To understand this glaring contradiction at the heart of Paul Ryan's thinking, it's necessary to revisit his years-long effort to ration Medicare. As he's learned since he first proposed to privatize and cut Medicare, the politics of his voucher scheme are even worse than its math.
In April 2009, 24 months before all but four House Republicans voted for Ryan's plan to ration Medicare, the smaller GOP minority said yea on essentially the same plan. As Steve Benen detailed in the Washington Monthly in the fall of 2009:
In April, 137 Republicans voted in support of a GOP alternative budget. It didn't generate a lot of attention, but the plan, drafted by the House Budget Committee's Rep. Paul Ryan (R-Wis.) called for "replacing the traditional Medicare program with subsidies to help retirees enroll in private health care plans."
The AP noted at the time that Republican leaders were "clearly nervous that votes in favor of the GOP alternative have exposed their members to political danger."
In February 2010, Rep. Ryan unveiled his "Roadmap for America's Future" and its "slash and privatize" agenda for Social Security and Medicare. Because the value of Ryan's vouchers fails to keep up with the out-of-control rise in premiums in the private health insurance market, America's elderly would be forced to pay more out of pocket or accept less coverage. The Washington Post's Ezra Klein described the inexorable Republican rationing of Medicare which would then ensue:
The proposal would shift risk from the federal government to seniors themselves. The money seniors would get to buy their own policies would grow more slowly than their health-care costs, and more slowly than their expected Medicare benefits, which means that they'd need to either cut back on how comprehensive their insurance is or how much health-care they purchase. Exacerbating the situation -- and this is important -- Medicare currently pays providers less and works more efficiently than private insurers, so seniors trying to purchase a plan equivalent to Medicare would pay more for it on the private market.
It's hard, given the constraints of our current debate, to call something "rationing" without being accused of slurring it. But this is rationing, and that's not a slur. This is the government capping its payments and moderating their growth in such a way that many seniors will not get the care they need.
That was certainly the conclusion of the nonpartisan Congressional Budget Office. As the CBO warned in April 2011, Ryan's plan to replace public insurance provided by the government with vouchers for the elderly to buy their own coverage in the private market means getting less care for more money. The CBO analysis concluded that "a typical beneficiary would spend more for health care under the proposal." At $6,500 a year, make that, as director Douglas Elmendorf explained, a lot more.
Under the proposal, most elderly people who would be entitled to premium support payments would pay more for their health care than they would pay under the current Medicare system. For a typical 65-year-old with average health spending enrolled in a plan with benefits similar to those currently provided by Medicare, CBO estimated the beneficiary's spending on premiums and out-of-pocket expenditures as a share of a benchmark amount: what total health care spending would be if a private insurer covered the beneficiary. By 2030, the beneficiary's share would be 68 percent of that benchmark under the proposal, 25 percent under the extended-baseline scenario, and 30 percent under the alternative fiscal scenario.
Paul Krugman summed up the problem at the heart of Ryan's gambit. "If Medicare costs had risen as fast as private insurance premiums, it would cost around 40 percent more than it does," Krugman explained, "If private insurers had done as well as Medicare at controlling costs, insurance would be a lot cheaper."
All of which is why Rep. Ryan went back to the drawing board and came with up with a new version of his Medicare overhaul. This time, Ryan introduced the idea of keeping traditional fee-for-service government Medicare as a "public option" on his new exchanges. Based on a 2010 proposal from Pete Domenici and Alice Rivlin, the New York Times described Ryan v2.0 this way:
Congress would establish an insurance exchange for Medicare beneficiaries. Private plans would compete with the traditional Medicare program and would have to provide benefits of the same or greater value. The federal contribution in each region would be based on the cost of the second-cheapest option, whether that was a private plan or traditional Medicare.
In addition, the growth of Medicare would be capped. In general, spending would not be allowed to increase more than the growth of the economy, plus one percentage point -- a slower rate of increase than Medicare has historically experienced.
Which is why the Congressional Budget Office again found Ryan's revised plan still would shift health care costs to future seniors. Looking at the CBO's March 2012 assessment of the new House GOP budget, ThinkProgress explained why version 2.0 of Ryan's voucher program was little better than the first:
Beginning in 2023, the guaranteed Medicare benefit would be transformed into a government-financed "premium support" system. Seniors currently under the age of 55 could use their government contribution to purchase insurance from an exchange of private plans or--unlike Ryan's original budget--traditional fee-for-service Medicare...
But the budget does not take sufficient precautions to prevent insurers from cherry-picking the healthiest beneficiaries from traditional Medicare and leaving sicker applicants to the government. As a result, traditional Medicare costs could skyrocket, forcing even more seniors out of the government program. The budget also adopts a per capita cost cap of GDP growth plus 0.5 percent, without specifying how it would enforce it. This makes it likely that the cap would limit the government contribution provided to beneficiaries and since the proposed growth rate is much slower than the projected growth in health care costs, CBO estimates that new beneficiaries could pay up to $2,200 more by 2030 and up to $8,000 more by 2050. Finally, the budget would also raise Medicare's age of eligibility to 67.
But Ryan's plan didn't just embrace a public option for Medicare. As Ezra Klein explained, the privatization of Medicare contained in Ryan's "Path to Prosperity" blueprint and the GOP budget based on it also requires:
You'd get the health insurance from a "Medicare Exchange", and "health plans which choose to participate in the Medicare Exchange must agree to offer insurance to all Medicare beneficiaries, thereby preventing cherry picking and ensuring that Medicare's sickest and highest cost beneficiaries receive coverage."
Familiar, indeed. Alice Rivlin, the former Clinton OMB chief who worked on Ryan's first version of the voucher, later confirmed to Klein that the idea was almost identical to the Affordable Care Act:
If Ryan-Rivlin will unleash ferocious innovation that holds costs down, then so too should the Affordable Care Act. So at the end of our conversation, I asked Rivlin, who supported PPACA [Obamacare], if I was missing something. She laughed. "I keep talking to Paul and trying to convince him of that," she said. "But even if he agreed with me, he couldn't say so."
That's exactly right. Paul Ryan's latest blueprint contained all of the same elements as Obamacare (and more)—exchanges, subsidies, navigators, risk corridors, and even a public option. (Many of the same features are found in the Medicare Part D prescription drug program and Medicare Advantage, the program that enables about 30 percent of the nation's 57 million elderly to obtain coverage from private insurers.) If Ryan's Medicare privatization scheme for the oldest and sickest members of society will spur competition and lower costs, so too should Obamacare for those under age 65.
Nevertheless, Paul Ryan's approach has never been popular, in part because the current Medicare system is. (Recall that common and oxymoronic tea party rally cry, "keep your government hands off my Medicare.) That's why in the run-up to the 2010 midterms, future Speaker John Boehner brushed off Ryan's proposal as "his plan." That's why in 2011, then-GOP White House frontrunner Michele Bachmann backed off her own vote by declaring, "put an asterisk on my support ... I'm concerned about shifting the cost burden to seniors." That's why Donald Trump has ignored the 2016 GOP Platform and repeatedly insisted, "We are not going to cut your Social Security and we're not cutting your Medicare" And that's why this summer, Paul Ryan's "Better Way" dropped any mention of Medicare cost-controls and omitted any discussion of capping the growth of its subsidies (a.k.a. premium support):
Beginning in 2024, Medicare beneficiaries would be given a choice of private plans [akin to Medicare Advantage] competing alongside the traditional FFS ["Fee for Service"] Medicare program on a newly created Medicare Exchange. Our plan would ensure no disruptions in the Medicare FFS program for those in or near retirement, while also allowing these grandfathered individuals the choice to enroll in the new premium support program. Medicare would provide a premium support payment either to pay for or offset the premium of the plan chosen by the beneficiary, depending on the plan's cost.
The Medicare recipient would choose, from an array of guaranteed-coverage options, a health plan that best suits his or her needs. This is not a voucher program. A Medicare premium support payment would be paid, by Medicare, directly to the plan or the fee-for-service program to subsidize its cost. The program would operate in a manner similar to the Federal Employees Health Benefits (FEHB) program, where plans compete for individuals' choice based upon premium amount and a certain percentage - or a defined contribution - is offset by the government to lower the cost of coverage. Additionally, the program would adopt the competitive structure proven successful by Medicare Part D, the prescription drug benefit, to ensure affordability through market-based competition.
But there is one major feature of Obamacare that works very differently than in Medicare Advantage or Medicare Part D: risk adjustment. As Bob Herman explained in Modern Healthcare, the Affordable Care Act and Medicare Act now only calculate payments for risk pool losses differently, but differ in who pays. Under Obamacare, insurers are paid from funds that insurers themselves fund. But under the Medicare Advantage model touted by Paul Ryan, Uncle Sam pays the bill:
The two risk-adjustment systems work in very different ways but are both intended to reduce the incentive for insurers to cherry-pick the healthiest members. Under the ACA, insurers peg their members with risk scores based on the services and conditions that are coded in hospitals and doctor offices. Plans that have healthier people with lower risk scores pay into a pool in each state, and plans with sicker members get to take money--giving the program a zero-sum outcome...
In Medicare Advantage, insurers similarly evaluate the health of their members and build risk scores based on medical coding, but the Medicare trust fund covers the cost. There's no contributing pool of money to help out insurers with sicker enrollees. Each company codes its own members, and each receives payments adjusted to reflect the risk scores.
If the exchanges moved to that model, it would require Congress to approve a new pot of funding for the health insurance industry. Even if legislation were proposed, it is unlikely Republicans would support it given their heated opposition to the ACA.
To put it another way, Republicans like Senator Marco Rubio (R-FL) are more than willing to have the federal government "bail out" insurers for Medicare losses. Obamacare, not so much.
As I've documented elsewhere, global experience shows there are two certainties of health care reform. The first is that reform itself is continuous. Far from a one-time affair, changes in coverage, prices, treatments, and providers never end. This August article in JAMA ("United States Health Care Reform: Progress to Date and Next Steps") acknowledged as much. The rise in insurers' requested premium increases for 2017, the lack of competition in some areas of the country, and the rapid increase in prescription drug prices, Obama noted, are reflected in "surveys [which] indicate that many of the remaining uninsured individuals want coverage but still report being unable to afford it.)" Measures like the public option, a new structure for risk adjustment, and larger subsidies—all parts of current Medicare or proposed Republican revisions—would certainly help Americans afford both their coverage and their out-of-pocket expenses. Government negotiation of pharmaceutical prices, already a pillar of the VA health system, would help as well. All of these measures are supported by Obama's would-be Democratic successor, Hillary Clinton. These carrots, along with the stick of high penalties for non-enrollment, would encourage younger, healthier people to sign up and thus improve the risk pool for insurers as well.
Ultimately, however, the United States will fail to lower health costs for individuals and for the nation until it embraces the second certainty of health care reform: rate setting. Virtually of America's major trading partners deliver health as good or better than the U.S. for one-half to two-thirds of the cost because the government establishes the costs of insurance, hospital care, prescription drugs, physicians' services, laboratory tests, and more. With its current 80/20 rule for the "medical loss ratio," the U.S. could move in the direction of Germany or Switzerland in establishing basic insurance coverage sold on a nonprofit basis by private insurance companies. Like Australia, Spain, or the UK, America could negotiate a national formulary to set the price ranges of comparable drugs. Like France, Germany, and Japan, the federal government working with private insurers could create a "big blue book" of payments to hospitals, clinics, and physicians for every treatment. (This could be accomplished in a single-payer system like Medicare for All, but an all-rate payer system is closer to what we have today.)
Regardless, Obamacare, or the Patient Protection and Affordable Care Act as it is more formally known, isn't just the greatest progressive accomplishment since LBJ's Great Society. Like Medicare, which dramatically reduced poverty among America's elderly, the ACA is a very real boost to millions of Americans' standards of living. And by making some of the incredible reforms already supported by Republicans for Medicare, Obamacare could quickly do more. Assuming he's still House Speaker in January, Paul Ryan could make that happen. After all, why not do for Americans under 65 what he's long been pushing for Americans over 65?
The answer to that question, too, is no mystery. "Any change is difficult, but it is especially difficult in the face of hyper-partisanship," President Obama wrote in August. "Republicans reversed course and rejected their own ideas once they appeared in the text of a bill that I supported."
That doesn't sound like a better way for America.