Now that Dr. Tom Price has been confirmed as HHS secretary, the hard work of replacing the Affordable Care Act (ACA) can begin in earnest.
While Speaker Ryan has promised a full Affordable Care Act (ACA) repeal and replace package by the end of the first quarter 2017, Price and Congress should take heed of the surgical maxim, “the enemy of good is better” and quickly enact two reforms: removing the ACA limits on age-based risk adjustment and eliminating the ACA essential benefits requirement.
The ACA attempted to transfer wealth from the young and healthy to the old and sick by overcharging the young and undercharging the old for health insurance.
Health insurance premiums have always been higher for older people to reflect their poorer health status and higher utilization of healthcare — the typical adjustment prior to the ACA was about 5:1. But the ACA caps the adjustment for consumers 64 and older at 3 times the rate for 21 year olds so that the young subsidize the old.
The result? The young and healthy balked at buying overpriced health insurance.
The young also refused to buy more insurance than they wanted or needed. Before the ACA, states set their own health insurance coverage requirements resulting in a broad range of available plans.
The ACA required health insurance plans sold in small group and individual markets, on and off the ACA exchanges, to cover a comprehensive essential health benefits package including many “preventive services” that were to be provided without any out-of-pocket costs. But young people weren’t interested in expensive insurance with all the bells and whistles.
Their health needs are usually few. They are more interested in cheap plans that will cover them for catastrophic expenses.
The result is that the ACA brought in sicker, more expensive patients while healthy, low-cost patients remained uninsured. The ACA’s individual mandate had no significant impact on getting young, healthy people to enroll because it contains too many exemptions and the penalties for remaining uninsured were too low compared to premium costs.
Claims and costs were higher than anticipated, forcing many plans to incur losses. Insurers have fled the market and those that have remained have increased premiums by 25 percent on average for 2017.
This downward spiral can be mitigated by removing ACA strictures on age-based risk adjustment. If insurers can return to the pre-ACA 5:1 risk adjustment for age, premiums for the young and healthy will fall leading more of them to obtain health insurance.
In addition, if the federally mandated essential benefits package is abolished, and regulatory oversight is returned to the states, less comprehensive, cheaper and more attractive plans will become available for young people to purchase.
The ACA gives the secretary of HSS substantial discretion in administering the essential benefits package. Price could relax its strictures administratively but cannot abolish them. Legislation is necessary to move decision-making out of the federal government and back to its historical home in the states.
Similarly, legislation is needed to repeal the 3:1 age-based risk adjustment specified in the ACA.
This legislation should be relatively non-controversial and attract bipartisan support. No one would lose insurance coverage and the popular protection against pre-existing condition exclusions that President Trump has indicated he favors will be retained.
The legislation should be expeditiously enacted so insurers who must decide by May whether to participate in the 2018 marketplaces can factor them into offerings and rates that will be rolled out this spring. My bet is that insurers will value the new flexibility and potential to enroll healthier patients and will stay in or return to the market.
Repealing these two damaging ACA sections will take the pressure off Republicans who can then work to perfect a comprehensive reform bill secure in the knowledge that the health insurance market won’t collapse.
Joel Zinberg, M.D., J.D., F.A.C.S., a visiting scholar at the American Enterprise Institute, is a practicing surgeon at Mount Sinai Hospital and an associate clinical professor of surgery at the Icahn School of Medicine.
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