Creating Better Affordability in the Affordable Care Act

Every day, so many reports emerge about aspects of ObamaCare/ACA that it’s difficult to decide which ones to note. Here’s one I note today from the Urban Institute – “After King v. Burwell: Next Steps for the Affordable Care Act” written by the always perceptive Linda Blumberg and John Holahan.

The report’s basic and important message is this: though it has vastly increased health insurance security and affordability for millions of vulnerable Americans, the Affordable Care Act is not affordable enough. Knowing what we know now, the law needs better affordability for millions of Americans who need access to subsidized insurance that includes more affordable premiums and stronger cost sharing protections:

“The premium and cost-sharing structures established under the law were delineated with the intention of meeting specific budget targets that now seem overly constraining. As a result, several problems occurred. Premium tax credits are substantial, but they are still inadequate for many individuals and families, given their incomes. Similarly, many individuals with modest incomes may struggle to afford the Level of cost-sharing required in the plans for which the premium tax credits are pegged. Premium tax credits are tied to a product with cost-sharing requirements that significantly exceed the typical large employer-sponsored plan. In particular, older individuals with incomes just above the current tax credit eligibility range face high premiums relative to their incomes, and because they tend to use more medical care than do their younger counterparts, they face a total bill for premiums plus out-of-pocket spending that can be very high.”

They’re right. I worked in the US Senate during the writing and passage of the ACA. We started in 2008 hoping to mirror the affordability levels in the Massachusetts health reform law passed in 2006 and implemented in 2007 and 2008. When we got unofficial estimates on the national cost of this structure, it was way too expensive, more than even Democrats would tolerate, nearly $2 trillion over 10 years.  So the affordability standards had to be scaled back substantially. (That is why, by the way, Massachusetts continues to subsidize ACA coverage to maintain its prior levels of affordability.)  Below is a chart from the Urban Report showing the differences between ACA and Massachusetts affordability (Massachusetts affordability is far better up to 300% of poverty):

Income Relative to Poverty Line
Massachusetts required contribution to subsidized single coverage at % of income ACA required contribution to subsidized coverage as % of income, 2015
100% 0% 2.01%
150 0 4.02
200 2.1 6.30
250 3-4 8.10
300 4.2 9.56
350 No cap 9.56
400 No cap 9.56
Over 400 No cap No cap

The numbers bear out the adverse impact. In 2010, the Congressional Budget Office estimated that the fully-implemented ACA would reduce the number of uninsured Americans by 32 million – and last June, their new estimate is 24 million fewer uninsured by 2020. That drop reflects both states refusing to expand Medicaid eligibility as permitted by ACA and fewer folks signing up for subsidized private coverage.

What to do? Here’s what Urban recommends:

  • Improve premium tax credits and cost-sharing reductions
  • Ease access to marketplace financial assistance for those affected by the “family glitch”
  • Allow states the option to expand Medicaid to 100 percent of the federal poverty level instead of 138 percent
  • Increase federal grants for information technology development and operation; education, outreach, and enrollment activities; and oversight and enforcement of insurance regulations

And the cost? Not cheap. And Urban rightfully doesn’t apologize:

  • “The US is expected to spend significantly less on health care between 2014 and 2019 than was originally projected after the ACA’s passage. CMS actuaries now project national health expenditures for that period to be $2.5 trillion below what they had projected for that same period in August 2010. These unanticipated savings exceed many times over the additional 10-year investment proposed here.acacbonumbers_1
  • “Our rough estimate of additional investments necessary to ensure the long-term success of the ACA amount to 0.20 to 0.24 percent of GDP ($453 to $559 billion over 10 years). To put this in perspective, total GDP between 2016 and 2025 is estimated to be $230 trillion.”

The authors’ recommendation to “allow states the option to expand Medicaid to 100 percent of the federal poverty level instead of 138 percent” will strike some as odd and counterintuitive. I agree with the report. Right now, states must expand eligibility to 138% FPL (about $15,000 in household income for a single adult) or not at all. In states now not expanding Medicaid, those with incomes between 100 and 138% can opt into the private health insurance exchanges – this change would provide a small financial benefit for states by letting them avoid paying a 10% match to the federal government for that class of individuals. A smart proposal.

When we hear the popular media talk about changes to ObamaCare, we hear a litany of conservative and Republican proposals – eliminating the taxes on medical devices and health insurers, changing the definition of full time employees from 30-40 hours per week, eliminating the individual and employer mandates, and the like. It’s important to see other ideas – such as those from Urban – get attention as well.

This is an important discussion which will only get more urgent in the coming years.  Thanks to Urban. Blumberg, and Holahan setting this table so well.

About John McDonough

I offer insights and opinions on how to improve health care systems for everyone
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