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Coming out of the box in October, the Affordable Care Act (ACA) will look shaky. The first test of the insurance exchanges will occur when individuals attempt to apply for coverage, and problems are inevitable.
Individuals in need of health coverage will experience delays and frustration by a bureaucracy-laden application process. Many will be uncertain how to choose a plan that is best for them. Insurance terms (such deductible, coinsurance, covered benefit, and so on) are unfamiliar to many people. The new classification system that sorts plans into tiers (labeled bronze, silver, gold, and platinum) according to “actuarial value” will complicate what is already a confusing situation.
Is a gold plan (which covers 80 percent of the average person’s health costs) with a $2,000 deductible better than a silver plan (covering 70 percent of costs) with a $1,000 deductible? Should I pay more to keep my doctor or have access to the nearest hospital? These are the kinds of questions that most people will have, and the navigators and other people who try to help with the enrollment process will not have answers. (Or should not, since these are matters of personal preference rather than objective fact).
Learning By Doing
Computer glitches are unavoidable and are likely to persist for months. Several states have already said that online applications may not be accepted at first while some of the bugs are worked out. Call centers set up to answer consumers’ questions might not be able to keep up with demand, and call center workers will themselves be learning how best to do their jobs in the early weeks.
Individuals in need of health coverage will experience delays and frustration by a bureaucracy-laden application process. Many will be uncertain how to choose a plan that is best for them. Computer glitches are unavoidable and are likely to persist for months.
The federal government has been less forthcoming about the challenges it faces in setting up insurance exchanges in 34 states across the country. The Department of Health and Human Services (HHS) recently delayed signing contracts with insurers who wish to participate in the federal exchanges. That gives both health plans and HHS more time to resolve technical issues, but less time to test whether the fixes they adopt actually work.
Learning by doing is the only way such a complicated policy change can be implemented. No amount of training and preliminary testing will reveal all of the problems that will be encountered when the system goes live. Individuals who feel less urgency to buy insurance can delay enrolling until later in the open enrollment period, which runs October through March. Those most in need will serve as the guinea pigs in this social experiment.
Operational problems in the first few months are inevitable, and they will provide little insight into how well the reform is performing. A more telling indicator is the number of exchange enrollees whose insurance is cancelled. People who voluntarily cancel their coverage or lose it because they have not paid their monthly premiums are either dissatisfied with their plan or find that the monthly payments are unaffordable.
We will begin to see cancellations in March and April for the earliest enrollees, whose coverage starts January 1. Higher-income exchange customers who are not eligible for a subsidy typically have a 30-day grace period before their coverage is cancelled. Insurers are also required to give enrollees 30 days’ notice if they intend to cancel the policy.
Low-income enrollees who receive an exchange subsidy have a three-month grace period. (The longer grace period applies only to those who receive the subsidy, which is an income tax credit, on a monthly basis rather than waiting to file their taxes the following year. Most people who are eligible for exchange subsidies will be unable to pay the premium without an advance payment of their tax credit). The additional time gives low-income enrollees who have occasional cash flow problems an opportunity to maintain continuous coverage as long as they make up any missed payments.
The ACA will not be the success its supporters want it to be. It will also not be the disaster its opponents think it will be. But it will have caused permanent changes — some good, some bad — in the way health insurance is purchased in this country, and it will have added to the growing fiscal burden that threatens to damage the health of the economy.
If many people have their coverage cancelled, it will be a strong indication that the exchange process has failed. Enrollees who choose not to pay their premiums, or who cancel on their own, have concluded that the plan does not meet their needs well enough to be worth the money. That could be the result of poor access to health care providers and services or higher costs than the enrollee anticipated. They might enroll in another plan, or they might decide to remain uninsured.
Insurance cancellations can have serious consequences for health care providers. An HHS ruling leaves providers with unpaid bills if insurers cancel the subsidized coverage for low-income individuals. Even though the individual receives a 90-day grace period during which time providers are required to continue providing medical services, the insurer can later refuse to pay claims arising after the first month.
There are only minor consequences for enrollees who fail to pay premiums. They have no obligation if they cannot afford to pay missed premiums or the medical claims. They are subject to the tax penalty for being uninsured, but that is prorated for the number of months they go without coverage. Their insurance premiums cannot be increased, and there is no barrier to them enrolling in another health plan.
Someone will be stuck with the bills, and no one wants to pay. The ACA was supposed to largely eliminate uncompensated care, but it will not. Millions of people will remain uninsured even under optimistic projections, and loopholes will allow some to avoid expensive payments. In this game of financial musical chairs, the doctor and the hospital are left without seats.
Numerous problems, including some that could have a substantial impact on the implementation of the ACA, have been identified and await some resolution. A host of other problems are certain to be discovered over the next year. Some of those problems arise from a poorly constructed law; others, from poorly thought-out changes promulgated by subsequent regulations and administrative actions.
Under less contentious political circumstances than we find with health reform, many of those problems would have been taken care of through a House-Senate conference committee prior to the final vote in Congress. That did not happen because of the surprise election of Scott Brown to replace the late Senator Ted Kennedy in Massachusetts, giving Republicans 41 Senate seats. Democratic leaders feared that Senate Republicans could filibuster a conference report and prevent enactment.
Millions of people will remain uninsured even under optimistic projections, and loopholes will allow some to avoid expensive payments. In this game of financial musical chairs, the doctor and the hospital are left without seats.
The legacy of that decision is gridlock on Capitol Hill. Small technical issues remain unresolved that under other circumstances would have been addressed through an uncontroversial corrections bill. Larger issues that could have been the subject of public debate remain outstanding.
The administration has not let political gridlock get in the way of shaping the law to fit political needs and business realities. Regulations and informal guidance have been used to make changes that in normal times would have been acted on by Congress. Deadlines have been changed when the administration needed more time to get the results it wants. The mandate on employers to offer coverage was delayed in response to opposition from the business community, even though the ACA does not allow for such an action.
It now appears that the administration wants to extend to union members insurance subsidies that were intended to help the uninsured buy coverage. Those workers already have employer-sponsored insurance that is subsidized through the tax system. Such a proposal would prompt a bitter political fight if it were introduced in Congress — something the White House can avoid by implementing the policy through regulation.
Except in the unlikely event that Republicans gain a sizable Senate majority in the 2014 mid-term elections, this aggressive regulatory process controlled by the executive branch will continue to play out for the next three years. That will solidify the federal government’s dominant role in the health sector, which thanks to the ACA now extends well beyond Medicare and Medicaid.
That does not mean everything will go smoothly. Perhaps the biggest danger to the president’s agenda comes from the overzealous actions of its strongest supporters. Premium rates that have been approved thus far in several major states are substantially below the levels that health plans requested. In many cases, those rates will rise sharply in future years. Insurers have an incentive to underprice their products initially to attract market share, and they are well aware of the prevailing political climate that demands low premium increases in the exchanges. But at some point they have to make a profit or drop out of the market.
Except in the unlikely event that Republicans gain a sizable Senate majority in the 2014 mid-term election, this aggressive regulatory process controlled by the executive branch will continue to play out for the next three years. That will solidify the federal government’s dominant role.
The Maryland insurance commissioner explained the process of approving individual rate applications, revealing the forceful approach that made the state’s position on rate increases clear. Aetna, the third largest insurer in the country, was asked to modify several assumptions that were used to develop its rate proposal. The company agreed to a 9 percent reduction from their initial rate request. The commissioner ordered an additional reduction, bringing the approved rate in 29 percent below the initial request.
That reduction might be viewed as the commissioner doing a good job for Maryland consumers. But a closer look at the details shows that most of the changes are in assumptions that cannot yet be backed up with actual data since neither the state nor the insurer has experience selling on a market that is not yet functioning. The commissioner’s actions imposed financial risks on the insurer that it eventually decided it could not accept.
Aetna has pulled out of exchange markets in Maryland, Connecticut, Ohio, Georgia, and New York. Other large national health insurers have planned limited entries into the new exchanges, giving them a chance to see whether they operate smoothly and whether enough healthy people sign on to offset the costs of sicker new members. If healthy people fail to enroll, that will drive up costs that will not be reflected in already-approved rates for next year.
There will be a shake-out of the insurance industry over the coming years as more experience is gained about exchange operations. The ACA will not be the success its supporters want it to be. It will also not be the disaster its opponents think it will be. But it will have caused permanent changes — some good, some bad — in the way health insurance is purchased in this country, and it will have added to the growing fiscal burden that threatens to damage the health of the economy. The next president, whether Republican or Democrat, will be forced to deal with the consequences.
Joseph Antos is Wilson H. Taylor Scholar in Health Care and Retirement Policy at the American Enterprise Institute.
Image by Dianna Ingram / Bergman Group
In the final installment of this four-part series, AEI’s Joseph Antos looks at what is likely to happen when the Affordable Care Act goes into effect. He believes the ACA will not be the success many supporters expect. Nor will it be a disaster as many opponents are predicting.
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