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Although the Affordable Care Act, commonly known as Obamacare, is considered the most significant and comprehensive overhaul of the American health care system since the 1960s, when Medicaid and Medicare were established, it has been the target of reform virtually since its enactment in 2010.
Last year, the words “repeal and replace” became the mantra of Republican congressional leaders looking to dismantle the legislation and was a key talking point for Donald Trump while on the campaign trail. Now that Trump is poised to take office as the 45th president of the United States, there is renewed focus on exactly how he and the Republican-controlled Congress will redesign the ACA. Just this week, Trump urged Republicans to work on repealing Obamacare immediately and replace it as quickly as possible, according to The New York Times.
The legislation is a signature achievement for President Barack Obama and has resulted in 20 million previously uninsured Americans finding health care coverage, which has pushed the uninsured rate to a record-low level of around 8%. The act prohibits insurers for disqualifying patients with pre-existing conditions or charging different prices based on gender, extends coverage to dependents until age 26 and offers subsidies for certain groups to help pay for the mandated insurance.
But the legislation is not without serious problems, including rising premiums and insurers fleeing the marketplace as policies become less profitable. While Obama has acknowledged that the ACA needs improvement, he has urged Democrats to stand their ground to prevent it from being scrapped altogether.
Robert Field, a Wharton lecturer and professor of law and health management at Drexel University, and Robert Town, a former Wharton health care management professor who is now at the University of Texas at Austin, recently appeared on the Knowledge@Wharton show, part of Wharton Business Radio on SiriusXM channel 111, about what changes loom on the horizon and what they could mean for the millions of Americans insured under the ACA.
Republicans Must Tread Carefully
It’s clear that repealing and replacing Obamacare will be at the top of the Republican agenda once Trump is sworn into office, but the actual work of it will be a complicated and delicate dance, the professors said. Take it away all at once and millions of Americans stand to lose their health insurance coverage.
“The GOP has to be very careful about how they go about this without leading to major disruptions.”–Robert Town
“The challenge is that if you repeal, then the whole thing can kind of unwind, depending on what you repeal,” Town said. “The GOP has to be very careful about how they go about this without leading to major disruptions.”
But after so much saber-rattling, the Republicans must take some kind of action, Field said. “They will be seen as ineffectual and useless if they don’t do something, even if it’s cosmetic.”
He and Town agree that the uncertainty of the situation makes it difficult to predict what the American health care system will look like in the short or long term.
“It’s really hard to know because I think we have a rough idea what the Republicans in Congress want to do, but we have no idea what President-elect Trump wants to do, and that’s the real wild card,” Town said. “If they were smart, they’d probably change it around the edges and just re-label it, but I’m not sure that’s politically where they are.”
The Market Alone Cannot Fix the Problem
Many have asked why can’t the government simply get out of the business of health insurance and allow market forces to self-regulate the industry. Town and Field point to the history of health care as the best explanation of why that strategy won’t work.
“We did have the government out of the individual market up until 2014 [when most of the ACA provisions went into effect], and we know exactly what happened: There were millions of people who couldn’t get coverage,” Field said.
The ACA created a market that did not exist before — one that insures sick people. Field says it’s a market failure that the industry on its own will not cover the highest-risk customers. “If you want to cover everyone, the government has to do something.”
Town said pushing the government out of the equation will leave many citizens without access to health care.
“If you want to live in that world, so be it,” he said. “But I think we as a society have made the joint decision that having a vast part of a population uninsured and having limited access to health care is not a route that we want to go. Getting rid of the ACA is not going to get rid of the government’s role in health care.”
Check the Math, Tweak the Formula
One of the biggest problems with Obamacare has been insurers opting out of the ACA marketplace, which leaves Americans with fewer choices when trying to purchase health insurance through the exchange. Following the laws of supply and demand, fewer choices translates into higher prices for consumers.
The professors said many insurance companies are leaving the exchange because the forecasting related to the subsidies and prices were off. As a result, many insurers aren’t seeing the revenue they had expected from participating in the exchange.
“The reason that there is a lack of choice is that the ACA has been more successful in some dimensions than people anticipated, in the sense that it’s costing a lot less to provide health insurance through the exchanges than was forecasted,” Town said.
“If you want to cover everyone, the government has to do something.”–Robert Field
Field noted that even with the forecasting issue, the increase in premiums hasn’t been dire. “It’s not the death spiral, the unexpected cost explosion, that people have been talking about,” he said.
Whether insurers continue to participate in the exchange depends on what the Republicans and Trump will change about it, including the math.
“The more uncertainty you inject into this decision , the more likely the insurers are just going to bail out. Then they’ll have a bigger problem where instead of having one insurer in some places, they will have zero insurers,” Town said. “They have to provide some assurance to the carriers that whatever is going to be replaced makes sense for them to participate in.”
The professors said adjusting the subsidies and the forecasting would go a long way toward addressing the choice issue.
Piecemeal Changes Would Cause More Problems
The Affordable Care Act is a complex organism, so excising a piece will undoubtedly affect other parts of the whole. If Republicans start slashing some provisions of the act, they could find themselves causing unintended harm to others because the parts are so interrelated, Town explained.
Many Republicans, including Trump, have already voiced support for maintaining the popular pre-existing condition clause, for example. But if Republicans dump the clause that requires insurers to charge the same premiums regardless of a person’s health status, mayhem could ensue. In that scenario, insurance carriers would be obligated to cover cancer patients, for example, but could charge them much more.
“It can lead to political disaster, where premiums for people with cancer are going up several fold,” Town said. “And that’s a political nightmare.”
Field cautions that the while media attention has focused on the exchanges, the ACA contains a number of beneficial but less-talked-about provisions, including closing the so-called doughnut hole for prescription drug coverage under Medicare.
“The more uncertainty you inject into this decision, the more likely the insurers are just going to bail out.”–Robert Town
“There are all sorts of programs intertwined throughout the health care system, and we really don’t have any idea about what a replacement plan would do to those,” he said.
Everybody Needs to Be in the Pool
As an enforcement mechanism, Obamacare levies fines on those who do not purchase health insurance. There are a number of Americans who have chosen to pay it because the penalty costs less than an insurance policy. Many who choose the penalty are healthy citizens who are willing to take the risk of not having insurance.
But when they opt out, it affects the market. That’s because insurance works by balancing out the costs of high-risk customers with low-risk ones.
“How are we going to develop a risk pool that’s insurable?” Field said. “We need to get healthy people into the risk pool. The mandate is a clumsy way of doing it. People who have to pay [the penalty] resent it very much. There are other ways of going about it, but there’s got to be some mechanism.”