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Health care insurance in the U.S. will continue to be a hot-button issue in 2019 as its fate hangs in the balance.

Republicans have stepped up their attempts to unwind the Affordable Care Act of 2010 in its entirety, while Democrats want to retain it by tweaking some of its features.

A coalition of attorneys general of 17 Democratic states is challenging a Texas federal court ruling that the ACA is unconstitutional in a case filed by another coalition of attorneys general of 20 Republican states. The 2017 Tax Cuts and Jobs Act had effectively removed the mandate requiring individuals without group health insurance to buy their own insurance from state or federal exchange marketplaces, and Republicans contend that as a result, the ACA is unconstitutional and has no basis to continue to exist.

Meanwhile, clarity eluded consumers while the 45-day open enrollment window to buy health insurance for 2019 ended on December 15 (except for those with changes in “life events” such as the arrival of a baby or a marriage). The Democrats, now in control of the new House of Representatives, could exert a bigger influence in reshaping health insurance law, but it is far from clear how effectively they will face off against Republicans. It is clear through polls, however, that most people support the ACA and prefer to have it tweaked rather than repealed.

Wharton experts explored how the Affordable Care Act could be revised for a Knowledge@Wharton series titled “2019: A Look Ahead.” (Listen to the podcast at the top of this page.)

Shaping a New Health Care Law

Wharton professor of operations, information and decisions Eric Clemons laid out the constraints in crafting a credible health care law: “If you want universal affordability, and you want no pre-existing conditions to be excluded, and you want a private insurance market to do this, there is no way to do it without an individual mandate, and there is no way to do it without federal subsidies.”

Clemons pointed out that free market mechanisms cannot provide affordable insurance if the majority of people in a state have health issues related to old age – federal subsidies have to kick in or else insurance would become too expensive. “Similarly, you can’t have a market for young people where they can opt in anytime they get sick but don’t have to pay insurance when they’re healthy,” he added.

“[Either] we will have a federal program that looks almost exactly like the Affordable Care Act with some tweaking … or we will continue to have systems that collapse.” –Eric Clemons

Clemons sees a variation of the ACA as the only way out. “The future is either we will have a federal program that looks almost exactly like the Affordable Care Act with some tweaking on how large the subsidies are and some tweaking on how expensive the individual mandate is, or we will continue to have systems that collapse,” he said. “There really is no third way. The problem isn’t with the market. The problem with is with how crazily skewed the cost of health care is. And if you have an opt-in only when you’re expensive [or buy insurance only when you need it badly], the market will collapse.”

Tweaking is the way to go, agreed Mark Pauly, Wharton professor of health care management and professor of business economics and public policy. “A gaping wound in the Affordable Care Act is … a rule that says insurers have to charge the same premium to everybody of a given age, regardless of their perceived health risk,” he said. “Anybody can tell looking at somebody’s health records whether they are diabetic or not. Combining that with the absence of an individual mandate, somebody’s got to pay for the people who aren’t paying the cost of their care.”

Pauly noted that the individual mandate provided a way to deal with that situation, where younger and healthier people tended to subsidize health care for unhealthy people. But after the removal of the individual mandate, the health insurance market is stable in some states and unstable in others, he added. “It’s a knife edge; it could collapse like a house of cards fairly quickly.”

Eventually, much will depend on how best insurers can make their guesses ahead of how the market behaves, and set their premiums at levels they will find profitable. Pauly said that although that “is in a very delicate position,” the number of people who signed up in the latest enrollment period fell by only 4% from 2018 levels to close at 8.5 million.

But Pauly pointed out that it is still too early to reach a conclusion. “I’m looking to see whether the people who signed up will actually pay their premiums, because that’s where the rubber hits the road,” he explained. “If you’re a low-risk person and you see that this insurance is very expensive relative to what you’re going to get, you may decide it’s just not worth it, especially if there’s nothing bad that happens to you.”

Low Expectations from Congress

Hopes for Congress to find a way out are exaggerated, according to Robert Field, Wharton lecturer in health care management who is also professor of health management and policy at Drexel University. “We’ve known since the ACA was passed that it needed tweaking, but our partisan atmosphere in Washington has stood in the way with divided government, and that’s going to continue to be the case,” he said. “Democrats will probably pass something in the House to add the tweaks. The odds of it making through the Senate with [Senate Majority Leader] Mitch McConnell and the Republicans are slim. The only hope for serious tweaking would be if the Democrats passed something and no longer call it the Affordable Care Act or Obamacare, and the Republicans can say, ‘See, we’ve replaced it’ – because there’s a lot of optics here. But I wouldn’t be putting my money on that happening.”

According to Clemons, “If you derive affordable care from its basic principles, you end up with something exactly like Obamacare.” However, he said it is difficult to design a policy that could be fair.

“One person’s fairness is another person’s government overreach. That’s the hardest selling point.” –Robert Field

“As economists, we can agree on what’s efficient, we can agree on what market will survive and what kind of market will collapse,” he said. “But [what is] fair is really a social issue. Now, we are so dogmatic across party lines about what fair means. Somebody will argue fair means no individual mandate. Somebody else will argue fair means no cross-subsidies, and the market collapses.”

Field agreed that Americans are right in expecting fairness in health care. “It’s not fair that some of us get sick and some of us stay healthy,” he said. “How do we mitigate that in a way that’s fair to everyone financially as well as in terms of their health and well-being? One person’s fairness is another person’s government overreach. That’s the hardest selling point.”

“If [everyone] would just figure out what’s fair, we [economists] could figure out a system that would be reasonably efficient and fair at the same time,” said Pauly. “We don’t have the golden tablets that define fairness, either.” That said, he doesn’t expect fairness to weigh heavily on politicians’ minds as they work to design a new health care law. He expects “a fairly dramatic revision of the way the individual market works as the Trump administration changes the rules about other kinds of plans that are able to be offered, what they have to cover and how their premiums can be set.”

Field noted that the American view of fairness “tends to be an outlier.” He pointed to countries in Europe that have universal health insurance coverage, and said, “Those countries see it as a communal obligation.” For example, in France, solidarity is a core value, and everyone joins in and pays taxes so that everyone could be covered, he noted.

Current public opinion is that the government ought to do something about ensuring affordable health care coverage instead of leaving it to market forces. Field said studies by The Kaiser Family Foundation on attitudes towards the government role in health care reflect that. “One of their questions is: Should it be the federal government’s responsibility to make sure that everyone has access to health coverage? Right now it’s trending towards more people thinking it is the federal government’s responsibility.” He noted that the outcomes in the recent midterm elections to Congress revealed the same sentiments.

The U.S. missed the bus a century ago in adopting the European health care model, according to Pauly. “Now that health care has become so much more costly, that kind of social bargain is much harder to negotiate.” But other avenues are available to be explored, he suggested. “My calculations suggest a movement to a system in which health care is all paid for by taxes, based on income,” he continued. “It would essentially mean doubling the individual income tax rate for people who pay the individual income tax. It would be a whopping increase in that it has adverse economic consequences beyond health care.”

Pauly noted that “the structure and the chassis of Obamacare is a reasonable one,” and that the debate ought to be on the subsidies extended to people in “undesirable circumstances like being low-income or having a chronic condition.” According to him, the current arrangement of cross-subsidies to help high-risk populations is both inefficient and inequitable. “If you can tell me what equity is, I can give you an equitable situation and I can probably find some reasonably efficient taxes to cover it.”

“You want to pick a good plan, and a good plan is one where [insurers are] good at negotiating with drug companies and they don’t respond to high drug prices by trying to cut your coverage in sneaky ways.” –Mark Pauly

The Business Equation

Attention needs to be focused also on the business aspects of the debate, according to Field. Several questions need answers before next steps are taken, he said. “Now that we have alternative plans – commonly referred to as junk plans because they don’t cover much – will they siphon off many people from the exchanges? What will happen with the end of the individual mandate? Will many young and healthy people avoid coverage? What will that mean for insurers? There are a lot more insurers in this year than in the past, and many of them have actually cut rates. Will that continue, given the various assaults on the ACA?”

A related issue is the recent round of drug price increases and how that could affect affordability. Insurance companies that end up paying those higher drug prices could “negotiate good deals that will insulate premium payers,” said Field. “If they can’t, we’ll see our premiums go up.” He noted that people tend to get restive for broader change if they face premium increases, narrow coverage networks, unpleasant surprises in their health care bills and higher drug prices. “If [these issues] continue to be a problem and continue to grow, we are going to have a groundswell of public opinion in favor of something more than just tweaking – and doing something about this system. And that is going to play into our politics.”

Pauly noted that President Trump is also keen on “doing something about high drug prices.” One of the challenges here is to weigh the benefits of higher prices in motivating pharmaceutical companies to make R&D investments to develop new treatments, he said. Meanwhile, he had some advice for insurance shoppers: “You want to pick a good plan, and a good plan is one where [insurers are] good at negotiating with drug companies and they don’t respond to high drug prices by trying to cut your coverage in sneaky ways,” he said. “A bad and a crummy plan is one where they’re wimps when it comes to negotiation – mean and nasty when it comes to what they’ll be willing to pay. So, you need to read the fine print.”