Congress Won't End ObamaCare, So Here's How to Mend It

Jason Furman (PIIE)

July 23, 2017

Having so far failed to repeal and replace the Affordable Care Act, the best way forward for Republicans would be to work with Democrats to improve the marketplaces set up by the 2010 law. While legislation could help, all that really is needed for the marketplaces to succeed is for the Trump administration to do no harm. This means continuing to implement the law without actively undermining it.

The healthcare marketplaces are stabilizing on their own now that insurers have made a one-time adjustment to bring premiums in line with claims costs. In 2014, when the marketplaces first opened for business, insurance companies generally underpriced their offerings. Since then states like Arizona, which had some of the lowest prices to start, have seen the largest premium increases. States like Ohio, where initial offerings were more accurately priced, have seen more-moderate increases. Overall, premiums in 2017 are within 1 percent of the projections made by the Congressional Budget Office in 2009.

President Trump and other critics argue the marketplaces are entering a "death spiral"—that is, a vicious circle of rising premiums and an increasingly sicker pool of enrollees. But nothing remotely close to that has happened, largely because more than 80 percent of marketplace enrollees receive a subsidy that covers premium increases, according to the Department of Health and Human Services. Enrollment changes have been about the same, on average, in states with large premium increases and states with flat or declining premiums. This follows several years in which the risk pool has remained stable or even improved, as proven by claims costs, young adults' share of marketplace enrollment, and risk scores.

Several insurers have withdrawn from some markets—or the marketplaces entirely—but there remains a powerful incentive for insurers to stay or return. The amount insurance companies spend on health costs relative to premium revenue, known as the medical-loss ratio, has fallen sharply in 2017, according to a recent analysis by the Kaiser Family Foundation. This suggests insurers are becoming more financially secure. The return to sustainable pricing means more insurers will want to enter the marketplaces, expanding competition and choice for consumers.

Congress should have a simple test before considering any reforms to the current system. At a minimum, the changes shouldn't increase the number of uninsured or the budget deficit, and they shouldn't make health insurance pricier for broad groups of Americans.

Some sensible reforms have already been offered. Republican Senator Susan Collins of Maine has supported establishing a system that would reimburse health insurers for large losses from very sick enrollees. House Democrats have suggested targeted subsidy increases to increase affordability. A public option in parts of the country without sufficient competition would also help. I recommend strengthening the individual mandate by increasing the penalty for going without coverage, though neither party seems likely to consider the idea. While even the less controversial proposals may not be viable in Congress, they aren't the difference between the marketplaces surviving or dying.

Contrary to the president's apocalyptic rhetoric—or even the fears of some Affordable Care Act supporters—the law is holding up. How exactly can Mr. Trump do no harm? The administration should ensure that insurance companies continue to be reimbursed for the cost-sharing subsidies they provide for households with incomes up to 250 percent of the federal poverty line, which is about $60,000 for a family of four. The president should also order his subordinates to continue enforcing the individual mandate and to avoid making large, abrupt changes to the marketplaces.

The "do no harm" principle extends beyond the individual market, where about 1 in 6 Americans get their health care, according to the Census Bureau. To cut cost growth and improve quality, the administration will have to use other tools—many of them bipartisan—that have been created by Congress in recent years. These include delivery-system reforms in Medicare, which shift to payment models that reimburse providers based on outcomes and quality rather than inputs and quantity. A Republican Congress under the leadership of Speaker John Boehner already expanded these reforms after they were originally passed as part of the Affordable Care Act. The "Cadillac tax," which encourages insurance companies not to offer overly expensive care, should also stay. Neither of these policies requires congressional action. The administration simply has to implement the law as written.

In " King Lear, " the Duke of Albany warned that in "striving to better, oft we mar what's well." When it comes to healthcare reform, not heeding the Bard's words could lead to a real-life tragedy.