Affordability: Time for a Fresh Look?

On March 23, 2010, Congress passed the “Patient Protection and Affordable Care Act”. It soon became known as the “Affordable Care Act aka ACA” before being labeled “Obamacare”.

Its aims were two: to reduce costs and cover everyone. In the 79 months since passage, it remains arguably the most divisive public policy platform since FDR’s New Deal in the ‘30s and Lyndon Johnson’s Great Society in the 60s. Per Kaiser Family Foundation’s Tracking polls since its passage, the public’s view about the ACA remains split: half think it’s an overreach by the federal government that has resulted in sky-rocketing health insurance premiums across the board, and the other half believe expansion of insurance coverage for 25 million justifies the effort. Each side cherry-picks elements of the law they like and decry parts they despise. But all concede the law has not addressed affordability as originally intended. News about insurance premium spikes, has dogged the ACA since its passage lending to critics’ conclusions that the law was fundamentally flawed and had to go.

In 2009, I facilitated several meetings for the White House Office of Health Reform seeking industry input into reform legislation. The context and timing were key: since 2000, health spending had increased 6% annually. At least 15% of employers had dropped employer sponsored health insurance coverage and the rest were searching for ways to cut costs. The ranks of the uninsured had swelled to 60 million, or 16% of the population. Their costs were being absorbed in the mark-ups being paid by employers and individuals with coverage—a hidden tax.

To slow the health cost spiral, the strategy was simple: by insuring more Americans, medical problems could be addressed sooner before they become acute and expensive. Through government regulation, competition between health insurers would spark innovative ways to coordinate care and reduce costs. Mandates for employers and individuals to purchase coverage aimed to maintain the private insurance market and spread actuarial risks from the newly insured. And Medicare would use its muscle to change incentives for providers—doctors, hospitals and post-acute providers—from piece-work to outcomes and cost savings. Thus, the hidden tax would disappear over time and annual health cost increases would slow down. That was the plan. The rub: how to make sure insurance premiums were affordable so the uninsured would buy coverage and those already insured would not drop there’s. The context for affordable care became affordable insurance coverage as the health exchanges began their second enrollment cycle in October, 2014 and premiums for year one plans increased double digits.

Think tanks left and right and the Society of Actuaries grappled with how to define affordability deciding that if a premium exceeded 9.5% of an individual’s income, it was unaffordable. That would trigger a penalty for the employer and allow the individual to buy insurance in their state insurance exchange. (it’s 9.66% this year).

The rest is history: the ranks of the uninsured dropped to 10%. Access to health insurance went up but premiums went up faster for everyone. The marketplaces faltered and spikes in insurance premiums have been problematic. Health insurers, hit with a new excise tax and strict limitations on plan design with guaranteed issue, simply added these costs to already escalating drug costs, medical inflation and increased utilization by the aging population. They raised their premiums or in some cases stopped selling policies in markets or segments that were unprofitable. Perfectly legal and understandable. And thus, affordability began to slip away.

Forecasts are for aggregate health spending to increase 5% annually for the next decade. That means affordability will become a bigger issue in our health system. Academics say health costs that are 2% or more above our GDP are destabilizing to our entire economy: in the next 2-3 years, our GDP is not expected to grow more than 3% annually so you do the math. And as the ACA’s replacement debate next month pits budget hawks against team-Trump promises to leave Medicare alone, something’s gotta give. The CBO forecasts that repeal of the ACA will increase the federal budget deficit $137 billion between next year and 2025—a relatively small number considering annual deficits have ranged from $439 billion to 687 billion annually since 2012. But given GOP control of both chambers of Congress and growing concern about national debt, it’s likely there will be pressure to cut funding to Medicare as a means of slowing the deficit surge.

So where do we stand on the affordability issue? Economists and academics ponder the concept in virtually every sector of society. Affordable housing, affordable tuition, affordable transportation et al are common in our lexicon. The Business Dictionary defines affordability as “costs relative to the amount that the purchaser is able to pay.” The Society of Actuaries adds “affordability adds the avoidance of undesirable or unreasonable sacrifices” in their equation.

I pay $2.13 for my morning Starbucks because I can afford it.  It’s not a sacrifice for me, but it could be for others. As I travel through areas of town where incomes are lower than others, the absence of Starbucks locations in some neighborhoods is noticeable. It’s because Starbucks chooses sites more accessible to patrons who can afford their brews. They have no third-party payers, PBMs, GPOs, heavy regulations or mandates that every person buy or use their products. That’s the coffee market.

The healthcare market is more complicated. Every person uses the health system. Most pay something but some don’t. Our costs are not readily apparent nor directly related to our prices and charges. And insurance premiums are only about part of health costs. Out of pocket expenses, lost time at work, and the myriad of “do it yourself” therapies compound the question of affordability.

So, as we replace the ACA, affordability needs fresh attention. Consider:

1-Healthcare affordability is a household issue: For those with access to employer sponsored insurance, wages have not kept up with their health insurance premium increases and employers have shifted the cost burden their way via high deductible plans and coverage restrictions (the average deductible for those with employer sponsored insurance is now $1221–quite alarming when juxtaposed with Federal Reserve’s data showing 47% of households are unable to handle a $400 emergency health bill). Medicare has increased its premiums in lock step and everyone is paying more for drugs. The result:  Medical costs are eating up more of the household’s budget (14% of discretionary spending) hitting lower and middle income households hardest. Healthcare ranks right behind transportation and food costs, and above education in household economics (Bureau of Labor Statistics) and is dinner table talk in the majority of households.

2-Prominent health reform policy proposals will heighten attention to affordability: Newly named HHS Secretary-nominee Tom Price favors elimination of tax subsidies to help defray insurance costs for those newly covered. House Majority Leader Paul Ryan favors shifting Medicare from a defined benefit to a defined contribution plan. President Trump has said he wants insurers to cover anyone regardless of pre-existing condition and states to play a larger role in managing Medicaid.  There’s no clarity about the trio’s predisposition toward the myriad of value-based payment programs that seek to change provider incentives from volume to value spending but implementation of MACRA and sequestration cuts are assumed to continue. Therefore, issue of affordability will be discussed by legislators in the context of federal spending and national debt. In companies, it will be discussed in terms of coverage for employees and increased insurance premiums. And at the dinner table, how to afford coverage which carries high deductibles and limited access to the hospitals and doctors preferred. 

3-Hospitals will bear an inordinate share of the affordability pressure: Health insurers serve those that pay their premiums. Drug and device manufacturers sell products to their customers and focus on their needs. Physicians may limit access to their practices. Out of a sense of purpose or mission, individuals and organizations among these often contribute time and resources to those facing affordability challenges. But hospitals, regardless of their ownership or size, are required by law to serve everyone, whether they can pay or not. They can’t dodge the affordability bullet.

The growing challenge of healthcare affordability means increased financial pressure for hospitals. Unlike Starbucks, their doors are open to everyone whether they can afford to pay anything or not.

Given renewed attention to health reform as the ACA is replaced, perhaps a starting point should be a fresh look at affordability-how it’s defined, how it impacts key stakeholders, and how it can be addressed equitably and responsibly. 

Paul

P.S. Last week, the 21st Century Cures Act passed the House offering ways to expedite drug approvals, expand mental health services and facilitate state efforts to reduce opioid abuse. As the 114th Congress winds down, expansion of telehealth via the ECHO Act is advancing and, by this Friday, passage of a continuing resolution to keep the federal government funded is likely. While the Trump team is rounding out its key appointments and nominations and legislative leaders prepare for the 115th Congress, healthcare reform and affordability are certain to be priorities. Stay tuned.