This Thursday, March 23, marks the seventh anniversary of the passage of the Patient Protection and Affordable Care Act (ACA). It also marks the date the House will vote on its partial replacement, the American Health Care Act.
Whether for or against the ACA, no domestic law has sparked public reaction and divided our nation more.
I was in the House chamber when it passed. Prior thereto, I facilitated sessions between the White House Office of Health Reform and leading trade groups as an independent advisor seeking to produce a law that protected a private system, insured more people and aimed for long-term cost reduction. The PPACA, shortened to Affordable Care Act and then tagged Obamacare, was the result of that effort, though modified later by amendments and the Supreme Court’s decision (June, 2012) limiting Medicaid expansion.
Amidst the clamor of the current debate about the GOP’s American Health Care Act, it’s useful to harken back to the circumstances under which the ACA passed and reflect on what might be learned.
Context for Passage of the ACA
The ACA passed in the midst of a bitter partisan dispute. The White House and both Houses of Congress were controlled by the Democrats. A youthful President had pledged to reform healthcare, challenging that insurers in many states faced little competition and costs and access were problems requiring federal action. The country was in the midst of a recession that began in 2007 driving unemployment to 10% as we lost 700,000 jobs monthly. Health costs had been increasing at 6% annually for three decades. More than 10,000 were aging into Medicare daily and almost 50 million were without insurance of any kind.
The political realities were these: the progressive caucus of House Democrats wanted a public option, but polls showed widespread fear that “government run healthcare” was a non-starter. Instead, centrists conceived of a mechanism to increase coverage focused on two populations: Medicaid and lower income citizens whose incomes put coverage beyond their reach.
For Medicaid expansion, the plan was to encourage every state to expand its Medicaid program for citizens whose income was less than 138% of the federal poverty level (FPL): 100% of these costs would be funded through the ACA until 2019, then 90% thereafter. For those earning between 138% and 400% of the FPL, a combination of sticks and carrots was devised. The stick was an individual mandate applicable to all citizens, which the Heritage Foundation, a conservative think tank, had championed as the alternative to a single payer option. The carrot: a penalty of $695 per person/2.5% of adjusted gross income if a “qualified health plan” wasn’t purchased.
On the notion that expanded coverage would mean more revenue for providers, more users for drug and device makers, and a larger market for insurers, excise taxes were extracted from insurers, drug and device makers and the market basket adjustment formula whereby Medicare paid hospitals was shrunk to the tune of $150 billion (10 years). These funds from industry stakeholders provided half of the total funding for the ACA–$600 billion over 10 years. The rest would come from higher taxes from the wealthiest 2.5% of the population (3.9% on investment income, .9% for the Medicare withhold) plus funds from penalties, the Cadillac tax on rich employer benefit plans, and even a tax on tanning salons to name a few. All in, funding was to be $1.1 trillion over 10 years, which would offset expanded coverage and fund changes in the delivery system i.e. alternative payment programs, comparative effectiveness research, et al. intended to bend the cost curve permanently.
At the end of 2016, the ranks of those lacking insurance shrank from 16% to 9% of our population. Annual health cost increases slowed from 6% to 4% (not totally attributable to the ACA). The delivery system was adjusting to changing incentives from volume to value. Insurers had implemented shared risk arrangements with providers and doubled down on managed Medicare and Medicaid plans, and insurers, drug and device makers had passed through their excise taxes via premium and price increases. More were covered, and the delivery system was adjusting to its new normal, but drug and device raised their prices and insurers found the rules for participating in the individual health exchange marketplace problematic: the newly insured were sicker and older than expected, and the ACA’s restrictions on these plans made pricing them problematic.
The ACA has flaws: its calculus for sticks and carrots is inadequate. Drug prices were not adequately addressed. The Supreme Court rule (June, 2012) that gave states the option of not expanding their Medicaid programs left gaping holes in the safety net. Alternative payment programs—like bundled payments and accountable care organizations—produced mixed results. And the restrictions governing how insurers could structure and price their plans for the individual and small group markets resulted in double digit premium increases and insurers’ exiting health exchanges.
Republicans seized on the ACA as an overreach by the central government, gaining control of the House in 2010 and Senate in 2012. While the healthcare industry struggled with its new normal, politicians fanned the flames of for and against the ACA–a sentiment that has metastasized since. Half of our citizenry believes the ACA is worthwhile though in need of repair; the other think it too costly and an overreach by the government. All have a viewpoint and they’re strongly felt.
The current debate
Proponents of the American Health Care Act (AHCA) propose a fresh start. Enabled by their majorities in the House and Senate and a like-minded White House occupant, they promise to Repeal and Replace in a three-prong strategy:1- under rules of reconciliation, repeal the ACA’s mandates, industry excise taxes and tax relief for the 4 million who pay its higher taxes. 2- a series of Executive and Administrative Orders by President Trump and Secretary Price to negate or refocus efforts toward delivery system effectiveness, and 3- a review of larger structural issues requiring 60 Senate votes.
Since Prongs One and Two are controlled by the GOP, its intramural gymnastics are key: their most fervent conservatives, usually referenced as the Freedom Caucus, want immediate cessation of funds for Medicaid expansion and subsidized coverage for the 11 million who are enrolled through the exchanges. They’re holding out for work requirements for Medicaid enrollees and full Repeal of the ACA immediately before a complete replacement is devised. Moderate Republicans want a staging of replacement activity per the 3-prong strategy espoused by House Speaker Ryan and Secretary Price, wary about a threat to their majorities in the 2018 election and relationships with the 32 GOP Governors who urge caution since they’ll be expected to shoulder increased responsibilities. That’s the sausage-making going on now.
Will a revised American Health Care Act with changes de jour make it through House and Senate passage before the Easter recess? It’s likely.
Will the effects of the AHCA be felt immediately? Absolutely. Capital and operational budgets for hospitals will be reconsidered and caution applied. Consolidation among hospitals physicians and post-acute providers will accelerate. Bad debt will increase; coverage will decrease. Drug and device makers are not immune: pressure to reduce costs and expose business relationships through GPO’s and PBM’s is building. Insurers will lower their premiums for the young and healthy and raise them for the older and sicker. And for the 170 million whose coverage is through their employer sponsored plan, more of their discretionary income will be spent on healthcare as high deductible plans become their only option. That’s what’s ahead.
Managing our healthcare system in our democracy is messy. There are no comparable systems as complicated and expensive as ours. The silver lining to the legislative journey we’re travelling from the ACA to the AHCA is this: healthcare is no longer a topic about which opinions are mute nor limited to anecdotes about personal experiences. These debates force us to consider broader, systemic challenges: is healthcare a right or privilege? Should insurance protect against catastrophes or the slightest problem? How much accountability should individuals be expected to accept for their own care and costs? How should the clinical innovation funded by U.S. taxpayers that benefits the world accrue an ROI to the U.S. system in addition to company shareholders? What role, if any, should employers play in determining how employees engage with the system? And how much can we afford as a society, given our national domestic and global interests?
The Patient Protection and Affordable Care Act was the most significant legislation in healthcare since Lyndon Johnson’s launched Medicare and Medicaid programs in 1965. It’s worth reflecting on what we’ve learned as we think ahead to what’s next.
I am confident the birthday of the ACA will be referenced by politicians and media this week. Whether for or against, it’s worth acknowledging because it has sparked a national discussion about our system that’s necessary and timely.
P.S. As the American Health Care Act winds its way through the House Rules Committee to a floor vote scheduled this Thursday, and then to the Senate, two other notable health related efforts will be on this week’s agenda: the Senate’s confirmation hearing for Supreme Court nominee Neil Gorsuch, and the debate about the President’s “skinny budget” that adds funding for the Defense (+10%/$52.3 billion) and Veterans Affairs (+6%/$4.4 billion)and cuts the Health and Human Services (-16%/$12.6 billion) and NIH (-17%/$5.8 billion) budgets among others.