Conservative reform of the ACA: cutting strings at different ends

When those few conservatives who would genuinely like to see affordable health insurance available to all Americans -- and the many Republican office holders who pretend to -- float alternatives to the Affordable Care Act, they talk about making insurance more affordable, about offering more choice and flexibility to insurers and hence to customers.

Giving insurers more flexibility generally means three things. First, reducing or eliminating the ACA's federally mandated Essential Health Benefits (EHBs) -- which include mental health, drug treatment, childbirth and children's dental coverages that many people might plausibly protest they don't need. Second, allowing sale of plans with lower actuarial values -- the percentage of the average user's annual medical costs paid by the plan -- than the ACA allows. The law sets a floor of 60% AV in both the employer and individual markets and, in the exchanges, establishes silver-level 70% AV plans as the benchmark to which subsidies and Cost Sharing Reduction subsidies (boosting AV for lower income buyers) are tied. Third, widening the allowable price variation according to the plan holder's age and allowing price variation according to sex.

There's much less here than meets the eye.

If you like your ACA plan, you very likely won't be renewing anyway

Sam Baker and  Jonathan Cohn have both spotlighted a Milliman briefing paper warning of an important potential glitch looming as the ACA's second Open Season approaches. It's this: while the government is encouraging current customers to renew their current plans via auto-enrollment, many customers may see significant price spikes if the plan they selected last year loses its status as a "benchmark" plan.

Subsidies are keyed to the second cheapest silver plan in each market, deemed the benchmark; subsidized customers who buy a plan more expensive than the benchmark have to pay the whole difference. Thus, if the ACA affordability formula decrees that you should pay $30 per month for a benchmark plan with a base premium of $300, and that plan's premium spikes to $350 and it cedes its benchmark status, you'll now be on the hook for $80 per month rather than $30 if you stick with it. To stay at roughly the $30 level, you'll have to switch to one of the two cheapest silver plans on offer this year. (Additionally, if the benchmark plan price goes up, customers' advanced premiums may also go up if they re-apply rather than auto-enroll.)

I wouldn't dream of downplaying this very important potential glitch. But I think it's worth noting an often-unnoticed market factor that will mitigate its impact somewhat: there's tremendous churn in the individual market, and it's likely that half or more of those who enrolled in private plans in 2014 will be looking to renew. Many will have found jobs that offer insurance; some will become eligible for Medicaid; some will marry or move and need to select a new plan in any case. In November 2013, healthcare scholars Rick Curtis and John Graves estimated (with some caveats) that just 42 percent of Americans eligible for subsidized exchange coverage at end of 2014 (i.e., the upcoming open enrollment season) were eligible in the prior year. That doesn't quite tell us what percentage of those currently enrolled in subsidized exchange plans will not be seeking coverage for 2015, but it gives an idea of the degree of turnover.

Hey, red state governors: here's an ACA "repeal and replace" plan to protect the rate-shocked

Guaranteed issue -- the guarantee that one's health or medical history won't be factored into the cost of health insurance bought on the individual market -- is one of the most popular features of the ACA. Many Republicans vowing to "repeal and replace" the law promise to keep it. But maybe they shouldn't.

Guaranteed issue is also the primary driver of the rise in health insurance premiums triggered by the ACA (the base price, that is, offset for most consumers by government subsidies). Benefits consultant Milliman estimated in March 2013 that guaranteed issue would drive the cost of insurance in California up 26.5%.  More recently, with the data for the ACA's first open season in, a NBER study by a team of health economists led by the Wharton School's Mark Pauly identified it as the primary cause of cost increases averaging 14 to 28% in 24 states. 

The rise in insurance premiums for the unsubsidized, leading to "rate shock" for some who were already buyers in  the pre-ACA individual market and earned too much to qualify for subsidies, has been Republicans' most potent attack point against the ACA. Rhetorically, they like to pin the price hike on the "essential health benefits" (EHBs) that all policies must provide under the ACA -- e.g., childbirth and mental health coverage. But the price impact of EHBs is dwarfed by guaranteed issue. Some Republicans and conservatives acknowledge this indirectly by touting state-run high risk pools for those with preexisting conditions -- a proposal that implies the end of guaranteed issue.

State high risk pools have been around for some time, and were funded as a temporary measure by the ACA to cover those with pre-existing conditions until the state insurance marketplaces were launched in 2014.  They have generally been underfunded, often prohibitively expensive and/or available to only a fraction of those who needed them.

I have a question for health economists -- or, if you prefer, a modest proposal for red state governors who would like to "repeal and replace" the ACA on a state level -- as the law allows via innovation waivers that empower states to submit plans that would meet the law's goals by alternative means. If feasible, it might be attractive to self-styled champions of the free market -- and of constituents who liked their pre-ACA insurance and couldn't keep it, chiefly because they've been drafted to subsidize insurance for the less healthy.

Don't deny ACA-driven rate-shock. Do put it in perspective

Most Obamacare horror stories trumpeted by Americans for Prosperity, Fox News et al did not hold up to scrutiny because the protagonists turned out to be eligible for subsidies. The law's enemies wanted real hardship cases, and even modest affluence apparently takes the edge off for propagandists.

That sloppiness has made it relatively easy for some of the law's supporters, including Paul Krugman (see update #7 here), to gloss over the substantial price hikes suffered by those who 1) are in the individual market for a relatively long haul, 2) earn too much to qualify for ACA subsidies, and 3) do not have a pre-existing condition or a family member who has one.

eHealth, the nation's best-known online health insurance broker pre-ACA, has published statistics indicating the extent of  premium price hikes for the unsubsidized under the ACA. The latest snapshot is based on 213,000 insurance applications completed on eHealth during the ACA's first open enrollment period, from October 2013 through March 2014;  a 2013 baseline is published here.   According to eHealth's most recent stats, the average individual plan premium rose from $197 in 2013 to $271 in 2014, a 38% increase. The average family plan rose from $426 to $667, a 57% hike.

The larger jump in family plan premiums is partly explained by a larger reduction in average deductibles, which shrank from $10,568 in 2013 to $7,771 in 2014 (that's for the whole family; each individual would have a smaller deducible). The average individual plan deductible fell less dramatically, from $4,900 to $4,164.  As open season wore on, eHealth customer trended toward lower premiums and higher deductibles.

Fauxbamacare freebie No. 1: Covering those with pre-existing conditions

In their burgeoning promotion of Fauxbamacare -- promises to repeal the ACA while retaining its most popular features, without specifying how -- dozens of Republican incumbents and candidates are promising to maintain affordable coverage for people with pre-existing conditions. Small wonder: approval of the provision is at 70% nationally, according to the Kaiser Family Foundation's March poll.

Of course, Republicans also love to bash the ACA for driving up the cost of private-market insurance for the unsubsidized.  They blame the rise -- which is real for those who earn too much to qualify for ACA subsidies and have no pre-existing conditions in their household -- on the ACA's new rules for what all insurance policies must cover, which took full effect on Jan. 1, 2014.

Here's the thing, though. Guaranteed issue -- the prohibition against varying the price or scope of insurance on the basis of the buyer's health and medical history -- is the prime driver of the increase in the base price of private insurance triggered by the ACA.

Republicans wouldn't scrap the main driver of ACA rate shock

As the reality that millions have benefited from full implementation of the Affordable Care Act takes hold, more and more Republicans are resorting to what Ezra Klein has dubbed Fauxbamacare: propose to repeal the hated law, replace all its popular components without providing any details.

Progressives counter that if you claim you want to make health insurance affordable to all, unless you come out in favor of a single payer system there is no real alternative to the basic structure of the ACA: guaranteed issue (that is, no variation in health plan price based on a person's medical history), an individual mandate or equivalent* to offset the influx of sick people into the risk pool, and subsidies (or Medicaid) for those who can't afford the premiums.

While that's mostly true, it's also true that some plans crafted to current conservative specs look significantly if not radically different from the ACA. The vast majority of Republican elected officials have shied from putting forward such a plan -- or ignored the one put forward by Senators Coburn, Burr and Hatch --  since such alternatives require tough tradeoffs. The main difference is that conservative schemes give insurers more leeway to sell plans with skimpier benefits and lower premiums. They eliminate or vastly reduce the Essential Health Benefits (EHBs) mandated by the ACA. They loosen the allowing "age banding" of premiums -- the degree to which older buyers can be charged more than younger ones -- from the ACA-mandated 3-to-1 to the pre-ACA norm of 5-to-1.

It's true that for healthy people who were buying insurance in the individual market prior to the ACA, the law's coverage rules substantially drove up the premium price. Rate shock is a real phenomenon. As the complaints poured forth, the EHBs were a prime attack point.  "I'm 55 -- I don't need childbirth coverage." "I'm of sound mind -- I don't need mental health coverage."  Limited age-banding was also a rallying point, since the 5-to-1 ratio was based on actuarial calculations.  Why should a 23 year-old pay more so that a 58 year-old can pay less?

These complaints have some legitimacy. The EHBs and age-banding limits involve tradeoffs that can be argued from either side. But they are not the prime drivers of the rate hikes caused by the ACA.