My 8-year-old son has an advanced understanding of risk pooling for his age. He didn’t seek it out, nor do I think he is particularly aware of his leg up when 10 years down the road he surely decides to become a health care actuary. This knowledge was imposed upon him when I hastily muted a TV ad for a health care sharing ministry, substituting the 30-second slot for grumbles about catastrophic risk, discharging health care debt and even death spirals. OK, maybe I am a bit dramatic. But stumbling into a career as a health care actuary has (among so many gifts) made me a bit jaded.
Health care in the United States is dysfunctional at times and groundbreakingly innovative at others. It saves lives while tragically neglecting others. No matter which corner of the political spectrum you fall into, we all can agree that there is something we can change for the better. Yet, so much of the journalism and policy debates fall short in acknowledging the complexities of the situation that actuaries know all too well.
Having confessed to my sometimes-impetuous nature, I’ll lay out all of my cards here: In this 2,000 word fiefdom, I wrote a health care debate that takes on the complexity headfirst (the breadth of U.S. health care tempted me to impose a 10,000-word fiefdom on the reader).
This article is a debate among three individuals: Laura (a Libertarian), Patrick (a progressive) and Colin (a centrist). They are friends attending a barbeque and enjoying a beautiful day. They also are health care actuaries—the kind of people who view health care policy debate as a supplement, not a detractor, to such an idyllic scene. Though the names are fictitious, the content is real and comes from actuaries working in the health care arena who are devoted to disseminating important information: Joan Barrett, FSA, MAAA; Greg Fann, FSA, FCA, MAAA; and Dave Tuomala, FSA, FCA, MAAA.
Colin: Let’s offer a toast to the Affordable Care Act (ACA)—10 years old!
Laura: Are you joking?
Patrick: I’ll agree with Laura on that, at least.
Colin: You two don’t hold your opinions too close to the cuff, do you? Sure, I agree, the ACA is not perfect. For starters, it has underserved young adults and middle-income populations while providing generous benefits to older adults and low-income populations. Healthy people with jobs that do not provide group coverage are not the same type of uninsured as high-risk individuals unable to work who do not qualify for other individual coverage. The former is concerned with affordability, the latter with availability, and the ACA framework is not robust enough to achieve an optimal situation for both.
To avoid a modified community-rated environment that promoted adverse selection and would ultimately be unsustainable, we added carrots and sticks in a complicated and convoluted manner. The ACA marketplaces are more of a low-income program with reliance on the private sector than truly competitive markets. Maybe that’s not all bad, but maybe you two are right that it’s nothing to celebrate. It was a start at least, right?
Laura: Did the ACA framework even provide a complete solution for increasing coverage for the highly subsidized low-income population? As Colin mentions, healthy individuals with jobs that do not provide group coverage have been priced out of the market by the ACA’s one-size-fits-all approach. Many low-income individuals do not take full advantage of the subsidies available to them. It is tough to imagine that the solution is to pile on more complexity.
Manipulating markets will always result in unintended consequences—take the ACA’s risk adjustment program, for example. It has done more harm than good due to the model’s volatility and dependence on the operational efficiency of large insurers and the growing industry of consultants who support them. Maybe the data scientists with whom we work think the solution is to build a better risk adjustment model, but we know it is not that simple.
One practical effect of this is that only three of the 23 initial co-ops are still operational, and only one has expanded into new states. In addition to the bureaucratic mishandling of the startup grants/loans, the massive risk-adjustment bills the co-ops needed to foot drove them out of business. The 2016 “reforms” the Department of Health and Human Services (HHS) issued made it easier for co-op plans to get outside investment and expand coverage offerings, but they missed the elephant in the room: The ACA exasperated the power of large payers in the commercial health care market.
Risk adjustment has presented the ACA in the best light, though. Who would have thought another of the ACA’s three “r”s would prompt a Supreme Court justice reminding the federal government that it is “a principle as old as the nation itself—that the government should honor its obligations.” The fact that the 10-year-old ACA is dictated as much by actual legislation as the conglomeration of Supreme Court opinions it sparked is telling.
The ACA’s adventure into federal government overreach and technocracy has been a half-solution to a full-scale problem.
Patrick: We maybe would have seen a more complete solution without the Supreme Court’s decision to gut the ACA by allowing states to opt-out of Medicaid expansion. Even with that, the uninsured population was nearly cut in half from 2010 to 2016, dropping from 18.2 percent to 10.4 percent. That is nearly 20 million Americans who now have health care coverage, which we can all appreciate as a significant accomplishment. Yet, 30 million remain uninsured, and many more remain underinsured.
Ultimately, the ACA did little to remove the profit motives that produced the dysfunctions of the pre-ACA system. It did little to address the unreasonable fee schedule agreements with providers, and it even created a “back door” that allowed the rate of self-insurance among small employers to rise almost as much as the rate of uninsured Americans dropped, skirting the community rating provisions of the ACA.
Further, the ACA did not address the underserved populations that struggle to interact with the health care system. They do not maximize their ACA subsidies or even use the ACA’s free preventive care visit benefits because of significant barriers to care.
Laura is right that more complexity is not the solution, but we can’t pretend that the free market that got us the pre-ACA system is a solution either. Ultimately, a single-payer solution that can remove the red tape and serve the health needs of actual Americans is needed. If the ACA is a stepping stone to that, great. But we cannot hope our nation’s health policy will all fit on that small stone.
Colin: We should at least acknowledge some of the positive effects we can all agree on—requiring coverage of dependents up to age 26 and removing annual and lifetime maximums. These provisions have helped many and have not been significant drivers to increases in cost. Perhaps they could have been achieved as stand-alone measures, but we’ll take what we can get out of Congress these days!
I worry that the ACA has taken attention away from the fundamental problem—that the United States spends more as a percentage of gross domestic product (GDP) on health care than comparable countries without meaningful improvements in care. To some degree, the ACA only shifted the burden of unsustainable health care costs from one group to another. We ought to be thinking of ways to make the cost burden sustainable. I guess the recent surprise billing legislation is a step in that direction.
Patrick: That’s a step that would not be necessary if we had Medicare for All rather than private insurance. You don’t hear about surprise billing with Medicare plans because Medicare already limits the amount of balance-billing allowed. I suppose until Medicare for All comes, maybe this is a valuable consumer protection.
Laura: I agree it should not be necessary, but we don’t need Medicare for All to show that. Price regulation is largely nonexistent in the rest of the economy, and it functions quite well. Perhaps the upcoming transparency regulations may help to create an environment where a true market for health care services can function. The unique aspect of health care markets is not the high cost, but that consumers do not know the cost of what they are buying before they purchase it.
Colin: Sure, but how much will the transparency law help? The advanced explanation of benefits (EOB) is a neat idea, but how will the health plan know in advance which providers will be utilized, even for a planned procedure. The hospital and surgeon may be in network, but the radiologist or anesthesiologist may not be, which is what typically happens today. I don’t see a way for the health plan to predict and prospectively include these details in an advance EOB when the patient on the operating table can’t predict it today.
Laura: And that’s another unique aspect of health care markets: the lack of competition for certain provider types in many markets. Many anesthesiologists choose to remain out of network with payers because the volume incentive for being in network is not present—they increase their volume by partnering with hospitals, not through having their name in a payer’s provider directory.
The solution to increasing competition is not credentialing more anesthesiologists; in fact, that may make matters worse if more anesthesiologists need to get paid for the same number of surgeries. Rather, we need to remove all convoluted incentives that characterize health care.
This solution can be less revolutionary than Patrick might suggest—maybe it is as simple as bundling anesthesiology payments into surgical payments like we do with nursing care. Nobody gets saddled with exorbitant charges from the out-of-network nurse, and yet they may do more of the “real work” during an inpatient stay than more specialized provider types.
Of course, we all remember what happened when they required CEOs to disclose their salaries—CEO salaries skyrocketed because each CEO needed to make more than their buddy!
Patrick: I agree that providers have far too much power and political influence, and the rapid consolidation of provider groups only exacerbates that. Perhaps we ought to give more regulatory attention to merger and consolidation activity. Enforcing existing antitrust laws could straighten out the provider specialty-driven surprise billing.
I do not think increased transparency will have much of an impact at all. To start with, providers today would rather pay the fines than disclose their prices—that shows you how much this racket is worth to them. Most major insurers have had tools to help consumers understand costs for years, so it is unclear what the transparency law gives to the average American.
We could also stop chipping away at the problem and remove the political power of providers: standardize fee schedules to limit their bargaining chips when dealing with payers and standardize wages to avoid fee-for-service incentives to drive up care utilization. To Colin’s point about reducing the actual cost of care, we could start making real progress.
Colin: We’re about due for one of the many policies to control retail prescription costs to stick, aren’t we? I was amazed to see the other day that the United States spends almost twice as much on retail pharmacy per capita than Australia, the United Kingdom and France.
Laura: That’s not a fair comparison. The market for drugs in the United States is relatively free when compared to medical care. Manufacturers set their own prices with respect to the cost of development, the limited window of patent protection and the anticipated demand by doctors and patients. Pharmacy benefits managers (PBMs) and retail pharmacies, in turn, negotiate discounted prices and dispensing fees that establish what the ultimate price to health plans and consumers will be. Manufacturers and PBMs also negotiate rebates that affect the net cost to health plans and sometimes consumers. It’s probably unnecessarily complicated—and that does allow abuses to happen—but it bears the semblance of something that works.
By comparison, other first-world systems with various forms of government-sponsored coverage typically limit drug prices either explicitly, implicitly or both. Explicit controls include mandating specific prices, while implicit controls limit the prescribing of more expensive drugs or, in some cases, don’t cover them at all. This is commonly done for all health care services in those countries, but because pharmaceuticals are a global market, their policies do not only affect their own countries. In addition, regulation of prescription versus over-the-counter (OTC) drugs varies from country to country. In most cases, OTC drugs are not covered at all.
Arguably, this means that the United States, by having a free-market pricing mechanism, is indirectly subsidizing the cost of drugs for other countries. If the United States were to adopt similar policies, it could have a catastrophic effect on investment in new lifesaving or life-enhancing medications globally.
Patrick: I’m with you that the United States is getting the short end of the stick here, but isn’t it because we are turning a blind eye to the profits that pharmaceutical companies are raking in? I understand Laura’s concept of manufacturers trying to recoup the cost of development, but if that is the case, why are they so secretive about their costs?
Given that these are lifesaving medications that are needed by patients, we should strictly limit the profitability and prices as other countries do. It is not right to profit at the expense of patients who need them. Other countries recognize this, and we should, too. For Medicare Part D, negotiation of drug prices is long overdue. That should have been a part of the program since inception and would lower costs for everyone.
Pharmaceutical manufacturers are not going to leave the market because of price controls any more than providers have left the Medicare program because prices are established for those services.
Colin: This has been a great discussion. In sum, the system works pretty well for most people, most of the time. We really don’t need new policy. We should start with first understanding the current policy, properly implementing it and understanding where the gaps are.
Think about it: We had 45 years between Medicare/Medicaid and the ACA. When the ACA was passed, we understood the current framework. After the ACA was passed, we were immediately asking “what’s next?” and we (collectively) have little idea what is and is not working with the ACA.
One of the biggest problems with the ACA was that it attempted to be a broad systemic change without having widespread bipartisan support. Many of the glaring problems with the ACA could have been fixed easily through legislation had there been bipartisan support. Because roughly half of Congress did not support the legislation and still supports repeal, it is difficult to make even minor course corrections to improve the outcomes. Both parties should consider this in future proposals and try to avoid this type of scenario. Incremental proposals are much more likely to have a political consensus rather than remaking the entire system. In the long run, seemingly minor changes can still have a lot of impact.
Patrick: It has been a good discussion, but I have to disagree with your laissez-faire approach. You can argue that there are trade-offs, but that ignores the life and death trade-offs that people need to make every day in the United States when faced with a lack of access to necessary health care. The most efficient way of ensuring availability of quality health care is to offer it to everyone as we do with seniors via Medicare.
Laura: We already have too much government involvement in health care. Imagine if some of the free-market innovations we have seen in technology and other areas were required to satisfy government program limitations to get off the ground. Would we still have Amazon, Uber or Netflix in that environment? What similar innovations in health care are we not getting because of these limitations? It would be essentially impossible in a fully government-sponsored environment. The cost of braces is a good example: Dental markets are much more transparent than ordinary medical markets, and as a result, we now have cheaper, less invasive and more cosmetically appealing braces options than we did 20 years ago. Innovation provided better and less expensive care.
Colin: Thank you both! We may not agree on everything, but I think we can all agree that health care is complicated!
Many thanks to the three fabulous contributors who participated in this article. I have esteemed their writings throughout the years and was flattered they lent their expertise to this project.
- Joan Barrett, FSA, MAAA, a consulting actuary with Axene Health Partners
- Greg Fann, FSA, FCA, MAAA, a consulting actuary with Axene Health Partners
- Dave Tuomala, FSA, FCA, MAAA, vice president of Actuarial Consulting at Optum Advisory Services
Statements of fact and opinions expressed herein are those of the individual authors and are not necessarily those of the Society of Actuaries or the respective authors’ employers.
Copyright © 2021 by the Society of Actuaries, Schaumburg, Illinois.