What’s the Future of the Affordable Care Act?

In an election of stark contrasts, the presidential candidates’ views on the Affordable Care Act couldn’t be more different. The choice, says Michael Sparer, chair of Health Policy and Management, is between radicalism and realism. Donald Trump calls for a complete repeal of the law, while Hillary Clinton believes it should be strengthened and extended.

“Republicans argue that the government has overstepped its role in the healthcare system, aspiring to have less regulation, more competition, and personal responsibility,” says Sparer. After his proposed ACA repeal, Trump’s plan would allow individuals to deduct the cost of health insurance and make it easier for insurers to sell their plans across state lines. Clinton favors adding a public option to compete with private insurers on the ACA’s exchanges, staking a middle ground between the right and those like Bernie Sanders advocating for a single payer system.

The Health of the ACA

Over the summer, three of the nation’s biggest health insurers—Aetna, United Healthcare, and Humana—largely pulled out of the Affordable Care Act, leaving millions with fewer plan options. In addition, 17 of 23 non-profit co-ops—consumer operated and oriented plans—created as part of the ACA have failed.

The exodus has left experts wondering if Obamacare can survive the years ahead. Some, like Princeton economist Uwe Reinhardt, suggest the ACA is falling into a death spiral of constricted competition, higher prices, and enrollee flight. Others, including Sparer, see cause for concern, but not panic.

There is no doubt that many with employer-based health insurance have seen higher premiums, deductibles, and co-pays. The cost for many of those buying private coverage through the ACA exchanges also is rising significantly.  To be sure, the ACA provides subsidies to rein in these costs, but just over 20 percent of those insured through the ACA aren’t subsidized. “If your premium goes up and you’re heavily subsidized, it’s not that big a deal,” says Sparer. “But if you’re not being subsidized it’s a huge deal.”

What’s more, defying the insurance mandate, many young and healthy Americans choose to pay penalties that cost a fraction of even the cheapest ACA plan. As a result, insurers are insuring a more expensive mix of older and sicker Americans, making the per capita cost of enrollees higher than predicted.

Destabilized

Similar to the ACA’s consumer subsidies, the law has safeguards for insurers. Those losing money or with a sicker pool of enrollees are entitled to compensation, partially with funds from more successful counterparts. The risk corridor program, for example, promised to cover large insurer losses during the first three years of the Exchanges.

But the government didn’t deliver as much as insurers hoped. Part of an appropriations bill passed this year capped the amount of money available in the risk corridor funding pool. As a result, the plans that lost received roughly 13 cents on the dollar, leading to several lawsuits. “Many plans priced aggressively low to get market share because they thought they had protection,” says Sparer.

Recently, the Center for Medicare and Medicaid Services (CMS) indicated their willingness to settle with insurers, with the hope of enticing insurers who left the ACA to get back into the mix. With the ACA representing just a small fraction of their revenue, however, larger insurers could easily choose to stay on the sidelines. But as the risk corridor is set to expire at the end of the year, the point may be moot.

A Healthy Dose of Competition

In as much as a third of the country—mainly rural communities—consumers have the choice of only one or two insurers. For a period this year, residents of Pinal County, Arizona, were left with no insurers on their ACA exchange until CMS convinced Blue Cross to step in. Those advocating for a single payer system don’t mind if there is only one insurance provider: the government. But experts like Sparer want consumers to be able to choose from a variety of plans, which would theoretically drive down prices.

To encourage competition, creative solutions have been proposed, including: increasing consumer subsidies; strengthening corporate safety nets; or toughening penalties for the uninsured. Sparer would further leverage the power of the Medicaid system and consolidate its insurance marketplace with those of ACA.

Arkansas, Iowa, and other states have allowed citizens who were part of Medicaid expansion to purchase plans on the ACA exchanges. The same could happen in the other direction, Sparer says, if insurers were told that as a condition of accessing the Medicaid market they would need to act as a safety net for underserved exchanges.

The ACA likely will not play a significant role in the election, but another referendum of sorts is taking place this November with open enrollment. While the percentage of uninsured Americans is at its lowest ever—8.6 percent—more than half of Americans are unhappy with the ACA. But Michael Sparer believes the country should stay the course. “With the proper fixes,” he says, “the ACA has a long and healthy life ahead.”