President Trump is forcing congressional Republicans to quickly replace ObamaCare with a program that lowers health care costs or face the wrath of angry voters.
The Affordable Care Act was advertised to provide affordable health insurance to virtually all Americans but has failed miserably.
By requiring most Americans to obtain coverage — through employers or on government-run exchanges — the ACA sought to improve insurers’ risk pools and lower costs. Instead, many healthy people chose to pay fines rather than hefty premiums, and many folks added to the insurance rolls were sicker and needed more care than anticipated.
Insurance companies lost considerable sums last year and raised premiums for 2017 by an average of 25 percent.
Many withdrew from the program altogether. One-third of all counties now have only one company offering plans, even more insurance companies will quit the exchanges in 2018 and the absence of competition will significantly drive up prices further.
By expanding Medicaid, the ACA sought to provide access to all low-income and unemployed individuals — beyond the program’s traditional mandate of helping children in poor families, the disabled and other genuinely vulnerable adults.
Nineteen states refused to participate in the ACA Medicaid expansion because many legislators are philosophically opposed to government mandates or are concerned the federal government will eventually reduce support for the program and leave their states in untenable fiscal positions.
In the 31 states adopting the expansion, able-bodied, working-age adults — including those without children or other dependents — may obtain taxpayer paid health care even if they refuse to seek employment. And ACA rules create perverse incentives for states to pay for their benefits by cutting back on doctor reimbursements for mothers, children and the disabled Americans Medicaid was created to assist.
Altogether these initiatives failed to enroll virtually all Americans in health insurance.
According to the Kaiser Family Foundation, only 13 million additional individuals obtained coverage thanks to the ACA, while 28.5 million remain without insurance. Even with generous subsidies, 57 percent say insurance is too expensive or are unable to get coverage.
Most fundamentally, Americans continue to pay too much for everything from drugs and medical devices to hospital visits and administrative costs — not to mention the high cost of our tort system.
Germany has a private insurance system that requires virtually everyone to participate but spends about 11 percent of GDP on health care whereas the United States spends 17 percent. The major difference is not the quality of care or access to the best drugs and services, but rather price controls. For example, new drugs are priced according to how much they improve treatment over existing medicines.
Republicans in Congress are ideologically opposed to regulating prices and argue that permitting insurers to sell policies across state lines would encourage competition and pull down costs. However, states like New York and California have large enough populations to encourage robust competition, but scant evidence indicates that their prices are lower than in moderate-sized states.
Now Mr. Trump has issued an executive order instructing federal agencies to “waive, defer, grant exemptions from or delay implementation of any provision or requirement” of the ACA that imposes a burden “to the maximum extent permitted by law.”
That guts the individual and most business mandates and will send the government-sponsored health care exchanges into a death spiral.
Without a replacement for ObamaCare by 2018, insurance company costs will fly out of sight, and they will leave the exchanges. Many of the 70 percent of counties nationwide that currently have only one or two companies selling policies on their exchanges will have no insurer willing to participate and millions of Americans sorely needing coverage won’t be able to buy it at any price.
The House GOP proposal would repeal outright the individual and business mandates to purchase health insurance and attempt to maintain affordability through a combination of tax credits and subsidies for purchasing private insurance and with block grants to the states to administer Medicaid.
Those won’t solve the cost problem, and without a penalty for non-participation, even more healthy individuals will decide to go without health insurance. As rates continue to rise, even more families who want insurance won’t be able to afford it.
Individually, the states cannot effectively contain costs by regulating prices. For example, doctors can move, and drug manufacturers can forgo sales in smaller, less affluent states to maintain high prices in the big rich states like New York. Faced with limited budgets under block grants, states will cut back on Medicaid eligibility, leaving even more low-income families without insurance.
Anticipating difficulties with repeal and replace, Americans are having an epiphany — for the first time since enacted, more think the ACA was a good idea than a bad idea.
Simply, Republicans must face the need to reduce health care service prices or risk an angry electorate that can’t afford health care and lose badly in the mid-term elections.
Peter Morici served as Chief Economist at the U.S. International Trade Commission from 1993 to 1995. He is an economist and professor at the Smith School of Business, University of Maryland, and a widely published columnist. He is the five time winner of the MarketWatch best forecaster award.