The Affordable Care Act’s Second Act

BERKELEY – Congressional Republicans have twice failed to marshal enough votes to realize their seven-year promise to “repeal and replace” the 2010 Affordable Care Act (ACA, or “Obamacare”). Reeling from their defeat, it appears that they have abandoned the effort.

But the fight to undermine affordable access to health care is far from over. As the co-authors of the most recent failed repeal effort put it, “when it comes to Obamacare, the worst is yet to come.”

Americans must not let that happen. A growing number of governors, mayors, and citizens recognize that Obamacare has been a success. The ACA has reduced disparities in access, encouraged innovations in health-care delivery essential to stemming growth in costs, and, most important, provided insurance coverage and improved care for tens of millions of Americans.

Four steps are crucial to ensure that the ACA continues to work – and works better.

First, proponents need to go on the offensive. Among the most disingenuous arguments made by the Republican senators who sponsored the latest repeal effort was that their bill offered a choice between socialism and federalism. The ACA is neither socialized insurance nor socialized medicine: along with the public insurers Medicare and Medicaid, private insurance plays a critical role, and most care, regardless of the source of insurance, is left to the private sector.

And the ACA is an example of federalism at work – a national commitment to health insurance for all Americans, alongside considerable state-level flexibility regarding the policies needed to realize this commitment. Under the ACA, the federal government uses a combination of regulations, subsidies, and mandates to approach universal coverage. But significant discretion is afforded to states in the organization and regulation of insurance markets and in the delivery and coverage of Medicaid and the Children’s Health Insurance Program (CHIP).

Indeed, following a 2012 Supreme Court decision, many states decided not to participate in the Medicaid expansion that was an essential ACA tool for increasing health insurance coverage. Thirty-two states including the District of Columbia chose to participate, providing health insurance through Medicaid to an additional ten million individuals, or about 56% of those newly insured since 2013. ACA’s coverage gains were large among low-income people living in states that expanded Medicaid.

Though coverage rates have increased in all states since ACA’s passage, they have improved most in states that chose to expand Medicaid. A recent survey of rigorous studies concludes that states expanding Medicaid under the ACA have realized budget savings, revenue gains, and faster economic growth. No studies have found negative effects from Medicaid expansion on employment or on the provision of private insurance by employers.

The second step needed to defend the ACA is to ensure that those running it (especially in Washington, DC) are doing their job to make it work, not dismantling it in secret. The ACA rests on a three-legged stool: regulations, mandates, and subsidies. Efforts are underway to weaken all three.

President Donald Trump’s administration must not be allowed to cripple enforcement of the insurance mandate for the healthy, or to slash outreach and advertising to help individuals enroll in the health insurance for which they are eligible. Yet such stealth attacks are already happening.

Nor can those who want to subvert the ACA be allowed to make tax credits less generous, eliminate essential health benefits (for needs as diverse as pregnancy and opioid addiction), or defund subsidies that help people meet out-of-pocket expenses. The loss of such subsidies threatens insurance companies’ bottom lines, and is a major reason why many are dropping out of the market for individual insurance.

Third, Congress must re-focus on bipartisan efforts to address recognized problems in the ACA.
There is broad agreement on a range of improvements that health experts have been advocating for some time, but that have been ignored in the “repeal and replace” circus. One of the main economic advisers on ACA, Zeke Emanuel, says three key changes are crucial, “Enforce the mandate; guarantee the subsidies to the insurance companies for cost-sharing, the deductibles and co-pays for families making less than $50,000; and make sure the insurance companies have risk corridors, so if they get too many sick patients, they’re protected against that.”

Finally, the ACA’s defenders should focus on productivity-enhancing innovation. As we wrote in 2014, “innovation is probably the least discussed aspect of health-care reform. Yet it is crucial to ‘bending’ the sector’s cost curve, because it enables the delivery of quality health care in cost-effective ways. Obamacare has provided powerful new incentives for such innovation.”

Many states are leading the way by experimenting with new models that focus on delivering better patient outcomes at lower cost. Six states have received “demonstration waivers” in their Medicaid expansion programs in a wide variety of areas, including premiums, cost-sharing arrangements, and delivery systems. Over half the states are leveraging the $1 billion earmarked in the ACA for the Center for Medicare and Medicaid Innovation to encourage state-level experimentation.

Recently, Hawaii became the first state to receive an ACA “state innovation waiver,” introduced in 2017. Eleven other states are developing waiver proposals. This provision provides broad flexibility to states to redesign their health insurance and delivery systems, so long as innovations do not leave more people uninsured, make coverage less affordable or comprehensive, or increase the federal deficit. A state could use its ACA funding to provide coverage under a state-run program, and some states are considering a single-payer approach.

Many states – whether Republican, like Arkansas and Tennessee, or Democratic, like California and Massachusetts – are already showing signs of success in producing better health outcomes at lower cost. With little action likely to occur at the federal level, states must accelerate these early experiments and use their market power as insurance purchasers for Medicaid clients and state employees to push for reference pricing, quality improvements, and cost transparency. They can also accelerate the move toward lower-cost care-delivery systems, like medical homes, and away from fee-for-service pricing to simpler bundled pricing for many procedures.

Even ACA proponents know that Obamacare needs improvement. Solutions are available, and they are to be found not in disingenuous grandstanding about socialism, but in innovations that leverage the federalist flexibility that is a defining feature of US democracy.

Laura Tyson, a former chair of the US President’s Council of Economic Advisers, is a professor at the Haas School of Business at the University of California, Berkeley, and a senior adviser at the Rock Creek Group. Lenny Mendonca, Senior Fellow at the Presidio Institute, is Senior Partner Emeritus at McKinsey & Company.

By Laura Tyson and Lenny Mendonca

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