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Vol. 44, No. 4

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Why Health Plan Cancellations Do Not Mean Failure for ACA
Health Policy
Michael K. Gusmano, 11/19/2013

Why Health Plan Cancellations Do Not Mean Failure for ACA

(Health Policy) Permanent link

On November 14, President Obama announced that he would delay by one year the implementation of requirements imposed by the Patient Protection and Affordable Care Act (ACA) that would have led to the cancellation of some low cost health insurance plans. The president felt compelled to do this because he had repeatedly stated, “If you like your health care plan, you can keep your health care plan,” and opponents charged that he was going back on his word.

Opponents of the ACA have pointed to this as evidence that the ACA is not working, and even some Democrats have expressed this interpretation. Beyond the partisan political fights is a more fundamental disagreement about the meaning of fairness and the value of universal coverage.

The “patient protection” dimension of the Patient Protection and Affordable Care Act is reflected in provisions that ban the use of pre-existing conditions to deny health insurance coverage and limit the circumstances under which health insurers can rescind policies. But it also includes the creation of minimum coverage standards that do not allow insurers to sell inexpensive plans that fail to offer adequate protection against the costs of health care. However, the law temporarily grandfathered in many substandard plans that were in place at the time the law was passed, and many of those plans expired in 2013.  Because there is so much turnover in the individual and small group health insurance market,  many of the plans that would have been cancelled by the  ACA were issued more recently and, at the time they were sold, insurers knew could not continue beyond 2013.

Much of the uproar over the cancellation of these plans reflects a distortion of the facts, but just beneath the veneer of the overheated political rhetoric is opposition to the values that animate the law. In that spirit, the cancellation of health insurance plans that do not meet the law’s minimum standards for coverage is evidence that the law is working, not that it is failing to do so. Although it does so by creating a “patchwork on a patchwork,” meaning “a patchwork of reforms that builds upon the existing patchwork system of American health insurance,” the ACA tries to move the U.S. closer to a social insurance model for health insurance and away from a commercial model in which the price of health care is based on its actuarial value.

Social insurance tries to spread risks across a population and across the life course so people who are healthier and wealthier will subsidize people who are less healthy and poorer. From a social insurance perspective, including everyone in a risk pool and forcing redistribution is a matter of making everyone pay a fair share for being a member of a minimally decent society that does not allow poor health, which may be the result of forces beyond an individual’s control, to result in financial ruin.  

In contrast, a commercial insurance perspective would treat this sort of redistributive goal as unfair. People who enjoy good health ought to pay less and people who are sicker ought to pay more (actuarial fairness). This depends on a lot of assumptions. First, it assumes that whether you need more or less health care is something over which you have a great deal of control. Second, it assumes that the benefits to society of forcing sick people to pay more outweigh the costs of doing so. Most of the world rejects the commercial model in health care and the ACA is an effort, constrained by the reality of national politics, to move the U.S. closer to this “international standard.”

If the point of insurance is to spread risk over a larger group, healthier people will pay more than what might be considered “actuarially fair.” Those who adopt a social insurance perspective place great value on spreading risks as broadly as possible. Those who adopt a commercial insurance approach want to limit this and segment the market to protect healthier people against subsidizing the care of people who are sick.

 The choice between these models is driven by values. The more value we assign to broad coverage, the more sense it makes to define the population, the risk pool, very broadly. So, beyond the attempts to score partisan political points, this is really a fight about whether health insurance in the U.S. should be based on social insurance principles – and that is the issue that should receive greater public attention.

Michael K. Gusmano is a research scholar at The Hastings Center.

Posted by Susan Gilbert at 11/19/2013 01:03:09 PM | 


Comments
Gusmano's response to the huge controversy about the character, causes and consequences of the implementation of the Accountable Care Act and especially the problems with the federal exchanges is utterly clear and thus very important. The larger point about the reform, I would claim, is that the policy chosen insured complexity and the importance of being clear about what the reforms entailed. In fact the law is a complex mix of health insurance expansion through Medicaid, mandates and subsidized private insurance, along with cost control fads like electronic medical records and comparative effectiveness research, and many other things that came along with the search for votes.

What Gusmano does is highlight the effort to reform--through regulation-- the rules of private insurance so that they resemble more those of social rather than commercial insurance. That made necessary pooling across age groups so as to reduce the huge differences in the premiums for 62 and 22 year-olds. The social insurance case is that the 22 year old will become the 62, and such changes spread the costs of medical care in more defensible ways than does varying premiums by age or medical condition. The ACA set new standards for what health insurance would insure, again by regulation. This Gusmano does so well.
Ted Marmor
Posted by: Ted Marmor ( Email ) at 11/26/2013 9:59 AM


Ted Marmor's helpful comments amplify a point that was not sufficiently clear in my original essay. Because social insurance spreads risk across a life course, younger people that may be asked to pay more for health insurance today will benefit from this arrangement later in their lives. Adopting a life course perspective is crucial for assessments of intergenerational equity.
Michael Gusmano
Posted by: gusmanom@thehastingscenter.org ( Email ) at 11/26/2013 10:52 AM


Thanks for the post. I have read Joseph White's book about 5 times.

Which leads to my comment:

The international standard ties health insurance premiums to income, not to age.

The international standard makes RICH young people pay more, and rich older people for that matter. Young people do not pay more just because they are young.

I have been reading quite a few of the complaints against Obamacare cancellations. Some protests are phony and not well informed, but that is not always the case.

The protests that I respect are from persons who find that their real cost of insurance in the ACA is more than 20% of their income, because they make $1 too much for subsidies.

A 60 year old couple with pretax income of $63,000 is not rich in most parts of the country. But even a cheap ACA plan might cost $12,000 a year for them with a high deductible. In other words about 25% or more of their after tax income.

And this is after the age ratios have been reduced!

Bob Hertz, The Health Care Crusade
Posted by: bob.hertz@frontiernet.net ( Email ) at 12/27/2013 10:33 AM


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