Tuesday, June 11, 2013

Future scenarios for the ACA

Tyler Cowen has had several very good posts on U.S. health reform lately, and today's was particularly good.  He lays out seven possible scenarios for the U.S. health care system:
1. Universal health insurance vouchers on exchanges, with means-tested subsidies and also a mandate.  The logic of this can work just fine, but it is quite expensive as it would exist in the United States and we end up spending too much on health care.   Over time it would be accompanied by say a five percent VAT.
2. Single payer systems.  I don’t want to repeat the usual debates, but perhaps we can agree single payer won’t come anytime soon in the United States.  I also think they work least well in the land of medical innovation, and best in small countries such as New Zealand, but that consideration doesn’t even rise to the fore here.
3. The Singapore system, involving single payer for catastrophic expenses and health savings accounts for smaller expenditures.  To varying degrees you can combine this with forced savings for the HSAs and price controls on service provision, both of which you will find in Singapore.  Where “catastrophic” starts can vary as well.  This is my first choice, although if you wish to dismiss it as “utopian” for the United States you have a point.  I’ll get back to that.
4. One particular path for how ACA could evolve into a (relatively inefficient) form of a Singapore system.  Imagine that the mandate becomes fairly narrow with time, while at the catastrophic end insurance companies evolve into (inefficient) public utilities.  Health savings accounts are reintroduced through new legislation, perhaps under a Republican administration.  Here is one discussion of that path.
5. The mandate and subsidized exchanges under Obamacare prove unworkable and eventually they are abandoned either partially or in full, or in some states but not others.  Their place is taken by a Medicaid expansion.  Coverage is not universal, though it is higher than pre-ACA, and of course coverage under the status quo is not going to be universal either.
6. The status quo of Obamacare.
7. More managed care.  We should remove the legal restrictions and barriers which penalized managed care in the first place, as it is a feasible and desirable means of bending the health care cost curve.  You will note that this option is not a strictly rival alternative to 1-6, but rather can be combined with them in varying degrees.  Still, it seems appropriate to list it as an option.
Like Cowen, I believe that #3 is the best case scenario for the U.S. health care system, but I agree that it is unrealistic.  Unlike Cowen, I think that #6 is more realistic than he believes.  I think the ACA is deeply flawed, but I think it's likely that it will endure in the short and medium term for a few reasons:

  1. The current administration is deeply committed to maintaining the ACA in something close to its current form.  They will be willing to take a fiscal hit on Medicaid and the Marketplace subsidies in order to make it work.  They will have a couple of years to tweak it in hopes of ensuring its success or at least maintaining an illusion of success.  
  2. There is a decent chance that a Democrat will win the presidency again in 2016, and while future Democrats will be less committed to the ACA than the Obama administration has been, they will be more likely to stick with the status quo.  Even if a Republican wins, the current political system is so stagnant as to make legislative reform unlikely in the short to medium-term.  
  3. Once the ACA has been in place for several years, it will have its own entrenched special interests that make it difficult to reform.  
  4. For all the discussion about them, the ACA's health insurance market reforms touch a relatively small segment of the population. Several states, such as New York, have muddled along for more than a decade with health insurance markets in worse condition than the ACA is likely to be.  
  5. For many consumers, premiums will not rise too sharply.  The linked article is a bit optimistic, but I agree that in the short-term rate shock will not be too drastic in 2014.  The ACA's insurance market reforms may not be great long term solutions, but many--such as the minimum loss ratio (MLR) provision and the rate review provision--are likely to keep premiums from rising too steeply in the short term.  Costs to consumers may rise, but they will likely do so in the form of increased co-payments.  

Ultimately, I think that the ACA's Marketplaces will survive in the medium term with some possible minor changes, such as a rise in the maximum deductible and the paring down of some essential health benefits.  I also think that Cowen's #7 is a realistic scenario, although it will be in the context of #3.  

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