News broke late last month that yet another of the nation’s largest health insurers, Aetna, is pulling out of state health exchanges in 2017. The company’s action marks the failure of every market-based reform included in the Affordable Care Act (ACA).
The insurers that remain in the exchanges find themselves with unprecedented leverage to demand double-digit premium increases next year, which will leave eleven million patients with few options. The collapse of policies designed to increase competition between health insurers should serve as a lesson in an election year when both candidates, Donald Trump and Hillary Clinton, have been running on the promise of even more such reforms.
The first market-based reform to collapse was the introduction of CO-OPs, new consumer-owned health insurers designed to compete with large commercial plans. Of the twenty-three CO-OPs launched for 2014, sixteen have already closed their doors or been shut down by state regulators. The CO-OPs failed in part because they expected government subsidies that never arrived, but more importantly they didn’t have the size or leverage to negotiate rates with large hospital and physician groups, paying more for the same patient care than the dominant insurers they were competing with.
Most countries put hospitals on fixed budgets under a universal health-care system, but the few with private health insurers set uniform rates so market power doesn’t matter for the price of care. The Wild West capitalism that characterizes health care in the United States actually works against competition, rewarding mergers and consolidation by both insurers and providers, and undermines competition-based policy initiatives like the CO-OPs.
The exchanges themselves are an additional lesson in the ACA’s failed competition policies. The promise of the exchanges was to replace insurance brokers, who traditionally helped small businesses and individuals shop for health insurance, with a single marketplace that makes plans easier to compare (the bronze, silver, gold, and platinum tiers).
The reality from study after study is that very few people are able to select the plan that’s best for them (including one that found only Columbia MBA students chose insurance plans better than randomly picking a plan out of a hat would). The vast majority choose the plan with the lowest premium in a tier, the plan that’s listed first on the website, or the plan they’re already enrolled in, even if it will leave them with higher total costs or poor access to care they’ll need.
Insurers have capitalized on patients’ inability to identify plans that are better for them by pushing lower upfront costs (premiums) but much higher uncertain costs and costs at the point of care (deductibles, co-pays, out-of-network care, uncovered benefits, etc). Fully 90 percent of enrollees in the exchanges have picked high-deductible plans, compared with 24 percent in employer-sponsored insurance. Limited provider networks are now used by about half of the exchange plans, which has led to the complete exclusion of some specialist care (14 percent of plans) and an explosion of “surprise medical bills” from out-of-network care that patients think is in-network when they receive it.
Learning from the failure of market-based reforms is particularly important since both Trump and Clinton have promised to further increase insurance competition, albeit in the context of drastically different health-care platforms.
Trump has taken up a common Republican proposal to allow purchase of health insurance across state lines. “By allowing full competition in this market,” Trump’s campaign page promises, “insurance costs will go down and consumer satisfaction will go up.”
The plan is doomed to fail because out-of-state insurers have very little power to negotiate low rates with providers where the patient actually lives. Georgia, Maine, and Wyoming have all enacted legislation allowing the purchase of out-of-state health insurance, but not a single out-of-state insurer chose to enter those markets.
Ironically, although Trump has called for repeal of the ACA, the ACA itself contains a provision enabling the purchase of health insurance across state lines: “health-care choice compacts.” States were supposed to be allowed to establish compacts starting this year, but the Department of Health and Human Services (HHS) has yet to issue regulations for this portion of the law. If and when HHS does, it will mark the third and final failure of the ACA’s market-based reforms.
Clinton has promised to revive the Democratic campaign for a “public option,” a publicly administered health insurance plan that would compete with private insurers on the exchanges. If a new public insurance plan must negotiate with providers while trying to attract new enrollees, it’s likely to meet the same fate as the CO-OPs.
If allowed to use Medicare’s provider network and Medicare’s payment rates, a public option would have a tremendous advantage over private insurers since Medicare pays lower rates and few providers can afford to opt out of accepting Medicare patients. A weak public option that has to negotiate health-care costs as a small startup plan will fail, while a strong public option allowed to pay Medicare’s low rates is more likely to replace private insurers than compete with them.
The last gasp of the ACA’s market-based reforms reveals an uncomfortable truth about our health-care system: we cannot afford to expand or even maintain our current access to care without cost controls, and health-care costs cannot be controlled with competition or markets.
The only cost control that works without undermining access to care is also the kind that Republican and Democratic leadership have foresworn this election: public budgeting and rate-setting through a single-payer system, or regulations that force nonprofit insurers to act like a single-payer.
When we visit a doctor, we fully expect that we’ll be treated with evidence-based health care. This year some eleven million patients in the exchanges will experience the personal impact of health-care policy based on ideology and profits instead of evidence, which will lead to unnecessary illness, financial ruin, and in some cases death. We owe it to them and ourselves to end the free market’s dominance in American health care, and finally achieve public, universal care.