Exploring the shortcomings and fault lines of the Affordable Care Act
The case for single payer – Medicare for All
By Jeoffry B. Gordon, M.D., M.P.H.
December 3, 2014
The Patient Protection and Affordable Care Act (ACA) has as its main and overriding purpose the expansion and subsidization of health insurance coverage for many (usually poor and uninsured) Americans who were previously unable to reliably access medical services. Under its auspices, the federal law has provided for health insurance enrollment for 1 million to 3 million additional 19- to 26-year-olds; 6 million new, expanded Medicaid enrollees; and 7.2 million commercial Qualified Health Plan enrollees. Of the latter, about 80 percent qualify for financial subsidy. Taking into account additional factors, e.g. the fact that some of the new enrollees were previously insured, there has been a net gain of about 10 million people who have coverage. Yet even at full expansion, it is estimated that the ACA will not insure another 30 million U.S. residents.
It is now five years since the ACA came into being and one year since it started financing patient care. Thus it is an excellent time to review its inadequacies from a health policy point of view.
As will be seen from the compilation of observations below, the ACA expansion, which is based upon the commercial health insurance model, is extraordinarily complex, inefficient, and monstrously expensive. And in the end, under the ACA, having health insurance is not a guarantee of receiving needed medical care nor, in many cases, is it truly affordable and providing financial security for American families. It is not a universal national health scheme which allows full access to the broad capabilities of American medicine. An expanded Medicare-for-all system (single payer), built on nearly 50 years of successful experience, would be far less complex, more equitable, and hugely less expensive. The single-payer paradigm would totally eliminate as unnecessary the many complex, confusing, expensive, and wasteful characteristics listed below by instituting universal coverage, eliminating the insurance middleman, and allowing all licensed providers.
1. The ACA assumes patients are consumers and a market mechanism is the best way to organize health care
Even among the well-educated, there is a tremendous asymmetry between the doctor and the patient in the esoteric technical knowledge and judgment needed for the application of competent and effective medical care.
A person who has an accident or an illness has very little opportunity or capacity to shop around and compare either price or quality. Usually the sicker and more acutely ill the patient, the less this capacity will be. (See: Arrow, Kenneth J. “Uncertainty and the welfare economics of medical care,” The American Economic Review 1963; 53:941-73.)
2. The ACA depends upon and subsidizes the commercial health insurance companies
Health insurance companies, both for-profit and nominally not-for-profit, necessarily always seek to maximize income rather than expand necessary medical services or expand compassion and caring. Their basic functions are business functions consisting of collecting fees (premiums), paying bills, and marketing, which, along with profits, generally consume 20 percent to 25 percent of premiums. Thus the money spent on patient care, the “medical loss ratio” (their term), is generally 80 percent or more of premiums. The ACA legally caps this waste and inefficiency at 20 percent. AHIP (America’s Health Insurance Plans) negotiated with the government to allow the plans to count “medical management” as “health care,” not administration, for the purposes of calculating the so-called medical loss ratio, MLR. This means health insurance companies can spend unlimited amounts of money on the bureaucracy of managed care, formulary benefits management, “Accountable Care Organizations," pay-for-performance, and other schemes to restrict or deny care or shift insurance risk onto the providers of care, and they can count it all as “health care” for purposes of calculating the MLR. Also seven states (Georgia, Iowa, Kentucky, Maine, Nevada, New Hampshire, and North Carolina) received waivers from the Department of Health and Human Services, allowing them to have lower regulated medical loss ratios so as to keep insurers from leaving the market. In addition, the ACA federally mandates an ongoing large incremental enrollment in these private commercial enterprises which previously had a progressively declining business.
The federal government also reinsures the commercial health insurance companies. Under the ACA’s risk corridor program, if insurers that offer marketplace plans experience higher-than-expected costs, the federal government will pick up part of those costs. If insurers’ costs are lower than expected, the federal government will share in those savings. This temporary program will exist for three years (2014-2016).
3. The ACA reinforces an unequal and unjust five-tier medical system
The first tier is Medicare, a 50-year-old program for most Americans over 65 and many handicapped and disabled people (50 million in July 2012). Medicare has simple categorical enrollment (all USA residents over 65 with qualifying employment), extensive national benefits standards, many insurance characteristics (premiums, co-pays and deductibles), is federally subsidized and has reasonable reimbursement for any willing, licensed provider.
The second tier includes most Americans (60 million in January 2013) who obtain commercial health insurance through their employment. This allows varying levels of access to a wide variety of providers, has varying but usually broad benefits and has a large range of possible financial out-of-pocket costs through insurance premiums, deductibles and co-pays.
Now the ACA has added a third tier of commercial insurance with basic minimum benefits, generally restricted or narrow networks of providers, lower levels of provider reimbursement, and high-deductible (but often subsidized) insurance plans.
The fourth tier, varying by state rules, is the Medicaid system for the poor (34 million people in January 2013) which has been greatly expanded by ACA. Insurance costs are generally fully subsidized and benefits are theoretically extensive. Since provider reimbursement is universally meager, access to needed medical care can be haphazard, difficult, or unavailable. (For instance, the American Medical Association says that between 85 and 105 specialists are needed for every 100,000 patients to sufficiently serve a population. However, a 2010 report by California Health Care Foundation found that California had just 65 specialists per 100,000 Medi-Cal beneficiaries.)
Finally there remain a large number of American residents (46 million in January 2013) who are uninsured and who thus lack ready access to health care except from safety-net programs in dire emergencies. This complex arrangement is most onerous for the poor and less educated, often minorities, and is the underlying basis for our nation’s overall poor performance in vital statistics and levels of disease morbidity and mortality.
4. The ACA’s potential for subsidized universal health insurance for all poor legal residents was destroyed by the Supreme Court
A central (although mostly unstated) goal of the ACA was to significantly reduce the number of poor uninsured by providing fully subsidized health insurance through Medicaid for most low-income adults earning up to 138 percent of the federal poverty level (FPL) ($15,856 for an individual or $26,951 for a family of three in 2013). Following the June 2012 Supreme Court decision, states were given the option to adopt or reject the Medicaid expansion. Currently 23 states, all governed by Republicans, have not expanded Medicaid. This leaves out about 6 million Americans, including two-thirds of the poor blacks and more than half of the low-wage workers without insurance, the very kinds of people that the program was intended to help, according to an analysis of census data by The New York Times. Another study projects that this will result in between 7,000 and 17,000 more deaths annually than had all states opted in.
Furthermore, because ACA as written did not anticipate that there would be states not expanding Medicaid, nearly 5 million poor uninsured adults in those 23 states will have incomes above Medicaid eligibility levels but below federal poverty levels who will fall into a “coverage gap” of earning too much to qualify for Medicaid but not enough to qualify for ACA Marketplace premium tax credits.
5. The ACA has extraordinary start-up costs – for the federal government, state governments, and private and civic organizations, as well as medical providers
In the USA as a whole, ACA Exchange Planning Grants cost $44,137,908; Exchange Establishment Grants cost $4,360,477,611; and Early Innovator Grants cost $138,122,850 for a total cost of $4,342,738,369, or $4.3 billion. California alone received $1,065,212,950. The California Department of Health Services and the state Health Benefit Exchange hired a total of 1,600 employees from 2011 to 2013, according to an analysis of state payroll records by the Sacramento Bee. This does not include expenses to establish the botched federal Internet exchange.
Not one cent of this huge sum was spent on patient care. These amounts do not include additional expenses in time, money and personnel allocated by state governments, medical providers, insurance companies, businesses, and civic organizations (e.g. the Chamber of Commerce.) to understand and participate in the ACA.
Nearly five years after passage, the Affordable Care Act and a companion electronic health records (EHR) program have run a start-up tab of more than $73 billion, a Bloomberg Government analysis finds. The costs for both HealthCare.gov and the broader reform effort are far greater than anything publicly discussed. They’re also substantially greater than what the Congressional Budget Office (CBO) initially estimated health reform would cost by this point, although not what the agency’s more recent piecemeal estimates suggest. (Bloomberg, Peter Gosselin, Sept. 24, 2014)
6. The ACA contains no public policy relating to controlling overall health care costs
At 17 percent of GDP, total health expenditures in the U.S. are a higher portion of national income than in all other developed nations. It must be recognized that resources spent on health care are diverted from other important public goods, such as education, infrastructure, research and development, and public safety. The ACA does not contain any proven macroeconomic policies to significantly curtail or roll back overall health expenditures.
7. Gaps in ACA coverage prevent major savings by still requiring safety-net programs
The ACA will only minimally alter the demographic composition of the uninsured, regardless of whether undecided states opt-in or out of Medicaid expansion. While blacks and Hispanics will continue to be overrepresented among the uninsured, the majority will be non-Hispanic, white, low-income, working-age adults, many of them employed. The majority (around 80 percent) of the uninsured will be U.S. citizens. More than 4.3 million children and nearly 1 million veterans will remain uninsured. The 11.7 million undocumented immigrants living in the United States are ineligible for ACA health care coverage. Since about 30 million people resident in the USA will remain uncovered after full implementation of ACA, such institutions as public hospitals, community clinics, etc., will still need tax and charity support to cover the uninsured.
Before the ACA, the Children’s Health Insurance Program (CHIP) helped plug one of the many coverage holes in the nation’s health insurance system. At an annual cost of $13 billion, most of which comes from Congress and the rest from state governments, CHIP covers some 8 million children in families too well-off to qualify for Medicaid but too poor to afford private insurance. The Internal Revenue Service defined eligibility for subsidies on the ACA exchanges in such a way as to exclude some families with children who are currently served by CHIP or are still uninsured. The American Action Forum, a conservative think tank, estimates that this “family glitch” could affect more than 2.2 million children if funding for CHIP isn’t extended past 2015. Even families that get subsidized coverage through the ACA may find that benefits for their children will be narrower and cost more out of pocket than does CHIP.
8. The ACA institutionalizes underinsurance
In the ACA, Congress chose market-based cost controls over measures that are common internationally, such as global budgets. Mandating coverage while requiring affordable premiums without enacting other cost-control mechanisms almost inevitably gives rise to increased cost sharing as the simplest mechanism for reducing premiums. The ACA is a major expansion of high-deductible health insurance. This has substantial implications for patients, health care providers, and employers. High-deductible health plans (HDHPs) are often considered “blunt instruments” that indiscriminately reduce utilization of necessary essential and appropriate as well as discretionary medical care, and require annual out-of-pocket payments of $1,000 to $10,000 for many services before more comprehensive coverage begins. The way you pay your portion of these costs is in deductibles and co-payments or co-insurance. Under the ACA, the Bronze Plan covers 60 percent, Silver Plan: 70 percent, Gold Plan: 80 percent, Platinum Plan: 90 percent of your actuarially projected health care costs. The bronze level of ACA – the "affordable" care – is a mirage, a simulacrum of insurance rather than actual insurance. Bronze level features total out of pocket expenses (after premiums) of up to $6,000. In other words, you have to spend $6,000 before your insurance kicks in. In an economy in which two-thirds of all households live paycheck to paycheck, this is the equivalent of no insurance.
9. The ACA encourages insurance companies to use narrow provider networks
Since enrollment is mandated for all eligible Americans and commercial health insurance companies are incentivized to minimize and compete on their premiums, they are highly motivated to reduce their costs, i.e. expenditures on medical care. They have chosen to do this primarily by reducing reimbursements across the board and by limiting (narrowing) their provider networks. Experience has shown that narrow networks have been chosen in an opaque fashion with more emphasis on past cost experience than quality of care. In 2014, a McKinsey & Co. analysis of 120 silver-level exchange plans found that 70 percent were narrow network plans, in which at least 30 percent of the area’s largest hospitals are not in the plan, or ultra-narrow network plans, in which that number grows to at least 70 percent. ACA requires QHP (Qualified Health Plans) to contract with only 30 percent of local Essential Health Providers. Before Jan. 1, 2014, insurance companies offered doctors, hospitals and other providers “all products” contracts which did not reveal that this would bind them to seeing ACA patients and did not reveal the (often lower) reimbursement schedules. Thus many doctors on provider lists have turned away ACA patients, since they did not know and did not choose to be contracted or were unhappy with their payments. Thus, even after 10 months of operation in California, ACA physician provider networks are still uncertain. In addition, in many areas unique, necessary (but expensive) specialty resources, e.g. children’s or university hospitals were not on provider lists. More devastating, commonly a hospital might be an in-network provider, but its ER and anesthesiology physicians in their monopoly status in the hospital as independent contractors had never contracted with insurance companies and thus unknowing sick patients requiring their care would be personally liable for their high out-of-network fees. In addition, the more expensive ACA metal plans, unlike more expensive commercial health insurance contracts, cover more out-of-pocket costs but do not provide expanded provider networks.
10. Depending on commercial insurance adversely affects rural residents
There is a large variation across America in both premium and other insurance costs as well as provider availability based on small local markets which is built into the system. Enrollment at home is not portable for care in other locations except in true medical emergencies. Rural America is understaffed medically and generally less well-off economically. Since ACA depends on the existing commercial health insurance model rural residents generally have to pay higher premiums. Researchers found that for silver plans, rural residents in 2014 paid an average monthly premium of $387, compared with $369 for urban residents. Further, in states with more than 50 percent of residents living in rural areas, premiums averaged $452, compared with $402 in states with less than 5 percent of the population in rural areas.
11. Ordinary Americans are largely ignorant of the ACA and insurance details
Only 46 percent of ACA enrollees in the new insurance marketplaces say they’re getting a subsidy from ACA when official numbers indicate about 85 percent actually get them. 37 percent of enrollees don’t know the amount of their deductible. If people don’t understand their deductibles and co-pays they may pick a plan based solely on the premium and be in for a nasty surprise when they begin to use care and their deductible hits. Anticipated co-pays and deductibles when you become sick are usually obscure or of little import at the time of purchase. Some physician visits and tests (especially for preventive care) or generic drugs are exempt from the deductible. Like private commercial health insurance plans, ACA plans often don’t cover some key medications for HIV, cancer, multiple sclerosis, rheumatoid arthritis and autoimmune diseases or they require patients to pay as much as 50 percent of the cost per prescription in co-insurance, which may amount to more than $1,000 a month.
12. There are huge complexities in the individual mandate and tax penalties imposed
There are 14 categories of Americans who are exempt from the mandate and penalties. CBO estimates that 23 million uninsured people in 2016 will qualify for one or more of those exemptions. Of the remaining 7 million uninsured people, many will be granted exemptions from the penalty because of hardship or for other reasons.
13. The ACA contains complex rules for patient eligibility for subsidies and tax credits
The ACA “marketplace” is based on Internal Revenue Code definitions of income and household. The basic guide for ACA “navigators” runs to 34 pages. As of the end of May 2014, there were 1.2 million applicants who had inconsistencies with their reported incomes, 461,000 had to verify their citizenship status; and 505,000 needed to prove their immigration status. IRS forms 1094-C and 1095-C will be used by large employers with more than 50 full-time or full-time-equivalent employees to determine whether the employer is responsible for penalties under the employer shared responsibility requirements of the ACA. Employers are required to provide each full-time employee with a form 1095-C. The instructions for the 1094-C and 1095-C are by far the most complex of the instructions, filling 13 pages with dense, two column, print.
Rules for subsidies can be very complex. Covered California includes both premium tax credits and cost-sharing subsidies under their definition of subsidies. The type of subsidy can influence whether or not an individual chooses a silver plan. Anyone with an income below 400 percent of the federal poverty level [FPL] can receive a premium tax credit if the plan is purchased through the exchange. Those with incomes below 250 percent of the FPL can also qualify for cost-sharing subsidies when they use their plans, but only if they purchase a silver plan through the exchange. The necessary shopping decisions are not a problem for the wealthy because they can buy the best, but they are a problem for the majority who will buy lower actuarial value plans because their personal finances and cash flow are limited. Congress selected a plan with the relatively low actuarial value of only 70 percent (silver plan) to serve as the benchmark, especially for those with incomes below 250 FPL. When those shoppers who chose bronze plans start accessing health care, their out of pocket cash responsibilities could easily amount to 25 percent of their annual income. The potential for individual and family bankruptcy due to illness and medical expenses will still be substantial.
14. So-called rational insurance design, based on basic benefits and standard out-of-pocket expenses, is inadequate to meet the needs of the seriously, chronically ill, especially children
Typical health insurance benefit designs that limit access, such as restrictive formularies and inadequate provider networks, high cost-sharing, and a lack of plan transparency deprive consumers, especially the chronically ill, of information that is essential to making informed enrollment choices. For example, if the families of handicapped children in California Crippled Children’s Service (CCS) are administratively forced into ACA, (1) the family may not qualify due to income, (2) the insurance’s narrow network may require changing long-standing provider teams or may not include qualified providers at all, (3) regularly used medications may not be on the formulary, (4) typical therapeutic modalities, e.g. physical therapy, would be subject to standard insurance limits, (5) newly required co-pays and deductibles could be substantial burdens on the family. Other chronically ill adult patients will face the same barriers and constraints.
15. The ACA’s focus is on organization, management and cost, without any heed to compassion and caring
Morale is so low among American physicians and turmoil is so great that the AMA has surveyed its members and instituted a major initiative on the “sustainability and survivability of medical practice.”
16. The ACA creates Accountable Care Organizations (ACOs) with the stated aim of coordinating and improving medical services
The ACO is the newly formulated medical care provider system created by ACA which is designed to include a comprehensive roster of all medical facilities, providers and services in order to provide more coordinated and higher-quality care while being more efficient and saving money. It should be noted that while the ACO is modeled after long-standing eminent American medical institutions (for example the Mayo Clinic), the possibility of its replication and its general ability to improve care and save money remains completely theoretical. In addition this model requires a tremendous upfront investment in resources. Thus, through the ACO paradigm, the ACA has begun the process of consolidating medical practice into an industrialized corporate business model. Unfortunately, this is highly likely to make medical care even more anonymous and bureaucratically distant from its compassionate-caring origins.
Dr. Jeoffry Gordon recently retired from his solo family practice in San Diego after 35 years. He came to San Diego to help start the San Ysidro Community Health Center. He was the first medical director of the Beach Area Community Clinic and helped develop the San Diego Council of Community Clinics. He spent eight years on the California Board of Medical Quality Assurance which licenses and disciplines all physicians in California. In the run-up to the enactment of the ACA, he gave over 40 community presentations, including five medical grand rounds, supporting single-payer health reform. He also lectures on social justice issues. He now sees patients in a clinic for the homeless and is a special consultant in Bioethics at a local community hospital.