A Realistic View of the ACA – Part 3

In Part 1 of this series, I introduced the series and covered the first part, Repeal.  In Part 2, Transition, I focused on a relatively simple transition plan for people currently covered under the ACA, including some of the financial math that would be associated with such a plan. In this Part 3, Replace, I’ll focus on essential elements that would need to be included in a system to permanently replace the ACA [trying to provide decent coverage of such a broad topic in an average-length post was impossible, so this one is a little longer].  In Part 4, Looking Forward, I’ll get into 1) how repeal and replacement of the ACA could potentially be the main determinant of the outcome of the 2018 mid-term elections and/or the 2020 presidential election, and 2) what the future will probably look like under the replacement law if it is successful.


Keep This In Mind …

To be meaningful and useful, outlining the essential elements that would need to be included in a system to permanently replace the ACA must be done in context with the Some Basics First section at the beginning of Part 2 of this series [A Realistic View of the ACA – Part 2]. If you review that section and overlay its conceptual framework on what I’ll be writing here, you’ll see that this post reflects my philosophy on the guiding principles I mentioned in that section. In a nutshell, I don’t believe that all Americans are entitled to some kind of “standard” level of health insurance [any more than I believe that all Americans are entitled to own a home, or to have a job they want, or to have an automobile, a telephone, …]. I do believe, however, that some government-mandated elements of a national healthcare system need to be in place, the main purposes of which would be: a) to ensure that all citizens are protected from financial ruin brought about by health problems; and b) to minimize the overall cost of providing all healthcare services, whether through government facilities and employees or through private sector providers. Under that basic philosophy, I will now list what I believe are the essential elements of an effective system that will not be the financial train wreck that the ACA is.

Essential Elements

NOTE. I am not asserting here that this simple outline fully defines the entire replacement system that would be needed. However, I do believe that it summarizes a conceptual approach that will work.

  • (1) All insurance policies must cover the same time period [January 1 to December 31, or some other twelve-month period — calendar year will be assumed here], and all deadlines for signup must be the same.
  • (2) By the same date each year, all insurance companies must submit electronically to DHHS a database of policies they will offer in the upcoming year, and those lists must contain a small amount of key information such as monthly premium, deductibles that must be met before any reimbursement begins, average co-pay ratio (e.g., 80% / 20%) for all situations where such ratios apply, primary physician visit co-pay, specialist visit co-pay, drug co-pays by “tier”, etc. [all of this would be very easy for any company to provide].
  • (3) No insurance company can refuse to issue a policy to anyone based on their health status [e.g., pre-existing conditions].  This would clearly result in most insurance companies attaching astronomically high premiums to some of their policies, putting them out of financial reach for the vast majority of people who would need them. This issue will be addressed in subsequent items in this list. NOTE. Even Medicare is denied to people with end-stage renal failure at the time of their initial qualification for coverage. Allowing that criterion for this ACA replacement system should be investigated if elimination of those cases would have a material impact on overall costs.
  • (4) If there are to be any mandated coverages [maternity, children under 26 can remain as dependents under their parents’ policies, abortion, gender change, etc.], all insurers who offer those kinds of benefits to any policyholders must offer optional riders in all policies they offer to anyone. One mandated coverage I believe would solve many problems and simplify this [or any] program greatly would be policies that provide catastrophic coverage only. For example: a much-lower-than-average premium; no coverage for anything up to $X, 80% insurance coverage / 20% patient copay from there to $Y, and 100% insurance coverage above $Y [the values of X and Y would have to be worked out, but I expect that values like $2,000 to $3,000 for X and somewhere between $10,000 and $20,000 for Y would result in premiums substantially lower than average and “maximum out of pocket” amounts at least as low as any current ACA-enabled policies, maybe lower].
  • (5) Using statistical techniques [simple “bell curve” logic, standard deviations, etc. — far less sophisticated than techniques many government agencies use every day], DHHS will identify two groups of “outliers” in the policy database [i.e., policies that fall outside affordability limits set in the preceding year — see Ongoing Refinement section below].  One group of outliers will be called the Mandated Coverage Special Handling Pool [MCSHP], and will consist of people who are cost outliers and have applied for mandated coverage. The other group of outliers will be called the Cost Outlier Special Handling Pool [COSHP], and will consist of all other people classified as outliers.  For all of these outlier applicants [both groups], the following steps would be taken:
    1. The applicable insurance companies would be issued letters of authorization to approve those policies at the average rate of all policies to be issued by that company in that year, with DHHS’ guarantee that it will reimburse them for all costs for those policies that are over and above their average costs for all other claims paid during that year.
    2. All SHP applicants will be issued letters from DHHS [or from the companies to which they applied if that is more practical] outlining their options: 1) proceed with enrollment [which would put them in the same status as anyone else who was not put in the SHP, including determination of their qualification for any other governmental financial assistance that may apply to them]; or 2) refuse this offer of government assistance over and above any other assistance for which they may otherwise qualify.
    3. Through dialog with each SHP policyholder who elected to go ahead and enroll, DHHS would: 1) determine whether or not they qualify for any other governmental financial assistance that may apply to them; 2) attempt to identify other coverage options that would provide equivalent or better benefits while lowering the government’s projected costs to support their policy; and 3) implement any decisions resulting from this interaction.
  • (6) A determination will be made as to income levels [and/or other criteria] at which government assistance should be offered, and what that assistance will be.  If such an assistance program is included, it will be implemented through income tax credits [not just deductions from income] and a mechanism for providing those credits through payroll withholding credits for employed people or through additions to any unemployment or other [disability, etc.] payments for others. NOTE. The details of this would have to be worked out in conjunction with changes in the Tax Code that will likely be underway at the same time.
  • (7) All insurers will submit an annual report to DHHS to include total revenues from policyholders, total reimbursements from government, other revenues, total cost of claims paid [and maybe expenses “incurred but not reported”, or IBNR, depending on how long after year-end the report is due], etc. Data for these reports would be readily-available within these organizations, so the reporting [which should be common-format electronic data, not paper] would not be burdensome. A similar reporting requirement for providers might also be advisable if that information would enhance the usefulness of the information obtained from insurers.
  • (8) At some point in the future, when more viable measures of quality are available and more effective ways to incorporate them into insurance policy comparisons have been developed, quality parameters should be integrated into this entire process [attempting to do this now could actually be detrimental without better measures than we have at this time].
  • (9) The above items are operational in nature. Other possibilities for reducing overall healthcare costs that should be investigated would include but not be limited to the following [some of these are controversial; to the extent those controversies are simply driven by “wars among lobbyists”, that more fundamental issue will need to be dealt with before meaningful progress can be made]:
    1. Imposition of maximum increases or mandated reductions in a given year.  This would have to be purely data-driven, not fully controlled by politicians, and some “appeal” process would be necessary.
    2. Removal of state-level boundaries for insurers. Allow the sale of national policies, regional multi-state policies, etc.
    3. Promulgation of Tort Reform. Curb sometimes ridiculous jury awards, but in a way that does not adversely affect accountability. This is much more costly than the awards themselves — the bigger cost is in “defensive medicine” [tests ordered and procedures performed by providers to avoid potential lawsuits even when they would not, absent the threat of litigation, consider those tests and procedures medically necessary].
    4. Identification of ways to curb “blockbuster” drug costs without thwarting innovation within companies that develop them.
    5. Improvement of capabilities to curb fraud and abuse in all entitlement programs as well as in this new ACA replacement system.

Program Administration

On the administrative side, the massive organization put in place under the ACA would be dismantled as soon as possible, leaving a much-reduced, very streamlined management structure and a much smaller staff consisting of current employees having skills most applicable to administration of the new law, plus any new hires required to ensure an appropriately skilled workforce.

Ongoing Refinement

Certain elements of this program would require an ongoing effort to adjust various parameters each year to ensure that they remain current. One example would be computation of the “outlier” definition mentioned in #5 in the Essential Elements section above.  In the first year, the information in the ACA database for the 2017 enrollment period would be used to establish a baseline database for the new law [see #2 in the Essential Elements section above for a description of the kinds of information that database would contain].

Another area that needs more focused research right now as well as ongoing refinement over time is identification of more viable measures of quality and development of ways to incorporate use of these measures into insurance policy comparisons. Despite much time and effort along these lines over many years, the truth is that current measures simply do not adequately account for variations in patient conditions and other factors that can grossly skew current measures like mortality rates, unexpected returns to surgery, patient satisfaction scores, etc.

Potential Roadblocks

To repeal, and to replace, the ACA will require “lock-step” solidarity among almost all Republicans in the House and at least 50 of the 52 in the Senate [just as initial passage of the ACA required that of all Democrats at that time]. Assuming that all Democrats will be in solidarity with their opposition, this may be tougher than some legislators think at this time.  Also, there may be certain provisions that may raise the specter of a presidential veto even though a Republican will be in the White House. This may turn out to be a textbook example of Mr. Trump’s deal-making ability — or an example of lack thereof as it could potentially apply to this situation.

On the prospect of filibusters as a blocking mechanism … Minority-party threats of filibusters have become so commonplace over the past two years that many people probably think that a less-than-60-seat majority in the Senate enables the minority party to block forever [by threatening filibusters] any bill they oppose, rendering the majority party completely powerless to drive its agenda. That is not the case, however, and the first two years of the Trump administration could produce a major breakthrough in the gridlock of recent years if Republicans are as unified in their agenda as Democrats have been in blocking it. The decision by a majority leader to bow to the threat of a minority-party filibuster is a simple practical matter — avoiding an actual filibuster, which can consume many days, perhaps longer, before the majority leader can bring “cloture” about [the last step that results in the bill being brought before the full Senate for a vote], frees up time for passage of other more bipartisan bills which have greater prospects of being passed.  With a minority-party President who would likely veto narrowly-passed controversial bills, that decision is probably a wise one.   If there has ever been a time when the majority needs to stand up to filibuster threats and do whatever it takes to drive key pieces of its agenda through, this is it!  If a bill is particularly important to the Senate majority and its legislative agenda [and/or the president’s agenda], then going through a filibuster would be worth it and would expose very publicly that it’s the minority that’s causing the logjam.

Note. For anyone interested in gaining a more in-depth understanding of Senate rules and operations as they relate to filibusters and cloture, the document at this link would be a good start: Senate Filabuster & Cloture Rules.

Why This Replacement Approach?

The main advantages in taking this general approach are not that difficult to figure out:

  • Rather than micromanaging every citizen’s healthcare coverage, it focuses the government’s attention [and expenditures] on problem situations [a) all citizens who cannot obtain any coverage, and b) all citizens whose coverage options are financially out of their reach and who qualify — based on all applicable criteria, not just those associated with healthcare — for government assistance].
  • It allows for mandated coverage items that will probably be required to get the law passed in both houses of the Legislature, particularly the Senate, and it keeps the direct costs of those mandates visible every year.
  • It keeps cost outlier criteria current every year, providing a) a more efficient and more expeditious method of adjusting them to changing conditions and b) better information for identifying the actual cost to the program of egregious pricing for certain items like “blockbuster” drugs, “exotic” prostheses, etc. [currently, these situations become visible through media coverage of specific situations, and the resulting politicization (politicians continuously engaged in “issue-hunting”)].
  • The overall cost, the administrative complexity, and the size of the bureaucracy required to administer the program, would be dramatically lower [largely because of the previous items in this list].

There are probably other advantages, but those listed above are enough to warrant taking this approach.

In Part 4 …

In Part 4, Looking Forward, I’ll get into 1) how repeal and replacement of the ACA could potentially be the main determinant of the outcome of the 2018 mid-term elections and/or the 2020 presidential election, and 2) what the future will probably look like under the replacement law if it is successful.


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Charles M. Jones

Author: Charles M. Jones, PE, CPA

[retired — neither license active]

One thought on “A Realistic View of the ACA – Part 3”

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