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Healthcare in Transition

The Trump administration began with the bold declaration to end the Affordable Care Act (ACA).  As time has passed, this has proven more difficult than the president originally planned.  The problem has become that the lack of clarity upon what will happen as health insurance is reworked.  This uncertainty has led to insurance companies losing their desire to stay in the ACA market places.  Already, the ACA has resulted in one insurance company, Humana, suffering from particularly difficult losses and quitting the market place.  With even more questions about the future of healthcare laws, it stands to reason that more health insurance agencies will follow.  For this reason, the Trump administration has decided to make interim rule changes to increase the solvency of the program until the new program has been created.  In short, these changes are three-fold:  first narrowing the enrollment window, second expanding the definition of silver-care plans and lastly giving more time for insurers to create plans for 2018.  My goal in this post will be to assess how it will affect insurers, the public and add a bit more context to the problems associated with repeal that have occurred.

Moral hazard is when one party partakes in behavior that can negatively impact another party.  For health insurers under the ACA, this is when individuals opt to join an insurance company only upon realization that they were sick.  This behavior should theoretically have trade-offs.  The fact that adverse selection for pre-existing conditions can no longer occur removes the major incentive against such actions.  Thus, it is wiser to not sign up for healthcare until it is necessary.  The problem that such waiting causes is that insurance is based on a sick-healthy ratio, and additions of sudden sickly individuals would decrease the profits that they had projected to earn.  By narrowing the time frame associated with late-term insurance enrollment, the ability of insurers to ensure profits intrinsically rises.  The fallout of this change, however, is that it may lower the amount of young people who can get insurance in the first place.  The people most likely to enroll at the last minute are the young.  These are individuals who are most needed for insurance companies to thrive.  In this way, the new regulations are a double-edged sword.  By eliminating the younger, more beneficial aspect of the ratio, Trump’s Health and Human Services department (HHS), has made it such that the potential to end up with a more sickly pool of people for insurance companies is higher.  If this were to occur, it would back-fire in its implementation yielding a more unstable market for insurance companies.

Under the ACA, the insurance market has various tiers for the health care plans.  They are summarized in descending order of value as platinum, gold, silver and bronze.  Under the current regulations, silver plans have an actuarial value (AV) of 70%.  By this it is meant that if an individual from a standard population needed healthcare, 70% of their healthcare expenses could reasonably be expected to be covered.  In implementation, a range variance exists allowing for +2 points of coverage meaning insurance companies actually pay between 68-72% of costs.  The change the Trump administration hopes to put into effect would allow a lower minimum value.  Under the new regulations, the variance range would become -4/+2.  By increasing the variance, a silver plan could now have an AV of 66% instead of the current 68%.  This would greatly increase the number of plans an insurance company could create.  However, it would also lower the value of the plans in question.  So while insurance companies would definitively benefit from this change, for the consumer, it is a mixed blessing.  By increasing the burden on individuals, a stronger argument could easily be made for a health reform bill to replace the ACA. However, it would also go counter to the desires of the constituents who voted for President Trump.  Interestingly enough, the change to AV values will have far broader implications than one might initially think.  This owes to the way that tax credit costs are currently calculated.  Since tax credit costs are based on Silver plan values, tax credits given by the government would be directly impacted by these changes.  The tax credit value, known as the “benchmark”, is based on the second lowest value silver plan in an individual’s area.  The amount of tax credit for an individual could be as low as 66% of the cost rather than present minimum of 68%.    Since the tax credit would be lower, it can then be safely assumed that some individuals may not be able to afford the more expensive plans. Thus, insurance companies may see a decrease in enrollment.

The new administrations is realizing that creating a new healthcare law is more difficult than originally believed.  This owes to the fact that the ACA may have many problems, but has done a large amount of good for the nation as a whole.  If nothing else, the number of uninsured Americans has dropped substantially thanks to the law.  The general anger from Trump supporters about the healthcare law seems focused on its limitations and the lack of value from the law.  This makes it far more problematic to create a new healthcare law when all current plans are similar to Rand Paul’s replacement bill, see here or Tom Price’s plan see here.  The part of the ACA most often cited as problematic is the individual mandate.  Some have criticized it as “un-American”.  This stems from the fact that it is the federal government forcing individuals to buy insurance.  The problem is that removing the mandate would only serve to destabilize the insurance market.  Insurance companies would constantly raise rates in an attempt to make-up for the losses.  Eventually, insurance might become virtually unfeasible for the American population.  At this point everyone loses health insurance.  At the same time, the world is not stopping for the Republican Party to make a better law.  So by expanding the time before insurance companies must give a decision about staying in the market place, the Trump administration hopes that it will be able to alleviate the short term problems while a much better long-term alternative takes shape.

Ultimately, the ACA is a bill that has proven a transformative bill for American healthcare.  While certain specifics, like the individual mandate, are not well received, the bill has had success in getting more people health insurance.  There is a good case to be made that the Trump administration’s changes to the health law could help stabilize the market.  The problem is that the basis for that argument is also the basis of the reverse effect happening, making the situation worse.  Allowing for worse overall healthcare for some as a trade-off to stabilize the market can easily be made thanks to the steadily more plausible idea of a death spiral.  At the same time, putting the burden on the most susceptible Americans will strike a nerve with many who fight for the voices of the poor.

My opinion is that, reluctantly, the changes could yield a net good for the nation.  By this I do not mean that all the changes are for the best, just that there is enough well thought out logic to see why the Trump administration is making these particular changes.  However, the ultimate problem is that so long as questions about a new healthcare system remain in the balance, these temporary patches will only serve as the equivalence of tying a tourniquet to a man bleeding to death; a temporary fix without much value if proper treatment is not issued as soon as possible.

Kunle Adejare, PharmD '19


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