Taking Stock of the ACA

With the ACA exchange enrollment deadline almost behind us, this is a good time to take a look at the big picture.

Three years after the first baby steps of implementation, what has the ACA accomplished?

When we consider the ACA, we can think of two broad goals. The “easy” goal was expanding coverage to the uninsured. We say “easy” because regulators should be able to succeed by simply throwing money at the problem, and that is a task our elected officials seem particularly adept at accomplishing.

The “hard” goal was bringing down the rate of growth in health care spending.

This has proven to be a difficult task for policy makers, who have been trying (and failing) for decades and have often done more harm than good.

We first consider the goal of expanding coverage to the uninsured. From its onset, the ACA chalked up a small victory by requiring plans to continue coverage for dependents under age 26.

This provided coverage to as many as three million uninsured, albeit the healthiest members of the population. The lion’s share of the reduction in the numbers of uninsured was supposed to come from Medicaid expansions and private exchanges.

And here is where the problems emerge.

Medicaid ranks have swelled in the 27 states (including DC) that have chosen to expand the program. Republican leadership in other states continue to assert they will not expand Medicaid, but given the exceptionally generous federal funding for this expansion, we find it hard to believe that most of these states won’t soon join the expansion.

After all, even Louisiana eventually raised its drinking age to 21 to get its share of federal highway funding. Similarly, we can’t imagine that the red states will turn down billions of dollars in federal funds.

Even with half the states sitting out Medicaid expansion, as many as nine million Americans could be added to Medicaid rolls, half of whom reside in California, Illinois, and New York. While this seems like a sizeable percentage of the nearly 50 million Americans who were uninsured when the ACA was enacted, we should not celebrate too soon.

If experience from previous Medicaid expansions is a guide, then most of these new enrollees previously had private health insurance. Research studies put the Medicaid crowd out rate from prior expansions at about 60 percent.

If past is prologue, then perhaps only 3.6 million new Medicaid enrollees were previously uninsured. Of course the number of newly enrolled that were previously uninsured might be higher, but many of these may have already been eligible for Medicaid and simply failed to take up coverage.

Tennessee’s state Medicaid system has seen a large enrollment increase even though it has yet to expand eligibility. While getting these individuals to sign up is a laudable outcome, these enrollees are covered by the less generous non-ACA matching rate and will further strain state budgets – which already unable to cope with the ever growing cost of public health insurance. Perhaps the folks boasting about the large expansion of Medicaid should wait for all the data to come in.

And that is the good news. By now most people are well-versed in the troubled roll out of the private exchanges. It is currently estimated that enrollments will top six million, although it is also estimated that less than five million of those enrollees will pay their first month’s premiums.

And at least one survey suggests that only 14 percent of exchange enrollees were previously uninsured. Let’s be generous and double the McKinsey estimate. This suggests that about 1.4 million individuals who will purchase insurance through the exchanges were previously uninsured. The other 3.6 million previously footed the bill for their own insurance; now many of them are enjoying public subsidies.

While these subsidies may make care more affordable, we must remember that they come at the expense of even more federal expenditures on health premiums and a growing disconnect between the cost of health care and the cost of health insurance. The cost of these subsidies could continue to rise if, as we expect, many employers scale back their offering of health insurance benefits.

By our count, the ACA has brought coverage to 8 million previously uninsured. This is somewhat smaller than the 9.5 new enrollees reported elsewhere in a study that seems to assume that all exchange enrollees will pay their premiums and does not speculate about crowd out.

But both figures are low, representing less than 20 percent of the uninsured, with a large fraction of this coming from enrolling young adults on their parents plans – something that could have been accomplished by a one page regulation. So what did the remaining 2000 pages of legislation bring us?

Apparently, the biggest accomplishment of the ACA is to take millions of people who were willing and able to purchase their own health insurance and place them on the public dole. While ACA supporters would say that many of these people now have “better” insurance, and they may be right, but that was certainly not how the ACA was sold.

In any event, the limited data that we do have about the characteristics of new enrollees suggests that we must be careful before we state the ACA has unequivocally provided insurance to a large fraction of the uninsured.

What about the future of the exchanges? Some have argued that we have reached the number of enrollees necessary for sustainable risk pools. But, it isn’t the number of enrollees that necessarily matters here; the ultimate success of the risk pools hinges on the mix of healthy and sick enrollees.

It is too soon to tell but there are certainly enough young enrollees to give hope. If insurers can make a profit off of the current pricing and enrollment mix, then premiums could remain stable and enrollments could climb. But the big problem will remain that millions of the uninsured might rather pay a modest penalty and remain uninsured than purchase subsidized insurance.

This raises a related issue. One benefit of coverage expansion is that it eases the burden on providers who must treat the uninsured regardless of their ability to pay. In many ways, these providers have served as an underfunded source of public insurance.

It will be interesting to see whether those who choose not to buy insurance can continue to obtain charity care from these providers. This is particularly true given that the ACA will drastically redistribute the disproportionate share payments these facilities depend on.

Ultimately, we believe that access to care, more than anything else, will determine whether the uninsured choose to remain uninsured.

Now that we’ve discussed the “easy” goal, let’s talk very briefly about the hard goal – the ACA as a blueprint for cost containment. On this dimension, casual empirical evidence was encouraging, as healthcare spending seemed to have leveled off.

But there is considerable evidence that most of the slowdown in spending was due to the lingering effects of the downturn in the economy, particularly the sluggish labor market.

Indeed, the most recent data reveals a sharp uptick in spending, which coincides with a rebounding economy. On the other hand, there is considerable evidence that providers are taking very seriously the challenge of cost containment. Hundreds of Accountable Care Organizations have signed up to share the financial risk of caring for Medicare and privately insured individuals.

In the process, providers are organizing into large regional healthcare systems that present many promises and perils. While advocates of integration believe that this is the only way to bend the cost curve, economists who have studied the theory and evidence on integration are less sanguine.

A recent Brookings Institute report notes that the benefits of integration are uncertain, but that giant systems, which are hard to undo, may obtain market power that allows them to resist market pressures for cost containment.

This is ironic, as market power is completely antithetical to the purported ACA goal of achieving savings through a competitive health economy. Even more than the evidence on raising coverage, it will take many years to understand how this restructuring of our health economy will turn out. We just hope that regulators and policymakers take heed of the literature on this point.

Overall, supporters of the ACA boast how payers, providers, and even patients are actively changing the U.S. healthcare system. But coaching legend John Wooden reminded us not to confuse activity with accomplishment. On the latter score, there is less for supporters to cheer.

David Dranove, PhD is the Walter McNerney Distinguished Professor of Health Industry Management at Northwestern University’s Kellogg Graduate School of Management, where he is also Professor of Management and Strategy and Director of the Health Enterprise Management Program. He has published over 80 research articles and book chapters and written five books, including “The Economic Evolution of American Healthcare and Code Red.”

Craig Garthwaite, PhD is an assistant professor of management and strategy at Northwestern University’s Kellogg Graduate School of Management.

Dranove and Garthwaite are the authors of the blog, Code Red, where this post originally appeared.

5 replies »

  1. The majority of persons in America who have good insurance get it either from their employer (on a tax-free basis) or from Medicare.

    This enormous group is also ‘on the public dole’ to some extent, to use the unfortunate phrase from Profs Dranove and Garthwaite.

    This is a good post overall, but that little bit of slander was a mistake.

  2. “Truth.”
    More affordable for who? Only those receiving subsidy. “Truth”

  3. ” it was more than 7% of my income. I feel that the ACA was to make health insurance more AFFORDABLE.”


  4. I, for one, was very excited about the exchanges. I am a single mom, part-time student, who is working full-time. That being said, I was paying A LOT of money for health insurance for myself and my two children.. it was more than 7% of my income. I feel that the ACA was to make health insurance more AFFORDABLE.
    I would agree (because I am one of them) that most of the people who are signing up for the exchanges are people who have had health insurance in the past.
    The number of people without insurance is around 47 million people – I do not think that all of these people will sign up for insurance. The main reason being education!!!!!
    Another point that was made in this post was regarding the Emergency Medical Treatment and Active Labor Act (EMTALA). THis is one thing I have not thought of.

  5. “While this seems like a sizeable percentage of the nearly 50 million Americans who were uninsured when the ACA was enacted”

    Republicans have always argued (as they do about Global Warming being a liberal plot) that the number was not nearly that big.

    “If experience from previous Medicaid expansions is a guide, then most of these new enrollees previously had private health insurance. ”

    The new eligible requirements cover those with 138% FPL. Can you tell me how this group was affording health insurance (with proper coverage)?

    “Apparently, the biggest accomplishment of the ACA is to take millions of people who were willing and able to purchase their own health insurance and place them on the public dole.”

    Would that be different than the millions of people placed on the corporate dole for their health insurance subsidy?