Article

Did the Affordable Care Act (ACA) usher in a revolution in US health care? Ten years after the law was enacted, it is fair to say that the ACA has fallen short of achieving key health reform goals.

Arguably, the primary focus of the ACA was to increase the number of Americans with health insurance coverage. New subsidies for families buying health insurance on their own through the ACA’s exchanges and expanded eligibility for Medicaid brought health coverage to millions of lower-income households who otherwise would have remained uninsured. New federal rules requiring private insurers to offer coverage on the same terms to everyone guaranteed that individuals with preexisting conditions could buy insurance without benefit exclusions or higher premiums.

The impact of those subsidies and regulations was dramatic. Before the ACA, the uninsured rate hovered around 15 percent of the population. By 2018, that rate dropped to 8.5 percent, resulting in 18 million more people with coverage.

Efforts to achieve other policy goals were less successful. The ACA did not stem high and rapidly rising health care costs care for all Americans. Delivery system reforms advanced by the Centers for Medicare and Medicaid Services (CMS) Innovation Center have shown disappointing results, and mechanisms intended to rein in federal costs have been dropped. Despite the promise of affordability, consumers continue to cite medical expenses as their No. one economic concern.

Cost Growth, Pre- And Post-ACA

During his 2008 presidential campaign, Barack Obama promised voters that his health care plan would cut annual premiums by $2,500. That estimate assumed that the plan would produce savings of at least $200 billion a year, or about 8 percent of national health spending projected for 2009. Savings were attributed to policies that would reduce insurers’ administrative expenses, expand use of health information technology (addressed in the 2009 economic stimulus legislation rather than the ACA), and expand prevention and chronic disease management programs.

National health expenditure (NHE) data show that such savings have not been realized.

National health spending increased from $2.60 trillion in 2010 to $3.65 trillion in 2018. As a share of the national economy, health spending grew from 17.3 percent of gross domestic product (GDP) to 17.7 percent between 2010 and 2018. Some of that increase is due to the expansion of health care coverage, which increased access to services for newly covered families.

Thus, the ACA did not reduce the level of health care spending. Did it slow spending growth? The NHE grew 5.6 percent a year between 2003 and 2010; growth slowed to 4.4 percent a year between 2010 and 2018. However, that comparison ignores the sharp decline in general price inflation following the 2007–09 “Great Recession.” Measured in inflation-adjusted dollars, health care spending grew at an average annual rate of 2.7 percent between 2003 and 2010, and 2.8 percent between 2010 and 2018.

A more precise comparison would account for the ongoing slowdown in US population growth. Inflation-adjusted health care spending per capita has accelerated from 1.7 percent a year between 2003 to 2010 to 2.1 percent between 2010 and 2018.

Other factors contribute to health care spending growth, including the introduction of new treatments and changes in factors affecting population health. Nonetheless, it is implausible to suggest that the ACA has bent the cost curve down.

High Premiums And Deductibles In The Individual Market

The ACA’s significant changes to the individual insurance market helped many millions of people get more affordable insurance but pushed others, particularly those with incomes too high to qualify for subsidies, out of the market.

In 2013, the year before the ACA’s major insurance market reforms went into effect, 10 million people got their insurance in the individual market. Enrollment in that market increased to 18.8 million in 2015. That includes 10.2 million people who purchased individual products even though they were ineligible for the ACA’s subsidies. Since then, there has been a steady exodus of unsubsidized individuals out of the market. In the first quarter of 2019, only 5.5 million people purchased individual coverage without a subsidy.

The reason for the collapse is clear: High premiums and deductibles have made products in this market unattractive to consumers who do not qualify for federal assistance.

In 2019, the average monthly premium per enrollee in the individual market was $515, up from $217 in 2011. After controlling for inflation, that is an average annual growth rate of 11.6 percent. Deductibles have risen dramatically over the same period. In 2020, the average deductible for a silver plan offered on Healthcare.gov was $4,500, up from $2,425 in 2014.

eHealth, an online insurance broker, reported on the costs facing its 2019 enrollees in individual market plans. The average combined premium and deductible for a family of four not eligible for an exchange subsidy was more than $25,000. That means the family must spend $25,000 out of pocket before insurance begins to pay for their medical bills. Not surprisingly, many consumers have decided such coverage is not worth the expense.

An important premise of the ACA was that the individual mandate, which required consumers to purchase insurance or pay a penalty, would hold down the average cost of individual coverage. Instead of attracting primarily higher-cost enrollees, the mandate was supposed to ensure that the risk pool would be large and diverse enough to keep premiums affordable for all participants.

That’s not what happened. The penalty enforcing the mandate was repealed as of 2019, but that occurred only after the exodus of the healthy had already played out. Although the mandate penalty was criticized as too small to be effective, the problem was overpriced coverage that was not attractive to people with average health risks.

ACA provisions—including community rating limits on premiums paid by older enrollees and a broad package of essential benefits—raised the cost to younger, healthier individuals, who left the market. The ACA made insurance much more affordable for consumers with predictably high expenses but much less affordable for healthy consumers with incomes too high to qualify for financial assistance.

Weak Delivery System Reforms

The centerpiece of the ACA’s strategy for cost control is delivery-system reform, driven mainly by changes in Medicare. The law attempted to alter how hospitals and physicians organize themselves and provide care by changing the financial incentives in Medicare’s payment systems. Millions of Medicare patients have been attributed to accountable care organizations (ACOs), and many procedures are now paid with financial bundles instead of piecemeal rates for each individual service and each participating provider. The Obama administration also aggressively implemented a much-hyped provision penalizing hospitals with excessive readmissions of patients, under the presumption that most readmissions are the result of failures on the part of the facilities and clinicians during the patient’s initial hospital stay.

While there have been some successes, the overall record of these initiatives has been underwhelming.

CMS estimates that the largest ACO option—the Medicare Shared Savings Program (MSSP)—reduced costs for the program in 2017 and 2018 by a combined $1.05 billion. However, MSSP increased program costs by $384 million from 2013 to 2016. Thus, MSSP has provided net savings of $670 million over the six-year period 2013 to 2018. That’s 0.02 percent of Medicare’s $4 trillion total expenditures over that period.

Moreover, the Next Generation ACO program (NGACO) increased costs in Medicare by $93 million in 2016 and 2017. The NGACO option is supposed to allow providers who are most prepared to accept risk to move more aggressively toward lower-cost care models.

The bundled payment program has delivered similarly modest results. The joint replacement initiative has reduced costs by 1.6 percent, or about $377 per episode. However, $101 is attributable to the better health status of the patients getting procedures covered by the initiative rather than efficiency improvements. Without favorable selection, savings would have been 1.2 percent of Medicare’s average payment for the treatment.

The Hospital Readmission Reduction Program (HRRP) was intended to encourage hospitals to improve the quality of care by penalizing hospitals having higher-than-anticipated 30-day readmission rates. Although the program determines the hospital’s performance by analyzing admissions for a limited number of targeted conditions (such as heart attack, pneumonia, and joint replacement), the penalty for failing to meet the standard could be as much as 3 percent of Medicare payments for all inpatient admissions.

Although readmission rates have declined, questions have been raised on whether the observed decline overstates the impact of the program. A change in electronic standards occurred when the program was implemented, allowing hospitals to more aggressively code patient diagnoses. The coding change had the effect of reducing risk-adjusted readmission rates, indicating that HRRP results were exaggerated. HRRP may have had no impact on readmissions or may have decreased readmissions by only 50 percent of prior estimates.

A more fundamental issue is whether reducing readmissions is an appropriate policy goal. Instead of being an indicator of poor-quality care, higher readmissions for the sickest patients may be unavoidable. Risk adjustment based on diagnosis does not account for low incomes, poor diet, failure to comply with medical advice, and other factors outside the hospital’s control. HRRP does not take account of social determinants of health that result in higher readmission rates, particularly among safety-net hospitals.

Vanishing Offsets

President Obama argued that he would “not sign a plan that adds one dime to our deficits—either now or in the future.” The cost of expanding insurance coverage was expected to be covered by reducing waste and inefficiency in the health system. If additional savings were needed, the ACA included provisions that were intended to fill the fiscal gap.

The Congressional Budget Office’s (CBO’s) final cost estimate backed up those claims. It showed 10-year gross costs of $938 billion from coverage expansion but an overall deficit reduction of $143 billion. The CBO also estimated that the law would reduce the deficit in the second decade after enactment by between 0.25 percent and 0.50 percent of GDP. These projections assumed continuous implementation of many tax hikes and spending cuts that, while included in the legislation, were on shaky political ground from the moment they were signed into law.

The first to go was the Community Living Assistance Services and Supports (CLASS) Act, which provided coverage on a voluntary basis for long-term care services. Despite warnings that the program was not financially sustainable in the long term, Congress included the CLASS Act in the final ACA bill. The CBO estimated that the act would reduce the deficit by $70 billion over the first decade largely because people would be paying premiums in, but little would be paid out for at least five years. By October 2011, the Department of Health and Human Services (HHS) concluded that high premiums would discourage healthy people from enrolling, making the program unworkable. That eliminated half of the deficit reduction projected by the CBO for the ACA.

A prominent argument for the ACA’s new spending was that it would allow offsetting savings from reduced subsidies for the uninsured. Based on this theory, the ACA included a provision to cut Medicaid’s Disproportionate Share Hospital payments by $14 billion over 10 years. After enactment, intensive lobbying by states and the hospital industry has led Congress to repeatedly postpone the planned cuts. At this point, there is very little expectation that they will ever occur.

The Independent Payment Advisory Board (IPAB) was supposed to recommend cost-cutting policies if Medicare spending exceeded a target growth rate. The Board’s recommendations would go into effect unless Congress devised its own policies to slow Medicare spending or a supermajority voted to reject the cuts. The Board would have substantial authority to make and implement recommendations separate and apart from Congress and HHS. The CBO estimated it would save $15.5 billion over its first decade, and much more in the ensuing years.

The IPAB was controversial even before it was enacted. Republicans argued it placed too much power in an unelected body of technocrats and that it usurped the legislative authority of Congress. Many Democrats agreed but went along with its inclusion in the ACA because of the political imperative to show that the ACA would cut federal spending. Given the lack of support by both political parties and opposition by the health industry, no one was nominated to serve on the Board. President Obama quietly signed legislation in 2018 that included its repeal.

New taxes also contributed substantially to the CBO’s initial projections that the ACA would reduce the deficit. The “Cadillac” tax on high-cost insurance plans, a tax on health insurance premiums more broadly, and a tax on medical device companies were expected to generate $112 billion over the first decade. Furthermore, because the thresholds for the Cadillac tax were indexed to consumer inflation while premiums keep pace with faster-rising health expenses, the Cadillac tax was expected to generate substantial revenue over the long term.

Very little revenue was collected from these taxes as Congress stepped in repeatedly to limit their impact or delay their implementation. The Cadillac tax was originally scheduled to take effect in 2018 but was delayed twice in response to opposition from employers and unions. The December 2019 bipartisan budget deal permanently repealed all three taxes.

The ACA’s most consequential spending cut reduces Medicare payment updates by a measure of economywide productivity increases. The CBO estimated that the productivity adjustment would reduce payments to hospitals and other institutional providers by $157 billion over 10 years. CMS actuaries estimated that the adjustment would reduce annual payment updates by 1 percentage point.

Compounded over time, the productivity adjustment creates a widening gap between rates paid by Medicare and private insurers: By 2030, Medicare’s rates would be less than 60 percent of the commercial market. The actuaries warn that this cut in Medicare payments would push many facilities toward insolvency. Future legislation to moderate this unsustainable policy eventually will eliminate an ACA provision that was supposed to offset the law’s substantial long-term costs.

Other modifications to the ACA since 2010 have reduced federal spending. Most importantly, the US Supreme Court ruled in 2012 that the ACA’s Medicaid expansion was voluntary for the states, not mandatory. As of 2020, 14 states continue to forgo expansion, which has lowered the costs of the ACA compared to what was expected at enactment.

The evolution of the ACA’s spending and offset provisions has been predictable and regrettable. New benefits and subsidies created by the ACA are now considered part of the government’s basic commitment to health care. The leading Democratic contenders for president are committed to expanding and enhancing those benefits. Meanwhile, controversial ACA provisions to cut cost growth were quickly jettisoned after enactment, and serious proposals to improve value in health care are not part of the current discussion.

Summing Up

Rather than sparking a revolution, the ACA in most dimensions represents an extension of business as usual. The individual insurance market has been transformed by requiring insurers to offer coverage to everyone on the same terms, and by giving consumers a choice of competing private insurance options. Otherwise, we have not seen substantial, permanent change in the way health care is financed and delivered in this country.

Enrollment in exchange plans has been dwarfed by increased enrollment in Medicaid. Millions of lower-middle-class people have been priced out of the individual market. Coverage has become more affordable for millions of people, largely due to increased federal subsidies. Health care costs continue to rise, and efforts to promote greater efficiency in health care delivery have been disappointing. A true revolution is needed if we are to address the real long-standing problems of cost, quality, and access to appropriate care.