Making the ACA Affordable — bipartisan lessons from abroad
BY REGINA HERZLINGER, ERIC BALDWIN AND RICHARD BOXER
The Hill - 12/21/16 12:20 PM EST
The two major barriers to maintaining the portions of the Affordable Care Act (ACA) that are widely popular — even among Republicans — are its sky high costs and the bitter partisan rancor about how to fix them.
We can learn how to attain bipartisan solutions for universal health care coverage at reasonable costs from three other countries whose healthcare systems are similar to the ACA’s: Switzerland, Germany, and Singapore.
Each has achieved universal access to high-quality healthcare at significantly lower costs than in the U.S., and has done so largely through private insurance, rather than a governmental single-payer system, currently a non-starter in the U.S. They have accomplished this by balancing a commitment to individual responsibility and choice with solidarity.
A successful ACA must have these features. Its high costs have occurred in large part because many younger, healthier people could readily opt out, and did so.
Only 28 percent of those purchasing health care through the ACA marketplaces for 2016 were young adults (aged 18-34), significantly less than the 38 percent the Obama administration estimated were needed to enable insurers to charge reasonable premiums and earn reasonable profits.
Many Americans — some 5.6 million in 2015 — instead opted to pay the penalty for being uninsured, currently set at about $700, but averaging $442 after subsidies, and 10 percent for the non-subsidized.
Combined with the ACA’s prohibitions against denying coverage or basing premiums on subscriber's health — popular aspects of the law that President-elect Trump has signaled he wants to maintain — an older, sicker, high cost population is enrolled in the ACA.
Insurers that found it difficult to earn a reasonable profit on individual plans exited the marketplace or aggressively raised premiums. Higher premiums and less insurance plan choices make it even more likely that younger, healthier people will avoid purchasing insurance. The remaining sickly insurance pool will inevitably require additional, massive public funding.
The Germans and Swiss show us how to avoid this problem. When they opted for a system funded through private insurance purchased directly by individuals and families, like that of the ACA, they understood that the costs of a health insurance system could be managed only if it required participation by all and exacted stiff penalties for non-participation.
The Swiss must buy health insurance from a large number of private insurers. If they do not, government authorities automatically and swiftly enroll them, selecting the insurance provider on the individual's’ behalf. Insurers can implement debt enforcement proceedings against anyone failing to pay their premiums, including court proceedings and asset seizure. They are also assessed a penalty in addition to their back premiums. Poorer residents receive subsidies— the Republicans would do this as tax credits — to help pay their premiums, representing almost 16 percent of 2014 payments.
Germany’s insurance is funded by compulsory contributions to private insurers levied as a fixed percentage of income taken from workers’ wages with the employee and employer each contributing half, akin to the payroll tax in the U.S.
Employees pay a maximum of 7.3 percent of their income for insurance premiums and d cost-sharing is capped at two percent of household income. The unemployed have their contribution taken out of their unemployment benefits. Uninsured self-employed persons who later attempt to purchase insurance face payment of back premiums for the period they were uninsured, thus discouraging the healthy from gaming the system.
About eight percent of the population receives some means-tested subsidies to assist with premium payments, and government premium subsidies accounted for less than four percent of healthcare financing.
Both countries feature the competitive insurance markets Republicans favor: there are 124 insurers in Germany and 61 in Switzerland, a much greater choice than Americans have. Individuals directly choose their insurer and plan, which must compete on quality, service, and (in Switzerland) structure and price. Not surprisingly, the healthcare costs of these high-income countries, as a percentage of GDP, are significantly lower than ours and the CAGR of per capita health care cost relative to GDP is the lowest among developed European countries.
Singapore has also achieved universal coverage at low cost — less than five percent of 2014 GDP — by balancing mandated health insurance purchase with vigorous commitment to the Health Savings Accounts Republicans favor. Compulsory tax-free contributions from employers and employees maintain adequate balances. Account funds can be used for healthcare expenses such as health insurance and disability insurance premiums, hospitalization, surgery, rehabilitation, end-of-life care, and outpatient services. Premiums are kept low because the insurance plans include significant cost-sharing, in keeping with the commitment to personal responsibility.
As in Switzerland and Germany, the government of Singapore has outlined strong recovery measures for those failing to pay their premiums, including garnishing wages; subtracting arrears from any payouts made on hospitalization claims; recovering funds from any government payments made to the defaulter; taking court action to recover back premiums; and imposing financial penalties, including interest.
As these countries demonstrate, maintaining the popular aspects of the ACA in a cost-controlled way requires commitment to individual responsibility and choice along with a commitment to solidarity. Although these values are sometimes identified as conservative or liberal, as the examples of Switzerland, Germany, and Singapore show, they are shared by people around the world.
Indeed, the Republicans are already back-dooring their way toward universal coverage with proposed tax credits for the uninsured and high risk pools for the sick. By balancing these values, both parties can work together to implement universal healthcare access at reasonable cost. If they do, we might finally see a demonstration of effective Congressional collaboration.
Regina Herzlinger is a Harvard Business School professor, she was the first woman to be tenured and chaired at Harvard Business School and the first to serve on many established and start up corporate healthcare /medical technology boards. Richard Boxer is an attending urologist with the Los Angeles Veterans Administration Hospital and Voluntary Professor of Urology at UCLA. Stephen Bonner is the former CEO of Cancer Treatment Centers of America.