The Country Won't be Able to 'Move On' From Health Care Reform

Issue Brief
Tuesday, March 28, 2017

Despite the inclination to do so, policymakers will not be able to quickly move on from health care after last week’s defeat of the House Republican health care plan. There are immediate steps that the Trump administration needs to take to avoid costly problems in some Affordable Care Act (ACA) marketplaces. Additionally, the administration will soon face a choice through administrative action and its upcoming comprehensive budget proposal on whether to further health care cost control efforts or give in to the temptation to take the easy road and back down on recent cost control advancement. Ideally, the administration will come down on the side of more efficient federal spending and long-term cost control.

Finally, the administration should get to work with both parties in Congress, heeding the lessons from the political failure of one-party attempts at health care changes. Policymakers should try to find areas ripe for bipartisan legislative agreement that would improve the operation of the ACA and promote lower health care cost growth.

The most immediate concern for health insurance markets is the June 21 deadline for insurance companies to submit their proposed offerings and rates for 2018 ACA marketplace participation. The decisions on whether to participate at all and how high to price premiums will depend on the degree of confidence insurers have in the willingness of the Trump administration to enforce the individual mandate and do outreach to keep healthy people in the market for insurance and possibly even grow enrollment. The administration will also have to quickly decide whether to continue paying to reduce cost-sharing for the lowest-income individuals in the ACA marketplaces.  

Doing these things would require the administration to reverse from its current course, yet all three actions are essential to prevent dramatic premium increases and dwindling marketplace competition. Since administration officials acknowledge they want to move on from health care reform and replacing the ACA, forcing higher per-person costs for the federal government by sabotaging the marketplaces makes no sense and would simply lead to inefficient government spending.

The biggest problem facing the ACA marketplaces beyond this year is the same problem facing the entire health care system and the federal budget -- the growth in long-term health care costs. If health care inflation isn’t controlled, ACA marketplace costs will grow, as will costs for Medicare, Medicaid and the employment-based private insurance market. On this front, the Trump administration also faces some immediate decisions.

Current health care cost-control efforts are almost entirely within the purview of Health & Human Services (HHS) Secretary Tom Price. There are numerous experiments, pilot projects and payment reforms being undertaken by the agency, and a continuation and expansion of those are essential in figuring out how the United States can maintain a relatively fragmented health care delivery system with multiple payers for that care.

There is bipartisan consensus that the way to do so is to incentivize doctors and hospitals to reduce costs by shifting their payments from rewarding volume and intensity to rewarding outcomes and value. It is up to Price through his authority over the country’s largest payer for health care -- Medicare -- to implement this shift and to do so with evidence about what works and what doesn’t so that the rest of the health care market follows Medicare’s lead.

It is not clear at this point whether Price is committed to going forward with these innovations. The primary evidence we have indicates that the administration might not be. It has twice delayed implementation of one of the most promising Medicare cost-control models -- paying for health care services in “bundles.” Their next decision on whether to keep delaying is due by Oct. 1.

Paying in bundles means paying for every aspect of an intervention, from the surgeon’s work to the medical device to post-surgery rehab, in a single payment. Providers then share in any cost savings or risk penalties if there are cost overruns or shortfalls in quality.

In limited trials, this form of payment has been shown to achieve lower costs with the same or better outcomes. The two delayed bundle demonstrations, for heart care and joint replacement, were going to be the largest and most important tests of the model because they cover services for which there are large variations in costs. Furthermore, participation in the tests was going to be mandatory -- an essential feature for both determining how effective the payment changes are and for determining whether positive results could effectively be spread throughout the health care system.

If Secretary Price backs away from pushing payment model changes, that will make it more essential that the forthcoming Trump administration budget discusses in detail what alternative changes the administration proposes to bring down long-term health care costs in the federal budget. Such proposals should do more than those that surfaced during the ACA repeal debate of simply limiting the federal government’s contribution to health insurance coverage rather than trying to slow the growth of per-capita health care costs.

Beyond these immediate decisions the administration will have to make in 2017, there is an opportunity to begin bipartisan discussions over how to both improve the operation of the ACA marketplaces and further health care cost-control efforts.

While the Congressional Budget Office (CBO) thinks the ACA’s insurance markets will remain “stable in most areas,” legislative fixes are still needed to improve the state risk pools to pave the way for lower premiums and greater competition. There is also an opportunity to encourage more state-by-state implementation flexibility. Because ACA tax credit costs to the federal government grow along with the growth in premiums, any bipartisan improvement of the ACA is fiscally important and the longer the problems linger, the worse the marketplace experience will become with higher per-person costs. (For more on possible bipartisan opportunities to improve the ACA read here and here.)

At the same time, policymakers should heed the CBO’s warnings about the long-term growth of health care costs and its impact on the nation’s fiscal sustainability. Their focus should shift to the cost-control policies beyond the scope of the administrative powers held by HHS and how to deal with the federal budget challenges that come from the combination of an aging population and rising health care inflation. While cost growth has slowed recently, there is a fair amount of bipartisan consensus on some steps that still need to be taken and the sooner changes are made, the quicker we can make the health care system more efficient and even improve health while doing so. Finally, acting sooner rather than later means a lesser chance that rising federal debt levels impede economic growth and hold down future standards of living.