Whether you love or hate it, the Affordable Care Act (ACA) has been plagued with challenges from its outset, some of which may have been avoided with help from the objective and non-partisan perspective of working actuaries who have insight into the health insurance landscape.
It is helpful to reflect on the objectives of the ACA when considering how future policies may be improved. Providing comprehensive health insurance for more people has long been an important objective for policymakers. This goal is understandable. When someone is sick or in need of medical care, most people want to help ensure that they have the financial means to pay for needed services. Insured individuals also participate in comprehensive care programs that can improve their health and mitigate the financial impact of costly conditions.
Although policymakers may debate the finer details and financing of most health insurance programs, the underlying structure is largely sound. In the employer group market, sophisticated purchasers of health insurance have the resources and knowledge to efficiently purchase insurance for their employees. Through consistent improvements, the Medicare Advantage and Medicaid managed care programs have produced stable programs that provide coverage to an increasing number of people each year.
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The policy objectives in the individual market have been far more ambitious than the other insurance markets. Instead of relying on sophisticated purchasers of insurance in long-standing programs, the ACA policymakers in effect created an entirely new insurance market. There, the government provides subsidies and operates several features of the reformed market, including an exchange, a risk adjustment program, new enrollment rules that mandate enrollment and limits on rating and plan design flexibility.
While the details can be debated, the most salient problems with the program have been technical features that have limited the ability of the program to attract a broad risk pool where insurers can develop accurate premium rates and track their financial results. These aspects of the ACA plan have rarely received much attention because, despite their collective importance, they are difficult to succinctly explain. The mere mention of these features—3 to 1 age rating, risk adjustment, subsidies and transitional plans—can make even the most passionate observers quickly lose interest in the topic.
As we begin this next phase of reform from the new administration, I hope that we learn the following lessons from our experience with the ACA.
1. A measure of humility is important. Changing the insurance market rules and economic incentives for more than 10 million people is not easy and should be approached with significant caution. The expectation should be that policy changes will need to occur over time to ensure the risk pool is broad and consistent.
2. Listen to actuaries. While policy experts and economists can provide valuable insight into many government programs, the sweeping changes being discussed in the individual market require technical knowledge of market regulation and historical experience. Actuaries can offer this knowledge. Actuaries were among the first groups to highlight the problems that would likely occur due to the technical policies of the ACA. In addition, the actuarial profession stands at the front lines with insurers in accepting the risk for any new individual health insurance program. Our input will be important to ensure its broad acceptance.
3. Develop a transition period before insurers take on the full risk of a new program. The lifeblood of actuarial science and accurate premium development is historical claims experience in a program. Without this, actuaries have to develop estimates, which are subject to substantial error and financial uncertainty. As a result, in the short term, financial protections should be put in place to ensure that historical experience can be developed before insurers take full risk in the program.
As we continue to make improvements in ensuring broad access to an affordable individual insurance market, we need to ensure that these changes are approached with caution and with insight from the people most qualified to provide accurate technical advice.