Republicans and others who wish to overturn the Affordable Care Act — which President Barack Obama signed into law in 2010 — have struggled for years to replace it. If Congress fails to pass a better plan or extend ACA subsidies that are set to expire Dec. 31, insurance premiums will skyrocket for millions of Americans next year. The alternative, a proposal to expand health savings accounts, is even more problematic, says University of Illinois Urbana-Champaign health and kinesiology professor emeritus Thomas O’Rourke. He spoke with news Bureau life sciences editor Diana Yates about the issues.
How much could premiums increase if ACA subsidies expire?
Absent quick action, premium payments for millions of people will more than double, going from an average monthly cost of $888 in 2025 to $1904 in 2026. The costs could quadruple for some people currently getting a tax credit. For example, in high-premium areas like West Virginia, an older couple, both age 63, making just under $85,000 could face an increase of more than $50,000 for the year after accounting for a nearly 12% increase in premiums — making coverage unaffordable without a tax credit.
What effect would that have?
The KFF, a nonprofit organization focused on health policy, reports that 7 in 10 of the 24 million ACA enrollees said in a survey that they could not afford coverage if their premium doubled. A quarter reported that they were “very likely” to go without coverage if their premiums doubled or if they had to pay $50 more per month. Four in 10 say they would expect to be uninsured.
The Congressional Budget Office projects significant coverage losses. With younger healthier enrollees likely to drop their coverage, premiums for the remaining older or less healthy enrollees will be pushed even higher. Facing significantly higher premiums, many enrollees will switch to a less costly plan out of necessity. The tradeoff likely would be a much higher deductible and copays, which, in turn, could result in a snowball effect of people postponing or not seeking needed care. That may eventually result in higher costs and adverse health outcomes.
What are the Republicans proposing?
It appears that that the Republican proposal would not extend the current subsidies but instead offer Americans some funds to defray health care costs by expanding health savings accounts and funding cost-sharing reductions.
What is your take on this proposal?
Affordability is a major concern for Americans. People are already struggling to afford day-to-day necessities such as food, housing and health care. People want care that is accessible and affordable, regardless of whose plan it is. Consistent with many health policy and economic experts, I believe the GOP proposal will do little to nothing in this regard. At best, relying on individuals as market agents to contain health care costs is akin to rearranging deck chairs on the Titanic.
Won’t empowering consumers with health care savings plans result in more affordable and responsive health care?
Markets work well for many things: burgers, pizza, phones and TVs — but not for health care. Health care is not a typical consumer good; it is different in many respects.
Unlike most purchases, health care is financed by private or public third-party payors, not by individuals buying a commodity. Often, the consumer is unaware of the actual costs. Unlike other consumer purchases, the typical consumer has no expertise in health care marketplaces and lacks medical training. The health care provider acts as an agent on behalf of the consumer with respect to diagnosis and treatment. Given the unpredictability of when and what care will be needed, the consumer cannot anticipate the most appropriate coverage. And finally, when care is urgently needed, as in a heart attack or accident, the consumer is in no position to search out and negotiate with insurers or providers.
With health savings accounts, how much influence will consumers have over costs?
History shows little to none. Health care funding is very fragmented, with many entities playing a role, including employers, various levels of government, individuals and other entities. None alone can control rising costs, physician or hospital consolidation, drug company behaviors, health device industries or insurers.
Even large employers like Walmart or Costco that are spread throughout the country have little bargaining power with regional or local providers. Small businesses have even less ability to negotiate with insurers or providers. Individuals, with or without health saving accounts, have virtually no ability to negotiate costs, as evidenced by the significantly higher costs they face purchasing coverage.
How good are consumers as health care shoppers? What are the challenges they face?
Research contradicts the idea that individuals will become experts at cutting their own health care costs. There is very little evidence that people, including physicians, are good at shopping for their care. To the contrary, it repeatedly has been shown that consumers are bad at this. This is not surprising given the lack of transparency with respect to price and quality of care. You can get more information about TVs or washing machines than about health care providers or insurers.
The consumer also faces significant obstacles to making informed choices given the complexity and uncertainty of health care itself. Inevitably, individuals will face a myriad of options and decisions, each with different coverage, premiums, deductibles, copays and out-of-pocket spending. Under the best circumstances, it is tricky to determine the best costs and coverage tradeoffs, especially given the uncertainty and unpredictability of needing health care.
Counterintuitively, research has shown that having a high-deductible plan does not result in more comparison shopping by patients or more efficient utilization of health care. Even when people are responsible for more of their health costs, few shop around for the best deal on medical treatments. More likely, their response is to cut back on valuable preventive services.
What would you suggest for improving accessibility and affordability?
The U.S. is already an outlier in health care spending. The Centers for Medicare and Medicaid project 2025 U.S. health care spending at $5.6 trillion. This translates to a per capita cost of $16,570. We already spend more on health care than the next 10 biggest spenders combined: Japan, Germany, France, China, the U.K., Italy, Canada, Brazil, Spain and Australia.
If we were consistent with most other industrial countries having different delivery models, the government, without owning or operating the system, would play a key role in ensuring universal access and affordability. Funding options could include employee-employer payroll tax and income tax, including increased taxes on high-income earners.
If the program followed other countries’ examples, it would reduce costs by consolidating administrative tasks and reducing insurers’ profits. Since there would be a single payer instead of multiple payers and thousands of plans, the government could leverage its purchasing power to exert cost controls that currently do not exist.
Yes, this approach is unlikely in the current polarized political environment, but undoubtedly it would be far better than kicking the can down the road by relying on consumer health savings accounts. Doing that is playing medical roulette. In my opinion, it would be better to buy a lottery ticket and hope for the best.
Editor’s note:
To contact Thomas O’Rourke, email torourke@illinois.edu.
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