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I’ve spent the past week talking to lots of health care experts and economists about the future of the Affordable Care Act. Of all the people I spoke with, Princeton University health economist Uwe Reinhardt offered the most dire and pessimistic assessment of the marketplaces' future.
Namely, he believes they’ve already entered a death spiral and are heading toward total collapse.
This seems to be a minority view among those who follow the marketplaces closely, but not one completely out of the mainstream. And Reinhardt offers an especially thoughtful explanation of why he believes the Obamacare marketplaces won’t work. Much of his work looks at international health care systems, and he was able to discuss what makes the United States different from other countries that have created universal coverage with private insurance, like Switzerland and Germany.
I quoted Reinhardt in my story yesterday on the health care law, but I felt the interview was interesting enough to share in full. What follows is a transcript of our conversation, lightly edited for clarity and context.
Sarah Kliff: Give me your assessment of where the Obamacare marketplaces are right now, and where you expect them to head in the future.
Uwe Reinhardt: I always joke about it like this: If you got a bunch of Princeton undergrads to design a health care system, maybe they would come up with an arrangement like the marketplaces.
The natural business model of a private commercial insurer is to price on health status and have the flexibility to raise prices year after year. What we’ve tried to do, instead, is do community rating [where insurers can’t price on how sick or healthy an enrollee is] and couple it with a mandate.
When you do this as the Swiss or Germans do, you brutally enforce the mandate. You make young people sign up and pay. But we are too chicken to do that, so we allow people to stay out by doing two things: We give them a mandate penalty that is lower than the premium. And we tell them, If you’re really sick, we’ll take care of you anyhow. [A federal law called EMTALA requires hospitals to treat all patients with life-threatening conditions regardless of their ability to pay.]
SK: So what happens in a system like this? Does it eventually right itself, or does it fall apart?
UR: Liberals think this will settle itself. Eventually, though, we all know about the death spiral that actuaries worry about, and I think what you’re seeing now is a mild version of that. These things accelerate, as premiums keep rising.
We’ve had two actual death spirals: in New Jersey and in New York. New Jersey passed a law that had community rating but no mandate, so that market shrank quickly and premiums were off the wall. You look at New York and the same thing happened; they had premiums above $6,000 per month. The death spiral killed those markets.
What we do have in the Affordable Care Act is the mandate, so it will be a slower process. If the premium increases go through for 2017, some are 8 or 9 percent, and that is stiff. If those rates get improved, those are big enough that a lot of people will drop out.
SK: One thing that is different about the New York and New Jersey experiences and the Obamacare one is that enrollees in Obamacare do get subsidies, which essentially cap the cost of health premiums at a certain percent of their income. So wouldn’t that essentially shield people from the high premium prices and lead to fewer dropouts?
UR: The subsidies do help a lot, but this of course means that subsides will have to grow substantially year after year, and that’s a big question, whether Congress is willing to appropriate for that [editor's note: spending on the Affordable Care Act's tax credits is mandatory spending, and does not have to be appropriated by Congress. There are other parts of the tax credit, including cost-sharing reductions and caps on the overall growth of the credits, that could reduce the value of the credit in the future]. The Republicans will, if Hillary [Clinton] wins, style that as corporate welfare for the insurance industry.
SK: Right now I see a lot of liberals pointing fingers at insurance companies, saying that this is what happens when you work with private insurers to expand coverage. But as you mention, there are some European countries like Switzerland and Germany that have really robust universal coverage systems — and rely on private insurers.
What's different there? Why does their system seem to work well, while ours is struggling?
UR: In the Swiss system, there are no public insurers; the whole system is administered by private, commercial plans. They are not allowed to make any profit, and they have a common benefit package that is standardized. They all offer the same package and can price it however they wish. But that’s a lot of regulations, and the Germans are like that and the Dutch are like that.
When they run these exchanges, they accompany them with a very harsh mandate. If you don’t obey the mandate, the Swiss find out, and they go after you and garnish your wages. If you’re not insured, they’ll look at your wages and recoup the premiums you owe. They’re very tough. And we’ve never been tough.
In our marketplaces, every insurer can have a different package of benefits. And it's very difficult to comparison-shop when you’re not looking at the same things.
SK: Is there something inherent to the United States — the way our health care system works, maybe, or the way Congress works — that would make it impossible to build a system like that?
UR: There are two reasons. One of them is the fight you have over telling people you have to buy from private insurance, and the litigation over the commerce clause. So I think it's systemic in that Congress wouldn’t have the guts to do it.
Voters will say, You’re trampling my premiums by making me buy this — but you’d be surprised at how many things you have to buy, like the seat belts in your car. It's very easy to whip up opposition, as the Republicans so skillfully did.
You need an enforced mandate where the government will say, You live in this country, we’ll look after you when you're sick, and you owe it as a civic duty to pay toward that. When you’re 60 you’ll get health insurance at half your cost, so you’re prepaying — call it a stock option, where you pay a premium that allows you to get health care later.
An alternative route would be to have a mandate that says every American should have access to health care and insurance, so we’ll create a public option, and, yes, its costs will be higher because the people tumbling into it will be sicker, but we’ll learn how to adjust, and the government won’t pull out because it's losing money.
