The Perils of Partial Health Reform

When it comes to the Affordable Care Act (ACA), many are trying to predict the future. At the California Health Care Foundation, we’re also looking to the past, examining how lessons from prior health reform efforts can help guide us through a time of great uncertainty. A new report from PricewaterhouseCoopers (PwC) examining state efforts to reform individual and small group health insurance markets before the ACA is particularly relevant to the ongoing debate.

The PwC report primarily looks at the experiences of four states: Kentucky, Massachusetts, New York, and Washington. (California is also included but is not a main focus because California’s pre-ACA reforms were limited to the small group market.) In general, the states shared common goals: Improve access to coverage for those who do not have health insurance through an employer or a public program, reduce the number of uninsured residents, improve the viability and stability of the individual market to provide consumers with a choice of plans, and keep premiums under control.

When Half a Loaf Isn’t Enough

For a variety of reasons, including political backlash against more comprehensive approaches, the states, with the exception of Massachusetts, used what the authors call “partial” or “piecemeal” approaches. For example, these states instituted important consumer protections such as guaranteed issue (banning insurance companies from denying coverage because of pre-existing conditions) and some version of community rating (limiting how much more health insurance companies can charge based on health status). However, they failed to couple these regulations with incentives (such as penalties for not having insurance and subsidies to make coverage more affordable for those with modest means) that were strong enough to attract a broad base of consumers to the market.

Another misstep by states was failing to level the playing field across insurers and market segments. In some cases states applied rules selectively. For example, they prohibited underwriting or mandating benefits in part — but not all — of the markets they sought to reform. This led to adverse selection in certain market segments, meaning consumers with greater health needs, acting rationally, disproportionately selected plans with more comprehensive benefits and where prohibitions on underwriting made coverage more affordable for them.

While the authors acknowledged they cannot analyze all the factors at play, the outcomes they catalogue are striking. In Washington, the individual market collapsed. In Kentucky, the number of insurers in the individual market dropped from more than 40 to only 2. In New York, after the collapse of the indemnity market (health insurance that offered wider access to providers and specialists), average health plan premiums tripled.

Massachusetts, which adopted a more comprehensive approach to health reform, had very different outcomes. Learning from previous failures, the state coupled guaranteed issue and community rating with an individual and employer mandate, insurance subsidies to consumers with low incomes, and the expansion of Medicaid to provide a broader base of coverage. Taking advantage of a unique opportunity, Massachusetts financed its reform plan with an infusion of matching funds from the federal government. This was the model that drove down the state’s uninsured rate and set the stage for the ACA.

Picking and Choosing

In today’s debate around ACA repeal, some lawmakers seem to think each ACA provision should be independently assessed — that we can keep popular elements and discard less popular ones. But we would be wise to heed the lessons of the past. The ACA’s health insurance reforms are interdependent and are only effective when they work in concert with one another. Stripping some away while keeping others in place puts us at risk of repeating the failures of the states profiled in the PwC report — but on a national scale.

That would undoubtedly mean more Americans thrown back into the ranks of the uninsured. Since 2014 millions of Americans have gotten access to more comprehensive and affordable health insurance. These gains must now be protected. Even in the face of great uncertainty, we must keep moving forward, not backward.

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