The Affordable Care Act’s lack of cost controls has always been its Achilles’ heel

The biggest threat to the Affordable Care Act may not be the justices of the U.S. Supreme Court but rather the law’s biggest omission: no way to seriously control the cost of medical care. The absence of such a mechanism to curb the relentless rise in medical costs has always been the law’s Achilles’ heel, the biggest threat to its long-term stability. Ever-rising health care costs eat away at the law and jeopardize its effectiveness as a backstop for the uninsured and uninsurable.

To be sure there was not much in the way of cost controls in Obamacare’s ancestral model, Romneycare, passed in Massachusetts in 2006, an omission that state is still reckoning with. So it was not surprising that Obamacare architects didn’t strenuously push for costs control measures either in 2009. More pragmatically, they knew that doing so would have killed the already fragile deal.

In the early days of Obamacare, there wasn’t much talk about what would happen if the prices of medical services continued to rise. “At the beginning we were able to serve the subsidized and unsubsidized people fairly well,” says Cathy Mahaffey, president of Common Ground Healthcare Cooperative in Brookfield, Wisconsin, one of three remaining co-ops created under the Affordable Care Act with the mission of offering a lower-priced alternative to the commercial carriers. “Affordability continues to be an issue. This has not changed over time. We are headed in the wrong direction.”                       

Mahaffey noted insurers have always had a “bag of tricks” they’ve been able to pull from over the years to address the rising costs of care. Those tricks have included requiring consumers to pay high out-of-pocket costs including high deductibles, cost shifting, negotiating with providers to boost patient volumes, and medical management (like encouraging flu shots), but those strategies have done little to slow the rise in costs. “At the end of the day,” she said, “We all know that health care is a business, and because of that it drives a lot of our problems today.”

The result: The ACA has become a place where people who have a subsidy go to buy insurance, but, Mahaffey said, “in the unsubsidized market, we’re definitely seeing a decline.” People who don’t receive premium tax credits are not enrolling in the ACA, she told me. Instead, a spouse with a preexisting condition might enroll in the ACA while the other might take out a short-term policy or a Christian ministry policy to lower the family’s insurance bill.

“Affordability continues to be an issue. This has not changed over time. We are headed in the wrong direction.” — Cathy Mahaffey, Common Ground Healthcare Cooperative

To understand what Mahaffey meant, I embarked on a little shopping trip of my own across the country to see what kind of ACA policies and short-term policy alternatives are offered to buyers. I started with policies issued by Mahaffey’s co-op, which insures some 54,000 Wisconsin residents. Although the co-ops were originally authorized to offer a cheaper alternative for consumers, I found the policies quite expensive when you consider a policy’s full real-world cost —the premium and total out of pocket costs including coinsurance, copays, and deductibles. Too many people make the mistake of looking only at the premium. Advocates, too, point to low premiums to entice people into the market while giving short shrift to the other policy elements that heap lots of costs onto policyholders.

This enrollment season there have been tweets touting free bronze policies, Mahaffey told me, noting that people with incomes right around the poverty level have “multiple options for a zero-dollar bronze plan.” But, she added, “The challenge then becomes the higher out-of-pocket costs they face with larger deductibles versus much lower deductibles in the silver plans with cost-sharing subsidies.”

Five offerings, including gold, silver and one bronze plan from the co-op came with a $17,100 annual family out-of-pocket maximum, and a deductible as high as $8,550 for a single person. Even a bronze-level health savings account, which allows people to set aside tax-advantaged savings to use for medical bills and provides less coverage, came with a $14,000 out-of-pocket maximum for a family and $7,000 for an individual.

Mahaffey pointed out that 87% of her co-op’s members receive tax credits to help pay their premiums, while 55% get cost-sharing subsidies. That still leaves a whole lot of people paying full freight.

The story was much the same for this hypothetical person looking for Obamacare policies in somewhat higher-cost states like California and New York, and states with lower medical costs like Oregon, Minnesota and Kentucky. High out-of-pocket maximums and deductibles were common. In California, one bronze preferred-provider plan for our 50-year old woman would cost about $832 a month, with a $6,300 deductible and an $8,200 out-of-pocket maximum. In Minnesota, a low-cost state, the monthly premium for a bronze-level preferred provider plan for a 50-year-old woman was only $364, but the yearly deductible was $6,250 and the out-of-pocket maximum was $8,550. With that kind of insurance, who can afford to get sick?   

What’s happened? Insurance consultant Robert Laszewski told me that “we have a program that is really bad for the middle class and really good for those with low incomes.” People whose incomes are between 250% and 400% of the poverty level (between $31,900 and $51,040 for a single person and $65,500 to $104,800 for a family of four) get “fairly good premium subsidies. People with incomes less than 250% of poverty get great subsidies.” But those with incomes greater than 400% get no subsidies to help with premiums and the other cost sharing insurers require. That means, he said, that millions of Americans without subsidies have bailed out of Obamacare, either going uninsured as some 200,000 New Yorkers are doing because insurance is unaffordable or turning to the new market the Trump administration has created that offers short-term plans for far less money and far less coverage.

As I was researching the high costs of Obamacare policies, Kentucky Health News happened to publish one of the best insurance stories I’ve seen in a long time.  The piece by Melissa Patrick clearly laid out what Anthem, the country’s second largest health insurer, has in mind for people who aren’t eligible for Obamacare subsidies. The carrier has designed a series of six policy options designed to reach a wide audience of untapped prospects, the company tells its brokers. The policies, called the “Anthem Enhanced Choice Plans” are, according to the company, “a new marketing opportunity” and “quality coverage for clients.” It calls them budget-friendly options for people who don't qualify for ACA subsidies.

The new policies are “medically underwritten,” meaning that people with preexisting conditions will not necessarily qualify for coverage, as they would with an Obamacare policy. Anthem will scrutinize your health records. If you pass the test, you can buy coverage for as long as three years. “Anthem has positioned this to brokers as an alternative to the ACA,” says Joel Thompson, an independent broker in Ceredo, West Virginia. “When we talk to clients who don’t get a subsidy, they are suggesting ‘Enhanced Choice’ instead.” He added: “They are trying to draw off the healthy consumers from the risk pool.” If that happens, that's bad news for the ACA long-term. Prices will go even higher.

I asked to speak to a representative from Anthem about all this, but the spokesman did not respond to my request.

Anthem is well-positioned to cut into the ACA market. The company knows a thing or two about marketing slim-down policies. Before the ACA was passed, the company marketed a series of policies appealing to young adults in their 20s and 30s and older adults not yet eligible for Medicare. Policies with names like Thrill Seeker, Part-time Dare Devil, and Calculated Risk Taker came with high deductibles and high out-of-pocket limits ranging from $5,000 to $10,000. They sure sound familiar to the new short-term policies marketed today as an alternative to Obamacare.  

If Anthem and others ultimately succeed in moving large numbers of people out of the Obamacare risk pool and into these short-term plans, that ultimately can hurt the health law. That’s why the danger to the ACA may not be from an adverse Supreme Court ruling but from the very structure of the law itself and the lack of cost controls. That urgently needs a reexamination in the next Congress. I'm not taking any bets it will get one.