ACA Tampering…The New Jenga!


Anyone that has ever played the game – Jenga – or any other “stacking” game appreciates the challenge, if not the risk, associated with removing individual pieces of a constructed mass.  If just a single piece is yanked out of the construct, the entire design crashes down, leaving a mess of pieces, and nothing resembling the original design.  Approaching its 4th anniversary, the Affordable Care Act (ACA), or Obamacare, is gradually turning into a great big game of Jenga!  Ironically, a law that was passed on a 100% partisan, party-line basis is now being attacked directly and indirectly, from both sides of the aisle, democrat and republican alike. 
To date, a number of ACA provisions (or in Jenga terms – pieces) have been delayed, repealed, or had legislation introduced in an effort to change it somehow.  Some examples include:  the employer mandate (delayed); the individual mandate (legislation proposed); the CLASS Act (repealed); medical device tax (legislation proposed); non-discrimination standards (delayed); minimum loss ratio; 1099 provision (repealed); and now, the risk mitigation programs.  Sadly, if not frighteningly, the rationale for delaying, repealing, or removing various provisions of the ACA now seem to be based less on making the law better (or work),  and more on gaining political favor among the voting electorate.  Again, this is happening on both sides of the political aisle, and is dangerous at best, perilous at worst!
The latest ACA provisions coming under threat of removal by way of congressional action are the “risk mitigation” programs carefully embedded in the law.  These elaborate risk mitigation programs – 1. Risk Corridor; 2. Transitional Reinsurance; and 3. Risk Adjustment – were designed to stabilize the dramatically revised health insurance marketplace, particularly for the first three (3) years of the law’s rollout.   The changes to our healthcare financing and delivery sectors (whether you agree or disagree with the end product) brought about by the ACA, required very careful and precise treatment of the elaborate and decentralized insurance mechanisms in existence at the time. 
It’s important to keep in mind that our U.S. healthcare system is still based on a private marketplace, albeit with a very high degree of government regulation.  Any attempt to improve, reform, or modify the system relies on the involvement and participation of private sector, mostly for-profit companies.    Accordingly, the risk mitigation programs designed and included in the ACA were meant to address of number of critical aspects:
  1. Provide the necessary protections, if not confidence, to encourage as many insurers to remain in the market and offer coverage as possible.  Insurance company actuaries had no historical basis with which to calculate premiums in the post ACA era.
  2. Offset the elimination of previous barriers to health insurance coverage, such as pre-existing condition limitations, underwriting, and premium rate setting.  These historical insurance techniques allow insurers to offer generous insurance protection at reasonable rates.  Without these and other historically relied upon and used techniques, insurers needed carefully crafted ways to continue offering coverage at reasonable rates.
  3. Limit resultant market disruption which would lead to higher rates and fewer insured individuals…exactly the opposite of the overall goal of the ACA.
  4. Keep the premium subsidies at reasonable and affordable levels, and avoid skyrocketing subsidy amounts tied directly to potentially escalating premiums.
My Jenga game analogy is by no means, meant to diminish the potentially devastating effects of dismantling the ACA, piece by piece.  Well intended or otherwise, efforts to pick apart the ACA, piece by piece, provision by provision, will without question lead to undesirable results.  The old saying – “be careful what you wish for” applies quite well here.  With respect to risk mitigating programs, these are neither new nor heretofore unseen.  Barely a decade ago, the Bush administration’s Part D Medicare Drug program relied on a strikingly similar program, and like the ACA’s risk corridor program, had a finite time frame associated with it (six years, compared to the ACA risk corridor’s three).  There are a host of other private sector insurance programs that rely on very similar, government collaborative risk stabilizing programs (e.g., flood insurance, crop insurance, and terrorism risk coverage).

Those looking for more of a “return on investment” or ROI rationale for leaving the ACA’s risk stabilizing programs intact might find the Congressional Budget Office’s (CBO) recent report interesting.  The CBO projects that under the risk corridor program, participating insurers will pay in $16 billion, while the federal government will pay out $8 billion.  Not a bad ROI.  Ironically, the CBO projected that the one year delay in the employer mandate (a previous ACA piece meal tweak) would result in a loss of a little over $8 billion in lost fine revenue in 2014.  I believe we just found a way to “clean up” the mess left by this bit of incremental tinkering, by leaving the law alone!