A Presentation to Members of the House of Representatives
How to Stabilize the Health Insurance Market
Dean Douglas Elmendorf
Harvard Kennedy School
July 25, 2017
Thank you. I am pleased to be here today.
You are taking up the critical subject of how to stabilize the marketplaces in which millions of Americans are buying private health insurance for themselves and their families. Some Members of Congress and some senior officials of the Trump Administration have asserted that the marketplaces are intrinsically unstable because of flaws in their design in the Affordable Care Act. But the evidence does not support that assertion. The evidence shows that the marketplaces have helped millions of Americans buy private individual health insurance that, in turn, has enabled them to obtain health care they need. Numerous independent analysts have concluded that, under the policies in place before the current Administration took office, the marketplaces would be stable throughout most of the country in the years to come.
Unfortunately, the evidence also shows that the marketplaces can be destabilized by the Trump Administration. If the marketplaces collapse, that will be because the Trump Administration takes, or does not take, certain actions. The responsibility will lie with the Trump Administration -- but the consequences will be felt by millions of Americans.
In my judgment, three actions are paramount to stabilize the private individual health insurance market:
First, payments to insurers for the cost-sharing reductions they are required to provide to lower-income enrollees must continue. Without those cost-sharing reductions, the enrollees would face much larger deductibles and copayments, and would be effectively unable to obtain the health care they need. And without the payments to insurers to cover the required reductions, insurers would be in an unsustainable position. Already, the threat of stopping those payments has led some insurers to raise premiums and other insurers to plan to leave the market – which hurts individuals and costs the federal government more money in the end. The Administration should immediately and unambiguously state that it will continue the payments for cost-sharing reductions specified in the ACA, and the Congress should pass legislation to ensure that happens.
Second, the penalty for not buying health insurance must continue. If one could wait to buy insurance until one needed health care, some people would choose to wait. But then it would no longer truly be insurance, which occurs when protection is bought by a large group of people, some of whom end up needing help and some of whom do not. Imagine what would happen to auto insurance premiums if one could wait to buy auto insurance until one had an accident and needed repairs. Similarly, allowing people to wait to buy health insurance until they need care would increase premiums for everyone else. The Administration should immediately and unambiguously state that it will continue to enforce the mandate to buy health insurance specified in the ACA, and the Congress should make sure that happens.
Third, the marketplaces must continue to be administered in ways that encourage people to buy insurance rather than discourage them. That includes advertising and outreach, so people learn about the options they have. It includes customer service, so people who call with questions can get answers. It includes an open enrollment period that is sufficient for people to collect information and make decisions. The Administration should immediately and unambiguously state that it will administer the marketplaces in ways that encourage rather than discourage enrollment, and the Congress should make sure that happens.
These three steps do not represent a complete list of important actions. For example, restoring reinsurance, which was in place between 2014 and 2016, would help the market tremendously, as would tweaks to the subsidy formula and other possible steps.
I want to conclude by emphasizing that the subsidies and market rules enacted in the Affordable Care Act have significantly increased the number of Americans with health insurance, through both Medicaid and the new marketplaces for private health insurance. Repealing those subsidies and rules -- with or without the totally inadequate replacement provisions in some of the current bills -- would make healthcare unaffordable for tens of millions of Americans of modest means who can afford care today. That would be a terrible step backward for our country. But even without repealing the Affordable Care Act, destabilizing the private individual health insurance market, as the Trump Administration is currently trying to do, would hurt millions of Americans. I urge the Congress to prevent this damage.