Health Care Reform Series: The Affordable Health Choices Act

July 11, 4:58 AMLiberal ExaminerJenny Kakasuleff

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Vice President Joe Biden listens to Health and Human Services Secretary Kathleen Sebelius speak to small business leaders about the rising costs of health care for people who work in small businesses and their small business employers, Friday, July 10,2009, in the Eisenhower Executive Office Building in Washington. (AP Photo/Ron Edmonds)

This series began by exploring the history of health care reform in the U.S., and discussed some fictitious arguments that have been forwarded in the current debate over reform, as well as plans offered by opponent’s to universal health care. This article will discuss the Affordable Health Choices Act (AHCA), also known as the Kennedy Plan, which includes democratic proposals currently undergoing the scrutiny of the legislative process.

Read: A history of health in the U.S.

Read: Distortions in the public debate on health care

Read: The Patients’ Choice Act

For the first time since Bill Clinton was president, there is some optimism that Washington will finally address the issue of health care. President Obama has requested that Congress have a bill ready for his signature by the fall. He has largely left the craftsmanship of the legislation up to lawmakers, but has indicated his desire to reach three primary goals:

1) Reform the system by: expanding coverage, improving quality, lowering cost, honoring patient choice, and holding insurance companies accountable.

2) Scientific and technological advancements

3) Preventative care

These goals are ambitious and far-sweeping for a system that has largely favored private over public enterprise, and has unapologetically chastised government intervention for the regulation of its activities.

In its original language, the bill has the potential to achieve some of the goals laid out by the president, but it has already been introduced in its most liberal form, and is going to require support from a variety of coalitions before passage can be secured.

Similar to the Patients’ Choice Act (PCA), the AHCA would create state health insurance exchanges, modeled similar to those in the Massachusetts universal health care plan. But unlike the PCA, which left participation in the health exchanges optional, the plan offered by democrats would make participation mandatory. The goal of the exchanges is to streamline services in the health insurance sector by creating a one-stop-shop where consumers can compare different plans. Theoretically, simplifying the process should bring more of the uninsured into the health care fold, creating more demand and driving down prices. However, private insurers will now face a barrage of new government-mandated guidelines if they choose to participate in the business of health care.

Even though the exchanges would lead to some increased efficiencies in these respects, and would serve their purpose of increasing enrollment; they would introduce other administrative costs to the process by expanding “choice.” Group policies provide the benefit of one negotiation, with one resulting plan; but requiring mass enrollment of individuals could prove a difficult—and costly—undertaking for both insurers and providers.

According to Linda J. Blumberg and Karen Pollitz with the Urban Institute, exchanges could be successful if administered appropriately and if designed to carry out functions not currently performed in the health care sector: negotiating directly with private insurers on health plans, establishing minimum coverage standards, subsidizing health insurance premiums, providing plan comparison tools, and facilitating enrollment—all with the aim of streamlining information into a centralized location. The authors note:

An exchange is not a panacea for all that ails the U.S. health care system, but, carefully designed, it can be a vehicle that facilitates and monitors the movement of the system toward achievement of many national health care reform goals.

Most analysts also agree that mandating participation by all (or most) individuals, and ensuring that risk-sharing is standard across the market, are keys to the success of any health exchange. The AHCA does include an individual mandate. Penalties would be assessed for individuals who fail to obtain coverage (and are not otherwise exempt) through a qualified plan. What constitutes a “qualified plan” is not yet determined, but there would be reporting requirements introduced as a means to enforcing it.

Despite the negative rhetoric about individual mandates, it is an essential piece to the overall puzzle and the wisdom behind “community rating.” The only way the health care system will be able to absorb the costs of including individuals with pre-existing conditions, is by ensuring the young and healthy demographic are enrolled in a minimal “catastrophic illness” plan, thereby allowing the healthy to subsidize the costs of the sick.

The plan would prohibit denial of coverage through the guaranteed issue of insurance. As critics of such a move point out:

There does not appear to be any exception for lifestyle factors, such as smoking, alcohol or drug use, diet, exercise, etc. Thus, not only will the young and healthy be forced to pay higher premiums to subsidize the old and unhealthy, but the responsible will be forced to pay more to subsidize the irresponsible.

Realizing these factors contribute to increased costs is obvious, but the idea of community-rating continues to ring true, even if this were not true. The AHCA emphasizes the importance of preventative care by requiring lower co-payments, and rewarding doctors and hospitals for high quality care and results. Many of the individuals who engage in the “risky” behaviors listed above, are probably also the least likely to be insured; hence, they are not receiving direction from a trusted medical provider on diet and exercise; and they are not receiving needed treatment for any addictions from which they suffer. The plan could do more to lower the incidence of heart disease, diabetes, smoking, and other preventable diseases that contribute to our lower life expectancy and higher health care costs if the proper incentives were in place to encourage it.

The AHCA would mandate employers either provide insurance and contribute to premiums for their employees, or contribute to a public option. Small employers would be exempt, but there is no definition yet on what defines a small employer. Since the penalty of not participating will likely be less than the cost of participating, employees can expect their employers to discontinue offering insurance. The economic incentive to not provide coverage has been growing, and with a public option, the moral and social incentive to provide it becomes even less, as employers rationalize it is better for business to allow employees to purchase their own plan—and they are probably right. How many businesses suffer from a one million dollar yearly surcharge when someone on the payroll develops a serious illness?

According to Jonathan Gruber, an economist with the Massachusetts Institute of Technology, removing the burden of employer-sponsored coverage would incentivize a boom in entrepreneurialism. He further notes:

The example I think of is the 50-year-old engineer at IBM whose wife is a cancer survivor and who wants to start his own company. He's just not going to do it in today's world, because he just can't take that chance on health insurance. In a world of health reform, he can do that.

Clearly, the AHCA will continue to face staunch opposition over the next several weeks as lawmakers attempt to work on a bipartisan plan for reform. In the next article, I will focus primarily on the as-yet-to-be-determined public option, which will likely be the main sticking point for any legislation that should emerge, as well as further criticisms and challenges facing democrats on the passage of their plan.

Read: The Public Option

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*If you would like to submit a health care story, with the possibility of seeing it published here, please send me an email message at jennyk1981@gmail.com.

Copyright ©2009 Jenny Kakasuleff

For more info: 

The American Health Choices Act - The Huffington Post

Reforming American health care: Heading for the emergency room  - The Economist

Kennedy's Health Bill: A First Look - The Cato Institute

The American Health Choices Act - Think Progress

Health Insurance Exchanges: Organizing Health Insurance Marketplaces to Promote Health Reform Goals