Obamacare: what the Affordable Care Act means for patients and physicians

Republicans versus Democrats

A more socialized solution for healthcare reform favored by some left wing Democrats in the US would be to expand Medicare or create something like it that, along with Medicaid, covered everyone in a “single payer” system, like that in Canada. Despite Medicare’s relative popularity with US patients and its success with constraining healthcare spending, staunch opposition to anything that smacks of socialized insurance keeps Congress from even considering “Medicare for all.”

Right wing (Republican) proponents would prefer a less ambitious law that uses government subsidies mainly to help only those people who are not insurable, leaving the rest of the market to function as normal. This would also allow insurers to continue medical underwriting practices that screen people for health status and exclude pre-existing conditions. Moreover, because the 20% of people with the most expensive medical needs account for about 80% of spending,7 uninsurable people are much more expensive than people realize and support for them is likely to be chronically underfunded.8 Indeed, adequate funding of the top end of the medical expense distribution would end up “socializing” a major portion of medical spending.

Middle ground

The act was designed to avoid these extremes of right and left by aiming for a middle course that preserves a private insurance market for most people, but reforms the market so that it advances rather than undermines health policy goals.2 9 Essentially, the act attempts to make the defective individual market (see Glossary) function much more like the successful large group market (see Glossary) for people above the poverty line. The act also expands Medicaid to cover everyone near or below the poverty line. This is the same pragmatic combination of approaches that conservative thought leaders (such as the Heritage Foundation) had previously advanced and that was successfully implemented in Massachusetts by its former governor Mitt Romney, a Republican.

How the act was passed

By using private market approaches endorsed by conservative thinkers to pursue liberal social goals, the Democrats who crafted the act hoped that it would be acceptable to a broad swathe of the political and policy spectrum. Despite this reasonable expectation, Republicans uniformly opposed it, and the political consequences of this response are stark. Massachusetts’ surprising election of a Republican to fill the seat vacated by Senator Kennedy’s death in 2009 left Democrats one vote short of the supermajority needed to avoid blocking techniques by the opposition. Although the Senate previously had adopted a version of the Affordable Care Act, it differed from the House version. There was now no opportunity for a reconciliation process or careful proofreading. Instead, using legislative rules that allow purely budgetary and tax measures to advance with simple majority support, the Senate adopted a patchwork of amendments that made the Affordable Care Act acceptable to the House, and President Obama signed the law into effect in 2010.

Universal insurability

Before discussing what the act covers it is helpful to clarify what it does not cover. It is not about regulating how private insurers pay providers. Also it does not achieve truly universal coverage, because it cuts the number of uninsured by only about a half (fig 1). Even after full implementation, 30 million people will still be uninsured. (About a quarter of the remaining uninsured will be eligible for Medicaid but not yet enrolled, another quarter will decline to purchase affordable private insurance, another quarter will still face unaffordable premiums, and the remaining quarter will not be US citizens or long term legal residents.)

If the act does not control costs or provide universal coverage, what does it do? The act’s core and most important achievement is universal insurability. From 1 January 2014 insurers can no longer turn anyone away or refuse to cover pre-existing conditions (which is called “guaranteed issue”). In addition, insurers have to charge individuals and small groups rates that are based on population averages (which is called “community rating”) rather than basing rates on individual characteristics. Guaranteed issue with community rating is an obvious boon for people who previously could not qualify, but universal insurability also benefits people who previously had good coverage. The knowledge that coverage will be available regardless of what happens enables people to change jobs, start new businesses, leave unhappy relationships, and make other major life choices that previously depended—at least to some extent—on whether insurability might be threatened in the process.10

Accomplishing the core goal of universal insurability requires more than simply regulating insurers. For this to work, people need subsidies so that they can afford insurance. And, to prevent people from simply waiting until they are sick to enroll, which would drive up insurance premiums even more, the act imposes an individual mandate (see Glossary) in the form of a tax penalty (ranging from 1% of taxable income in 2014 to 2.5% in 2016) if people fail to enroll in insurance that is affordable. (Affordable is defined for this purpose as single coverage costing ≤8% of household income). The act also requires larger employers (those with more than 50 full time equivalent workers) to pay a tax if they decline to offer minimum essential benefits (see Glossary). Administrative complications delayed this employer mandate (as it is known) for a year, until 2015.

Core insurance provisions

Most of the act’s core insurance provisions flow from these few fundamentals—guaranteed issue, subsidies, and individual and employer mandates. Because insurance is expensive, sliding scale premium tax subsidies (see Glossary) are needed all the way up to four times the poverty level, which is almost $100 000 for a family of four—substantially more than the median household income. For people who cannot afford to contribute substantially to their cost of care, states can now expand Medicaid to cover everyone at or below 133% of poverty, rather than the uneven patchwork of Medicaid eligibility criteria that existed between various states.

To determine eligibility for subsidies and to facilitate choice among qualified plans, states are invited to create insurance exchanges, but if they do not, the federal government will operate one for them. Exchanges are web portals where people can shop among qualified insurers and determine their eligibility for subsidies. To qualify, insurers have to satisfy numerous criteria, to ensure that people (and the government) receive decent value for their money and that insurers compete on fair terms. Requirements include offering a standard set of “essential health benefits” that cover a comprehensive range of services.

The act also requires insurers to package their patient cost sharing mechanisms (such as deductibles (see Glossary) and copayments (see Glossary)) in standard ways—labeled bronze, silver, gold, and platinum—according to whether insurance, on average, pays for 60%, 70%, 80%, or 90% of the required covered benefits.

The constitution and Medicaid

Immediately after the act became law, lawsuits that challenged its constitutionality were filed. Clearly, the federal government has constitutional authority to require Medicare for all,11 but doing something short of that—expanding Medicaid and requiring people to buy private coverage—was attacked as exceeding congressional powers. In what is undoubtedly the health law case of the century, the Supreme Court ruled partially in both sides’ favor.12 It held that the Medicaid expansion is permissible but only if states can opt out of the expansion and still keep their current Medicaid funding. And, it ruled that the “individual mandate” is valid, but only if it is construed simply as a tax on a personal choice to decline coverage rather than as a penalty for violating a regulatory law that prohibits being uninsured.

This ruling allowed the act to survive, just barely (by a vote of 5-4 on the individual mandate), but in a weakened form. In particular, about half of US states so far have declined to expand Medicaid (fig 2⇓). In those states the subsidized exchanges can reach down to the poverty level but not below. This means that a high proportion of uninsured people on a low income in these states have no new options, even though people earning just a few dollars more qualify for free private coverage on the exchanges. Many states chose this upside down effect because they say they cannot afford their very small portion of the Medicaid expansion costs. Skeptics claim that politics, not state finances, are the main driver of states’ decisions to refuse Medicaid expansion. They note that all of the states that refused are led by Republicans, and that they all also refused to establish insurance exchanges.1 13

Fig 2 Use our interactive tool to discover which states have adopted Obamacare measures and how this relates to their political affiliations. See http://www.bmj.com/content/349/bmj.g5376/infographic

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Although states struggle to balance their budgets, state finances are not a compelling reason to refuse Medicaid expansion. The federal government will pay the full costs of expansion for the first two years and 90% of the costs by 2020. This would reduce states’ existing financial burden of caring for the uninsured and would pay for additional care that saves citizens’ lives and relieves suffering.14 15 Moreover, Medicaid expansion would create jobs that generate more state and local tax revenue, sufficient to offset most or all of the states’ small fraction of Medicaid costs.16 17

These refusals come at a high cost for states and their citizens. Opting out of Medicaid expansion does not relieve state citizens from paying the federal taxes that fund the act in other states. Not expanding puts many US hospitals in a particularly difficult position because those that serve a higher than average share of the uninsured will continue to do so, but the act cuts federal funds to support this uncompensated care across the board, having anticipated that all states would expand. It is not surprising, therefore, that several major medical centers across the country that have announced that they are cutting jobs are in states that have not expanded Medicaid.18

Misconceptions about the act

Effect on insurance exchanges

Most of the insurance exchanges offer a good range of choice at prevailing prices.43 44 45 46 47 Fears that the new law would drive insurers from the market in droves have not materialized. To the contrary, in each market segment (individual, small group, and large group), roughly 500 insurers throughout the country had at least 1000 members in 2012.48 Moreover, insurers’ stock prices have risen substantially more than the rest of the stock market,49 and new insurers are entering the individual market in many states, in response to the opportunity for increased enrollment through the exchanges.46

Effect on community and average rates

Similarly overstated are charges that the act has caused massive “rate shock.” It is true that community rating will increase rates for younger people by 30-40%, but it will also significantly lower rates for older people.50 Early indicators of the market-wide effect on insurance rates are encouraging. Average rates for 2014 in the individual market (which includes the new exchanges) are almost 20% lower than the CBO initially projected, and in line with, or lower than, prevailing rates for group insurance.24 44 51 52

It is true that these rates exceed what many people previously paid in the individual market. But insurance under the act has better coverage (sometimes better than people want).53 Also, insurance now covers all pre-existing conditions and allows people to undergo periods of non-coverage without worrying about their ability to requalify for coverage. Moreover, this insurance cannot be cancelled or rescinded and its premiums do not increase as steeply with age, or at all when people get sick or injured. These benefits come at a cost, which insurers require people to pay, but which the act subsidizes for most people.

Premium subsidies

The act’s premium subsidies vary substantially according to income and family composition. It is therefore not easy to summarise the impact of these subsidies. However, because subsidies are available to people who earn up to four times the poverty level, most people who purchase individual insurance will be eligible for some subsidy.30 50 54 55 Among those who qualify, the subsidy averages about $5000 per family.23 The full net impact of these various components of insurance pricing (average rate, age rating, exchange subsidies) is not yet known but there will be more winners than losers.30 54 Still, if only a small minority of existing policyholders face increases substantially more than general medical cost trends, this will amount to a few million people who will be worse off than before.

Medical loss ratio

Another of the act’s benefits for consumers is its regulation of insurers’ medical loss ratio, which is the proportion of the premium spent on medical claims and quality improvement as opposed to overheads such as sales costs, administration, and profits. Requiring insurers to rebate overheads that exceed 20% in the individual and small group markets, or 15% in the large group market, has resulted so far in almost $2bn of consumer rebates.56 In addition, insurers reduced their overhead expenses by a similar amount after enactment of the law, and apparently in response to it.48

Summary of the act’s impact on patients and consumers

The act seems to have had no unwanted consequences for most patients and consumers. However, the act has had a negative effect on less than 5% of people—those who are younger, healthier, and wealthier and so had lower rates and are not eligible for substantial financial assistance. There is also legitimate concern that the initial favorable market performance may not persist. Insurers’ initial pricing was based on actuarial assumptions about the unknown age and health status mix of enrollees under the new market rules. If the actual experience is substantially worse, rates for individual coverage could rise considerably, or participating insurers could decline.

Provider capacity and patient access

The surge in enrollment is expected to place a strain on provider capacity, especially for primary care physicians.40 The full extent of this has not yet been seen,42 but various measures are under way to increase primary care capacity.57 58 The act increases funding for community health centers, and it increases payment rates under Medicare and Medicaid for primary care physicians and for team based patient centered medical homes (see Glossary).59 The act also focuses on making more use of physician extenders (see Glossary), such as nurse practitioners and telemedicine. More time and research are needed to know whether these measures will suffice and how best to organize and fund primary care. Without these improvements, the act’s increased coverage may not achieve its full potential to increase access to care and produce a measurable improvement in population health.

Cost control

The Affordable Care Act, despite its name, is much more about the cost of insurance than the cost of healthcare. Nevertheless, key provisions of the act are designed to help “bend the cost curve” in ways that could change how physicians work together across specialties and with hospitals. Almost all of these cost control initiatives focus on Medicare (box 2).60 61 62 They include the Community Care Transitions Program, the Value Based Purchasing Program, and the Shared Savings Program. The major goal of these Medicare provisions is to move toward healthcare services being paid for on the basis of value rather than volume. In particular, Medicare is expected to make greater use of bundled payments (see Glossary) for episodes of illness, which hold hospitals and physicians jointly responsible for cost and quality for an episode of care.63

Pilots completed to date have had variable success and the optimal arrangements have not been clearly defined.64 65 The open structure of accountable care organizations, for example, makes it more difficult for them to coordinate and manage care.66 Accordingly, these organizations have not yet shown substantial savings.60 67

The prospect of marked change in Medicare payments might make the relationship between hospitals and physicians more collaborative or contentious. Initially, at least, providers are becoming more closely aligned. Many physician groups are being bought by hospitals, converting physicians from small business owners to employees.68 It is too early to know whether these payment and organizational changes will enhance or erode the patient-physician interaction. Physicians may be rewarded for spending more time with patients rather than simply ordering more tests. But there is also the potential that cost or institutional constraints will make patients more wary of physicians’ motivations.

The act continues existing trajectories

Medicine has been beset for decades with changes like these. Considering the Affordable Care Act’s size, importance, and complexity, the tendency is to attribute almost everything that happens in healthcare delivery, especially unwelcome changes, to the act.69 But much of the current change was under way before the act and clearly would have continued anyway.70 Adoption of electronic medical records, for example, received a major bolus of funding from the bipartisan American Recovery and Reinvestment Act of 2009, and most delivery system changes directly fostered by the Affordable Care Act are focused on Medicare and not on private insurance.61 71 For private insurance, the act continues to leave payment of healthcare providers to unregulated market forces. Its most overt cost control measure is to tax employers, starting in 2018, that offer especially generous health insurance. The act has, however, put into motion market forces that are bringing about further change in the private sector, in the form of narrower networks (see below) and increased patient cost sharing.

Narrower networks

To offer the most competitively priced product on the new exchanges, many insurers have asked providers to charge substantially less than they usually charge commercial insurers by accepting reimbursement closer to Medicare levels. Providers that are unwilling are often dropped from the networks that insurers offer on the exchanges. Thus, many insurers have much narrower networks for their products sold through the exchanges than those that they sell simultaneously to groups outside the exchanges.43 72 73

Narrow networks will provide a market test of the economic theory that individuals are more willing than employers to sacrifice breadth of choice among providers for lower premiums. Employers are less willing to do this when they choose a plan that covers a large number of workers, many of whom might find that their preferred physicians or hospitals are not in a narrow network. Individuals however may be willing to shop among different plans on the basis of which one has their preferred providers or they might be more willing to change physicians to save their own money.

If narrow networks persist, they might also expand beyond the government exchanges to offer lower cost options for employer groups, possibly through private exchanges.74 75 If so, providers may face increasingly tough choices about how great a discount they are willing to confer. More than just price discounting, narrow networks form the scaffolding to construct private sector accountable care organizations and other arrangements that use alternative payment methods, such as capitation and bundled payment for episodes of care. Again, outside of Medicare, these are not required by the act, but they could develop in response to the market structures and forces that the act engenders.

Increased patient cost sharing

Another important trend affecting physicians is an increase in patient cost sharing (see Glossary). All insurance sold to individuals and small groups must cover the same comprehensive set of essential health benefits that are commonly covered in the large group market. However, insurers can attach markedly different levels of patient cost sharing to these comprehensive benefits, through various combinations of deductibles and copayments (see Glossary).76

Patient cost sharing has increased substantially in recent years as employers seek to keep premiums in check.77 The exchanges present individuals with the same trade-off between premiums and cost sharing. In response, most consumers prefer the intermediate level of cost sharing offered by the silver plan, which requires patients on average to pay for 30% of their treatment costs. This is similar to what prevailed recently among small groups but is more cost burden than is common among large groups. Next most popular are bronze plans, which average 40% patient cost sharing, similar to the cost sharing level that had been most common in the individual market.

Insurers are also experimenting with which combination of the cost sharing elements is most appealing for consumers—for example, whether patients prefer lower deductibles that apply to all sources of treatment or higher deductibles that do not apply to primary care.

As patients sort through these options, they will increasingly turn to their physicians for better information about the actual costs of care and the availability of less costly options. Physicians are not accustomed to discussing treatment costs with patients, except perhaps to pick between generic and branded drugs.78 79 We may be at the beginning of a shift in the doctor-patient relationship that requires a much more cost conscious style of patient communication and medical decision making.