Does The Health Law Provide Coverage To The Largest Number Of Americans At The Lowest Cost?

Today, Health Affairs released its new issue, dedicated to exploring how policymakers can effectively implement the new health care reform law. The issue asses “why reform finally passed” and makes suggestions for how regulators can design the new health insurance exchanges, implement the insurance market reforms, expand the Medicaid program, and transform the delivery system. I’ll have more on the issue as I read through it, but this study from the RAND corporation struck me as significant.

The researchers took an analytical approach to determining if reformers got the best deal possible (given the political limitations) and concluded that the bill “provides health insurance coverage to the largest number of Americans while keeping federal costs as low as reasonably possible.” The only alternatives that would have covered more Americans at a lower cost to the federal government were all politically untenable “– substantially higher penalties for those who don’t comply with mandates, lower government subsidies and less-generous Medicaid expansion,” the researchers found.

The study used this graph to illustrate the trade-offs between the number of people who are newly insured on the horizontal axis and the annual cost to the government on the vertical axis. The red square in the middle represents the new law. The blue line represents a boundary that contains all of the combination of policy parameters and the four territories are defined by the researchers’ estimate of the number of newly insured people—the horizontal line—and the annual cost to the government—the vertical line:

– Policies in 1: would produce results that are better than the new law (more insured people at a lower cost). The individual-mandate penalty would have to be much higher. To increase the number of newly insured people by 10 percent, the penalty would have to increase 47%.

– Policies in 2: would produce unequivocally worse results (fewer insured at a higher cost)

– Policies in 3A and 3B: would produce more newly insured people, but at a higher government cost than under the new law.

– Policies in 4A and 4B: would produce fewer newly insured people at a lower government cost.



“The key drivers of where a policy scenario falls,” the author note, “are the size and design of the individual mandate penalty and the eligibility threshold for Medicaid” (other policy options like level of subsidies, rate bands, and the employer mandate are also significant, but not determinative). Higher penalties for failing to comply with the requirement to purchase coverage specifically targets the uninsured and would produce a higher insured rate, while the Medicaid expansion also targets lower income Americans without coverage. But as the Medicaid threshold increases, more people are encouraged to “switch from employer-sponsored insurance to Medicaid—a phenomenon known as crowd-out.” “High rates of crowd-out are undesirable because they increase the cost of coverage expansion to the government without making a comparable reduction in the number of uninsured people,” the report argues. “Therefore, thresholds at 100 percent and 133 percent of the federal poverty level are preferred to higher thresholds.”

All this makes some sense, but it’s not entirely clear — as the researchers themselves admit — that more efficient policies would result in better or more affordable coverage for patients. For instance, while reducing the generosity of the subsidy, lowering the Medicaid expansion threshold or increasing the mandate penalty would reduce government spending, it would make health care less affordable for the consumer or force him to purchase coverage he can’t afford with less government aid.

So did Democrats find the sweet spot for reform or could they have secured a more “efficient plan?” Territory 1 suggests that they could have done a bit more, but that wouldn’t’ have necessarily endeared them any closer to their constituents.