Abstract

The Affordable Care Act (ACA) has taken numerous blows, both from the courts and from opponents seeking to undermine it. Yet, due to its policy design and the political forces the ACA has unleashed, the law has shown remarkable resilience. While there remain ongoing efforts to undo the ACA, the smart money has to be on its continued existence.

Following the 2016 election, I was quoted in the Washington Post as saying the Affordable Care Act (ACA) “as we know it would seem to be toast” (Goldstein 2016). Though the ACA has indeed been altered by the Trump administration and Congress since that election, this quote turned out to be a bit of an overstatement. The ACA is certainly still alive and has shown remarkable resilience since its enactment, reflecting its policy design, changes made legislatively and by the courts, and the politics surrounding it.

The 2012 Supreme Court Decision

The first hit the ACA took was the 2012 Supreme Court decision in NFIB et al v. Sebelius. In that decision, the court upheld the constitutionality of the law's individual mandate but ruled that the expansion of Medicaid to all individuals with incomes up to 138% of the federal poverty level would have to be voluntary for states (US Supreme Court 2012). This decision significantly changed the course of the ACA. Currently, 14 states have not adopted the Medicaid expansion—even though the federal government will pay 90% of the cost—leaving many people below poverty in those states with no affordable health coverage (KFF 2019d).

The ACA has certainly been less effective at increasing health insurance coverage without all states expanding Medicaid. However, many blue states as well as red states have chosen to expand Medicaid, often with federal waivers such as work requirements to put a more conservative imprint on expansion. It is hard to say for sure what effect the Court's decision has had on the politics of the ACA. On the one hand, if all states had been required to expand Medicaid, it might have built an even bigger and stronger constituency for the law. On the other hand, it is quite possible that requiring recalcitrant states to expand would have generated an even stronger backlash against the ACA and made it less politically sustainable. Giving states a choice over whether to expand Medicaid means that those that make that choice may in the end be more invested in the law. This played out during the 2017 effort to repeal and replace the ACA, including rolling back the Medicaid expansion, when a number of Republican governors who had expanded Medicaid weighed in against repeal.

Large Premium Increases and Insurer Exits

In the first few years of the ACA's full implementation starting in 2014, premiums in the Health Insurance Marketplace were generally lower than expected (Levitt, Cox, and Claxton 2016). However, it turned out that premiums were too low, as insurers misestimated costs, particularly related to the relative shares of enrollees with and without preexisting conditions, and many insurers lost money in the Marketplace as a result (Levitt, Cox, and Claxton 2017). This produced a significant market adjustment, as insurers raised premiums substantially and many exited the ACA Marketplace and the individual market generally going into 2017. The average benchmark premium increased by 20% nationally for 2017 (KFF 2019b), and the share of Marketplace enrollees with a choice of only one insurer increased from 2% in 2016 to 21% in 2017 (Fehr, Kamal, and Cox 2019).

The ACA seemed on the ropes, but the structure of the law's premium subsidies has promoted stability in the market, making it resilient to premium increases. The framers of the ACA structured the subsidies, which are available to Marketplace enrollees with incomes from 100% to 400% of the federal poverty level, so that they could say that no one would have to pay a premium of more than 9.5% of their income (and many would pay less). The subsidies are calculated based on a benchmark premium in each geographic area: the second lowest-cost plan offered at the “silver” level of coverage. Enrollees are expected to pay a defined percentage of their income to enroll in that benchmark plan (ranging from 2% to 9.5% in 2014, with small changes over time based on increases in private insurance premiums relative to income), and a federal income tax credit covers the rest.

The result is that Marketplace enrollees eligible for subsidies—85% of all enrollees (KFF 2019c)—are insulated from premium increases. No matter how much the benchmark premium increases, federal premium subsidies rise to cover the difference, leaving enrollees paying approximately the same percentage of their income. (From a fiscal perspective, of course, federal spending for those subsidies increases.)

This subsidy structure has proven quite powerful. It has helped keep Marketplace enrollment stable, even in the face of large premium increases, protecting the market from a premium “death spiral” that would result if too many healthy people dropped out. It has also protected the Marketplace from the risk of so-called bare counties with no insurers participating at all. There is a strong incentive for an insurer to enter a market with no other plans, knowing that even with very high premiums, subsidized enrollees will not have to pay them.

The Repeal-and-Replace Debate

With the election of Donald Trump in 2016 and Republicans in charge of both the House and the Senate, “repeal and replace” of the ACA became a top priority going into 2017. It was during this period that the ACA exhibited its political resilience.

The House, after first abandoning the effort and then returning to it later, passed a version of repeal and replace that quickly proved quite controversial. The Congressional Budget Office (CBO) projected that the bill, which repealed the ACA's Medicaid expansion and substantially altered the premium subsidies, would result in 23 million more people uninsured by 2026 (CBO 2017a). Key to the bill's passage was a compromise worked out between moderate and conservative Republicans that would have allowed states to waive the ACA's benefit requirements and under certain circumstances community rating (which prohibits insurers from charging sicker people more than those who are healthy). President Trump, who celebrated the House bill's passage in a Rose Garden event, later called the bill “mean” (Kenny 2017). The Senate was ultimately unable to pass a bill and the repeal and replace effort died.

Many factors no doubt contributed to the failure of Republicans in Congress and President Trump to repeal and replace the ACA, but two elements of the law emerged as crucial to its staying power and decisive to moderate Republican swing votes in the Senate: the expansion of Medicaid and protections for people with preexisting conditions. Health industry groups and governors (including Republican governors) rallied to support the Medicaid expansion and oppose provisions that would have capped federal funding for the Medicaid program more generally and reduced spending substantially over time. People with preexisting conditions and their family members showed up at town hall meetings. Forty-five percent of nonelderly families have at least one adult with a preexisting condition that would have led to a decline of individual health insurance before the ACA (Claxton et al. 2019), and they proved to be a powerful and sympathetic voice in the debate.

Indeed, it was during the repeal-and-replace debate that the political tide for the ACA began to turn, with more Americans viewing it favorably than unfavorably (KFF 2019a). Republican efforts to repeal and replace the ACA, and in particular weaken protections for people with preexisting conditions, played a big role in the 2018 midterm election, helping Democrats retake the majority in the House.

Individual Mandate Repeal

While Republicans were unsuccessful at repealing the ACA itself, they did at the end of 2017 repeal the most unpopular part of the law, the so-called individual mandate. (Technically, the mandate to have health insurance or pay a penalty still exists, but the penalty is now zero.)

The ACA guaranteed access to coverage for people with preexisting conditions but needed to ensure that healthy people would enroll as well to avoid a premium death spiral. The law included a “carrot” (premium subsidies) as well as a “stick” (the individual mandate). CBO (2017b) predicted that repeal of the individual mandate penalty would push individual market premiums up by 10% and result in a significant increase in the number of people uninsured (4 million in 2019, rising to 13 million by 2027). (CBO later indicated that it believed the individual mandate was not as important as originally expected and repealing it would have more modest effects [Antos and Capretta 2018].)

Repeal of the individual mandate penalty did, in fact, have an upward effect on individual insurance market premiums (Kamal et al. 2018), but at least so far the effects on the number of people uninsured have not been as dire as expected. It may be that the ACA's “carrot” was more powerful than its “stick.” Interestingly, repeal of the individual mandate may give the ACA even greater political resilience, jettisoning its most unpopular and controversial provision, as long as the Marketplace continues to function in a sustainable way.

Administrative Actions to Undermine the ACA

President Trump has taken a number of administrative actions to undermine the ACA, including expanding short-term plans that do not have to follow any of the ACA's rules and as a result offer much lower premiums to people without preexisting conditions (Levitt et al. 2018), as well as dramatically reducing outreach and funding for enrollment navigators (Pollitz, Tolbert, and Diaz 2019). A number of states have blunted these efforts by restricting short-term plans and maintaining funding for outreach in the exchanges they operate themselves (and additional states are moving to run their own exchanges).

Perhaps the president's highest-profile effort to undermine the health law was terminating federal payments to health insurers for cost-sharing reduction (CSR) subsidies. In addition to means-tested premium subsidies, the ACA required Marketplace insurers to offer reduced patient cost sharing for lower-income enrollees in silver-level plans. The federal government reimbursed insurers for the cost of providing this reduced cost sharing. The Republican majority in the House had sued the Obama administration, arguing that payments for the CSR subsidies were not properly authorized. President Trump threatened to cut off the CSR payments to insurers, saying it would cause the ACA to “implode” (Pear and Kaplan 2017). After numerous such threats, the president ultimately terminated the payments in October 2017.

However, rather than causing the ACA Marketplace to collapse, the cutoff of the cost-sharing subsidy payments allowed insurers to hold enrollees harmless, and even in some cases make them better off, through what became known as “silver loading.” Insurers compensated for the loss of the federal cost-sharing subsidy payments by increasing silver premiums, based on the fact that the reduced cost sharing for lower-income enrollees is available only in silver plans. The premium for the lowest-cost silver plan increased by an average of 32% nationwide in 2018, compared to a 17% increase for less generous bronze plans and 18% for more generous gold plans (Semanskee, Claxton, and Levitt 2018).

Because the ACA's premium subsidies are tied to silver plans, those subsidies increased dramatically. Subsidized enrollees covered by silver plans were held harmless, and those choosing to sign up for bronze or gold plans saw their premiums net of subsidies fall. This effort to undermine the ACA backfired because of the structure of the law's premium subsidies. Enrollment among subsidized individuals has held steady at over 8 million people (Fehr, Cox, and Levitt 2019). Insurers are also returning to the ACA Marketplace and in many cases lowering premiums (Fehr, Kamal, and Cox 2019a), having increased profits substantially with recent premium increases (Fehr, Kamal, and Cox 2019b). Nationally, the benchmark premium decreased by an average of 3.5% in 2020.

Continuing Challenges

While the ACA has withstood multiple blows and remained standing, it is not working as well as its framers originally hoped and faces continuing challenges. With 14 states still not expanding Medicaid, 2.5 million uninsured people with incomes below poverty are not eligible for Medicaid but also not eligible for ACA premium subsidies (Garfield, Orgera, and Damico 2019). And, while people eligible for subsidies have been shielded from premium increases—some a result of the structure of the ACA, and others a result of actions taken by Congress and the Trump administration—middle-class people not eligible for subsidies have taken the full brunt of those increases. Individual market enrollment among those not receiving subsidies fell precipitously from 6.4 million in 2015 to 3.9 million in 2018 (Fehr, Cox, and Levitt 2019).

President Trump has continued to vow to repeal and replace the ACA after the 2020 election if he is reelected and Republicans control Congress (Cunningham 2019). And an ongoing lawsuit, supported by the Trump administration, threatens to overturn the ACA in its entirety, including protections for people with preexisting conditions and the expansion of Medicaid. However, with the knocks the law has taken and the resilience it has shown, the smart money would have to be on its continued existence.

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