New Jersey Acts to Save the Affordable Care Act

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In response to the Trump administration’s decision to ask a federal appeals court to invalidate the Affordable Care Act (ACA) Governor Phil Murphy and Democratic legislative leaders have rushed to “save the ACA” with the introduction of a dozen bills.

The action follows the governor’s announcement earlier in the year that New Jersey would take over the state’s health insurance marketplace from the federal government.

At least half of the bills create the infrastructure, funding, and regulatory structure for a state-based system that would enable New Jersey officials to create, market, and sell health insurance policies to low-income individuals and small businesses with fewer than 50 employees.

Other measures add popular features provided by the ACA, like coverage for children up to age 26 on their parent’s plan, coverage for essential benefits as defined by the ACA, which include labor and delivery, mental health, and other services and protections for the millions of residents with pre-existing conditions, protects coverage for essential benefits as defined by the ACA, which include labor and delivery, mental health, and other services.

And earlier in the year, most New Jersey residents are required to have health insurance containing minimum essential health coverage or be penalized with a tax.

Polls show that the ACA’s coverages are popular. But preserving the ACA’s status quo seems innocuous in the face of the hard fact that Americans borrowed an estimated $88 billion over the last year to pay for health care, according to a survey released by Gallup and the nonprofit West Health.

According to the survey, one in four Americans have skipped treatment because of the cost, and that nearly half fear bankruptcy in the event of a health emergency.

Respondents from across the political spectrum also reported pessimism about elected representatives' abilities to reduce health care costs. About 70 percent of respondents said they had no confidence in their elected officials to bring prices down. And 77 percent said they were concerned that rising health care costs would damage the American economy.

The new state initiatives will not change this narrative, since preserving the status quo means preserving healthcare costs that remain unaffordable for employers and employees alike.

The core features of the new initiatives would allow the state Department of Banking and Insurance (Department) to create a state-based exchange and charge a fee on each plan equal to the 3.5 percent assessed now under the federal system. The plan would change how insurance companies price plans, outlawing gender as a factor and requiring the most expensive plan to be no more than three times the cost of the cheapest.

Only California, Connecticut and New York have opted to run their own exchanges.

An exchange is a mechanism for organizing the health insurance marketplace to help consumers and small businesses shop for coverage in a way that permits easy comparison of available plan options based on price, benefits and services, and quality. In theory, by pooling people together, reducing transaction costs, and increasing transparency, exchanges create more efficient and competitive markets for individuals and small employers.

In practice, exchanges do not perform well. Since the ACA open enrollment in 2013, there has been scant evidence in the ability of health care purchasing pools to reduce premiums. In one of the few studies available, researchers at the Rand Institute concluded, “pooling does not seem to have enhanced the accessibility or affordability of insurance to employers.”

We have been there before. Prior to the ACA, New Jersey enacted a substantial health reform to help small owners and employees get covered. As most full-time workers and their families received health care coverage from a small employer plan, state program covered a mixed and sufficient pool of individuals to spread the health risk among small groups to avoid adverse selection and mitigate against dramatic price increases.  The proportion of premiums paid by employers remained relatively steady for all participants until about 2005. For the next five years, premiums soared for small employers, placing New Jersey in the dubious position of having the second highest premiums in the country. The small group market came to resemble a classic “death spiral” leaving the state program with increasingly higher claims and a shrinking number of small employers able to participate in the program.

By 2012, New Jersey still had the second-highest premiums in the country but, disastrously, the second-highest uninsured rate in the country, which put enormous stress on the entire healthcare ecosystem in the state, not to mention a degradation of the health of the general working population.

Thus, when the ACA rolled out that year, the state had the dubious distinction of having achieved the worst of all possible outcomes - high prices and a high percentage of uninsured. In short, the ACA offered a needed palliative to a health care system on the brink of collapse.

But fewer small employers offer coverage to their employees then they did before the ACA - from about 800,000 covered lives in the small group market to about 330,000 at present.

The Kaiser Family Foundation, which provides the yearly estimates on the change in employer premiums through its health benefits surveys, hasn’t analyzed how much the ACA may have affected employer-sponsored premiums but is clear that workers are sharing more of the cost.

There is simply no evidence that a healthcare exchange, whether state or federal, creates the mechanism for controlling prices. In contrast, there is plenty of evidence that employers continue to shift rising healthcare costs onto to workers and their families.

The average employer-sponsored plan requires individuals to pay more than $1,000 out of pocket before coverage kicks in for most services. The most popular plans on the ACA exchanges require consumers to pay several times as much.

Many workers simply do not have the savings to pay their deductibles. In short, New Jersey’s move to “save the ACA”, at least for the present, does nothing of substance to make healthcare affordable, thus masking the underlying problem of risk.