Obamacare was a failure

With Obamacare sure to be repealed by President-elect Donald Trump and a Republican Congress, it's worth considering what Obamacare's legacy will be: a demonstration of both the folly of health care reforms that preserve the profit motive or emulate free markets, as well as the urgent need for single payer.

Before we take each of Obamacare's fundamental failures in turn, it's worth pointing out that--not only would single payer have avoided all of the failures of Obamacare, but it would have cost far, far less. I've covered at length the mammoth inefficiencies of Obamacare, the American health care system generally, and any market-based system for social welfare provision, in comparison to slim and efficient universal social welfare systems like single payer.

Failure #1: Uninsurance
The biggest goal of health care reform was to reduce the United States' massive uninsurance rate, a problem without parallel in the developed world.

Yet Obamacare was never intended to be a universal health care system. The framers of Obamcare intended to leave a large portion of Americans without health insurance. I've written at length about how Obamacare was expected to--at best--only cut in half the uninsurance rate. There's no need to rehash these arguments here.

But as President Obama himself acknowledged in an article he wrote for the prestigious Journal of the American Medical Association (JAMA), Obamacare failed to even cut the uninsurance rate in half; it was reduced from 16% in 2010 when the law was passed to 9% in 2015:

Since the Affordable Care Act became law, the uninsured rate has declined by 43%, from 16.0% in 2010 to 9.1% in 2015, primarily because of the law’s reforms.

There's not really anything else to say here. Single payer would have achieved a 0% uninsurance rate. As Obama himself said in 2009, nearly a year before he signed Obamacare into law,

I want to cover everybody. Now, the truth is that unless you have what's called a single-payer system in which everybody is automatically covered, then you're probably not going to reach every single individual.

Obamacare failed on uninsurance, but, then again, it never really set out to succeed.

Failure #2: Underinsurance
In a critique of Obama's JAMA article, Adam Gaffney notes:

One issue Obama does briefly address is the frequently heard critique that the ACA has bolstered the rise of health-care cost-sharing: the payment due at point of use that includes things like copayments, deductibles, and coinsurance. High cost-sharing means the underinsured frequently avoid going to needed doctor’s appointments, having important tests run, or even visiting the emergency room. When they do, they are often left with punishing bills.

While admitting that deductibles have been rising, Obama asserts that the rate of increase has not changed. But he misses the point: the argument isn’t that the ACA created “underinsurance” — it’s that it didn’t reduce it, much less eliminate it, which should be our real goal.

Not much more to say here either. Single payer would have reduced the underinsurance rate to 0% instead of continuing the trend of shifting more and more of the cost of health care upon ordinary Americans.

Failure #3: Only government insurance was effective
Obamacare expanded insurance in two ways--a boring way, and a sexy, innovative way.

The boring way was simply allowing more people to enroll in Medicaid.

The sexy, innovative way was giving people who couldn't get health insurance through their employer (or through the government) a cash subsidy to purchase private health insurance. This caused significant buzz in 2009, because--in theory--once ordinary people were able to afford coverage for themselves and their family, they would be empowered to choose the private insurance plan that was right for them. In this way, Obamacare was supposed to harness the power of free markets to reduce health insurance costs. When people could purchase the best plans for the lowest cost, those insurers would be rewarded with more customers and their competitors would be forced to improve their products or else go out of business for want of customers.

This system of subsidies for beneficiaries and competition for private plans was called the Health Care Exchanges, which were most famously accessible online through a state Exchange (like NY State of Health, KYnect, etc), or the federal Exchanges (healthcare.gov) for residents of states that did not set up a state Exchange.

Which was better? Boring old Medicaid or the innovative Exchanges?

While considerable attention has been paid to the exchanges, they have so far contributed only modestly to the aggregate increase in coverage—accounting for 11 percent of the 8.38 million-person net increase in health insurance enrollment during the first three quarters of 2014. The other 89 percent of net enrollment growth during that period came from the expansion of Medicaid.



In sum, when it comes to increasing the number of individuals with health insurance coverage, Obamacare has proved to be almost entirely a simple expansion of Medicaid.

Into 2016, enrollment in the Exchanges greatly lagged behind expectations, and the Medicaid expansion still greatly exceeded expectations.

What's more, as Obamacare was passed, states were required to expand Medicaid such that everyone in their state up to 133% of the poverty line was eligible. But the Supreme Court ruled that this was unconstitutional; the Medicaid expansion, though paid almost entirely by the federal, and not state, funds, became optional. As of writing, 19 states have refused to expand Medicaid; had they actually expanded Medicaid as Obamacare was originally written, an even greater proportion of people newly ensured because of Obamacare would have obtained coverage through Medicaid--not the Exchanges.

I've covered at length the administrative waste and redundancy of the Exchanges and won't go over this again here. In sum, the Exchanges were extremely expensive and--clearly--in practice, did not actually help that many people gain coverage. The vast majority of people who gained health insurance coverage through Obamacare did so through the tried and proven method of expanding government health insurance coverage. The innovative solution proved a failure, enrolling a small fraction of those newly covered.

Failure #4: The Exchanges were no good for people
As described above, the Exchanges were supposed to empower people to choose an insurance plan that was right for them. Instead, the Exchanges demonstrated the folly of market-based reforms, as Benjamin Day explains:

The reality from study after study is that very few people are able to select the plan that’s best for them (including one that found only Columbia MBA students chose insurance plans better than randomly picking a plan out of a hat would). The vast majority choose the plan with the lowest premium in a tier, the plan that’s listed first on the website, or the plan they’re already enrolled in, even if it will leave them with higher total costs or poor access to care they’ll need.

Insurers have capitalized on patients’ inability to identify plans that are better for them by pushing lower upfront costs (premiums) but much higher uncertain costs and costs at the point of care (deductibles, co-pays, out-of-network care, uncovered benefits, etc). Fully 90 percent of enrollees in the exchanges have picked high-deductible plans, compared with 24 percent in employer-sponsored insurance. Limited provider networks are now used by about half of the exchange plans, which has led to the complete exclusion of some specialist care (14 percent of plans) and an explosion of “surprise medical bills” from out-of-network care that patients think is in-network when they receive it.

Many people used the Exchanges to choose plans that were clearly not in their best interest. It's almost as though most people aren't experts in the complicated world of health insurance benefits, or don't understand the concept of actuarial values.

Failure #5: The Exchanges were no good for insurers
Not only were the Exchanges terrible for people, insurers hate them, too. Not even American for-profit insurers can find a way to profit off the Exchanges (an impressive feat) and so they are leaving:

Forty percent of counties will have just one insurer selling in 2017 — although federal data suggests these are some of the more sparsely populated parts of the country, as only one in five Obamacare enrollees live in these places.

There are five states — Alaska, Alabama, Oklahoma, South Carolina, and Wyoming — that only have one insurer participating in their marketplace.

An additional two states are nearly in the same situation. Arizona is served by just one insurer in the entire state aside from one county (Pima County, where Tucson is), and in North Carolina there are five counties with two insurers selling — and 95 counties with only one option...

The prevalence of one-insurer counties leaves Obamacare in a somewhat precarious place. If any of those insurers decide to exit and stop selling, areas could be left with zero insurers — a situation that nearly happened in one Arizona county this year.

And if that does happen, the health care law doesn’t have a backup plan to fix it.

So much for competition.

Failure #6: Competition did not result in reduced prices
Obamacare was supposed to harness the power of free markets to reduce health insurance costs. When people could purchase the best plans for the lowest cost, those insurers would be rewarded with more customers and their competitors would be forced to improve or go out of business. Competition, then, was supposed to lower costs.

That did not happen:

The Obama administration released data Monday showing that premiums for midlevel plans will rise, on average, 22 percent between 2016 and 2017.

Yes, that is a huge increase. Last year premiums went up by 7.5 percent.

This should not have been a surprise; I've written at length on the well-studied phenomenon of competition making social welfare services (like health care) more expensive, not less, and don't need to rehash those arguments here.

Clearly, the promise of any sort of market-oriented (buyers and sellers competing for their own self interest) or for-profit oriented reform is doomed to failure.

Failure #7: Pay for performance
The second issue that spurred health care reform in 2009 and 2010 was cost. The United States spends twice as much per person on health care as any other country, yet provides average or worse than average care, and has a massive uninsured population. All health care reform proposals sought to address the two issues of uninsurance and the high cost of care.

As I discussed at length here and elsewhere, the way the rest of the world controls health care costs is by using a single payer system or by using strong government regulation to force a multi-payer system to behave like a single payer system (sometimes this is called all payer rate setting). But rather than using a tried and proven strategy to control costs, Obamacare tried to create an innovate solution when there was no need for innovation.

Obamacare allowed health care providers to form Accountable Care Organizations (ACOs) for their Medicare patients. The logic behind ACOs is that--under the current system--health care systems get paid for the quantity of care provided, not quality. In other words, a health care provider charges Medicare for every procedure, test, or office visit a patient utilizes, regardless of whether the procedure, test, or office visit was done competently, or was even necessary.

Readmission rates are the best illustration of this idea: imagine a person who becomes very sick and must go to the hospital. Let's say the hospital does a very good job of caring for this person, and she gets better in a three days and never needs to return. In this scenario, Medicare will pay hospital for the three days of hospital services it provided.

But, if the hospital cares for this person so incompetently that their hospital stay lasts for a week instead of a few days, and the person never actually gets better and has to return to the hospital for another week shortly after being discharged, Medicaid will pay for two weeks of hospital services. In other words, a hospital that does a terrible job of caring for patients makes far more money than a hospital that provides competent care. Perversely, hospitals have an incentive to provide low-quality care since they are paid for quantity, not quality.

To solve this problem, Obamacare allowed health care providers to voluntarily group themselves into ACOs. ACOs would be reimbursed by Medicare for the quality of care provided, not the quantity. It works like this: ACOs receive a set dollar amount for each Medicare patient, and ACOs that exceed certain criteria--for example, low readmission rates--receive bonuses, while the hospitals that fail to meet those criteria are penalized. This was supposed to revolutionize care by realigning incentives to quality, rather than quantity. Most importantly, it would lower health care costs.

There were two major problems with ACOs.

Failure #7a: ACOs punish hospitals for having poor patients
ACOs have been up and running, doling out bonuses for hitting benchmarks and meting out penalties for missing them. But there is a clear pattern to which hospitals receive bonuses and which receive penalties. Karen E. Joynt and Ashish K. Jha show that much difference in ACO readmission rates can be explained by a hospital's poverty rate. They cite research showing that a Medicare patient's poverty--not the quality of care provided--is a better predictor of whether or not that patient will need to return to the hospital. Joynt and Jha show that the poverty rate of a hospital's patient population is strongly correlated to both incidence of penalties as well as size of penalty. In this way, ACOs don't reward hospitals for providing good care; they penalize hospitals for serving impoverished patients.

In other words, the ACO pay-for-performance criteria aren't actually measuring good provision of medical care, but whether or not a hospital sees poor patients.

Later research (summarized here by Sarah Kliff) supported this conclusion:

Barnett, Hsu, and McWilliams also looked at what would happen if Medicare did control for all 29 factors they examined in their study. And they saw something startling: The difference in readmission rates between top and bottom performers was cut nearly in half (48 percent). 

In other words, these researchers argue that about half the difference between hospitals with really high and low readmission rates has nothing to do with the type of health care they provide. It has everything to do with those hospitals seeing sicker, more complex, and more vulnerable patients.

Jha (a coauthor of the first ACO study above) notes of readmission rates that Obamacare uses as a performance measure (h/t):

So if one measure of quality is external validity – being at least somewhat correlated with the gold standard (mortality rates) — how does the readmission measure do? In a paper published recently in JAMA, we see that readmission rates don’t do so well at all. Readmission rates are un-correlated with mortality rates. In fact, for one of the three conditions, the readmission rate seems to go the wrong way: the best hospitals for heart failure (i.e. those with the lowest mortality rates) have readmission rates that are actually higher. Not perfect. Readmissions seem to have little external validity as a quality measure. Readmissions are, however, correlated with two things: how sick your patients are, and how poor your patients are.

Failure #7b: ACOs don't save money
So far, ACOs have not saved Medicare any money(!):

Last year, Medicare paid $60 billion to 353 ACOs to take care of nearly 6 million Medicare beneficiaries. Some ACOs made significant strides in reducing use of hospitals and other costly resources. But patients at 45 percent of groups cost Medicare more than the government had projected based on their patients’ historic costs, records show. After paying bonuses to the strong performers, the ACO program resulted in a net loss of nearly $3 million to the Medicare trust fund, government records show.

“It’s turning out to be tougher to transform care and realign delivery than people had expected,” said Eric Cragun, an analyst with The Advisory Board Company, a consulting group based in Washington.

Conclusion
Obamacare's defenders have always had a very clear mantra, though that mantra has changed over time. In the heady days of health care reform, those first few months of the Obama administration, many argued against single payer on the basis that market-based reforms could outperform single payer. These days, with the failures of Obamacare proven rather than projected, few bother to argue that Obamacare could be better than--or even just as good as--single payer.* Rather, they forget about all of Obamacare's failed innovations and resign themselves to pointing out that reducing uninsurance was a good thing: even if Obamacare fell short of what single payer would have done, it was better than nothing.**

Of course reducing the uninsurance rate was a good thing. But as we saw above, most of that was due to the expansion of Medicaid. In this way, Obamacare's only partial success was not really due to Obamacare at all, but due to increased funding to an existing government health insurance program. Thus, Obamacare's true legacy will be its demonstration that government health insurance works very well and market-based solutions don't. We can thank Obamacare for a further demonstration of how desperately we need single payer.



*Not all Democrats admit that single payer is better, of course--especially not ones hoping to discredit an insurgent primary challenger that has been a long advocate single payer. Throughout her campaign for president, Hillary Clinton was an opponent of single payer, sometimes nebulously (and misleadingly) claiming that many people would be worse off under single payer, and other times adopting right-wing distortions about single payer (highlighting the costs and ignoring the benefits).

**Such an inspiring message.