Testifying Before The Senate Finance Committee

Theo Merkel testified before the Senate Finance Committee yesterday in a hearing on health care costs and the health policy provisions of the Inflation Reduction Act (IRA). In today’s newsletter, I highlight key components of his testimony, as well as recent Paragon work on the quality of Affordable Care Act (ACA) plans and problems with the ACA’s Medicaid expansion.

And a quick note: I will be hosting Dr. Marty Makary for a discussion around his important new book Blind Spots: When Medicine Gets It Wrong, and What It Means for Our Health on October 1st at 11:30 in the Capitol Visitor Center, which you can register for here.

Merkel’s Testimony

Theo’s written testimony is a must read take on the IRA provisions that substantially increased ACA subsidies to health insurers and that substantially increased Medicare Part D premiums. First, from what he told the Committee on the expanded ACA subsidies:

As of 2021, the nongroup insurance market had around half the number of enrollees expected when the ACA was passed, at a much higher cost than the authors had intended.

Implicitly acknowledging these shortcomings, the American Rescue Plan Act included a supposedly temporary measure to improve the enrollment side of this equation – by simply increasing the taxpayer subsidies that go to insurance companies.

The IRA doubled down on this policy while hiding the true cost – again making it temporary. Over 10 years, CBO projects this change would increase federal ACA spending by $415 billion.

More disturbing than the enormous cost, these changes simply paper over the poor quality of the plans themselves.
 
A new paper by Paragon Health Institute assessed the change in value of ACA plans. Looking at three key metrics – the broadness of networks, the associated cost-sharing, and premiums – all have become steadily worse over time.

New enrollment has been driven by people that – under the IRA enhancements – now pay $0 in premium for a standard plan. Over half of enrollees in some states fall into this category. Many of these previously did not perceive value enrolling in a typical $500 per month plan even if  the federal government picks up $470 of the cost due to already generous subsidies.

Instead of trying to increase the underlying value, IRA just gives away the same plans completely paid for by the taxpayer. In fact, almost no one is willing to pay the full cost of an ACA plan these days without a government subsidy.

When the government pays plans instead of people, insurers have less incentive to design plans that potential enrollees find valuable. Government regulators attempt to “mandate” quality, but the result is over time the private ACA market has looked more and more like Medicaid managed care.

The large increase in fully subsidized plans, combined with embedded financial rewards for misestimating income – because recapture of erroneous subsidies is limited by statute – and a relaxation of eligibility verification, have all helped increase enrollment.

But only through tolerance of substantial fraud.

My Paragon colleagues have estimated as many as 5 million current enrollees, for whom taxpayers spent $20 billion in subsidies, could be under, or over-estimating their income to obtain higher assistance than the law permits.

Theo also discussed the IRA’s drug pricing provisions and the Biden-Harris administration bailout to insurers to keep Part D premiums—which the IRA caused to skyrocket—from increasing until after the election:

So far, the IRA drug provisions are an example of unintended consequences. 80 percent of the discounts announced last month had previously been achieved by private plans negotiating without price controls.

And before any potential savings kick in they are already being spent by the administration to bail out another flawed provision of the law!

The IRA rewrote a previously bipartisan idea – capping out-of-pocket expenditures in Part D – to do so in a way that guaranteed a large increase in premiums. The administration has responded with a so-called “demonstration” project that simply pays Part D plans $5 billion to keep premiums lower.

In his written testimony, Theo included a figure showing the discount without the IRA’s price controls with the “negotiated” price, which is this week’s Paragon Pic.

Deteriorating ACA Plan Quality

In a National Review piece last week, I wrote about Paragon’s new research on the deteriorating quality of ACA plans as well as a KFF analysis that found narrow network plans are permeating the ACA market. According to KFF’s analysis, on average, ACA exchange enrollees’ plans covered only 40 percent of the doctors near them. I wrote about why this is a major problem:

If plan members cannot find doctors willing to accept their coverage, how useful is that coverage? Since lower-quality doctors are more likely to participate in Medicaid, and there is a high correlation between Medicaid and ACA networks, it is likely that the doctors that participate in ACA plans are of lower than average quality. While people with ACA plans have financial protection if they go to in-network providers, that financial protection is less valuable when so few providers are in-network. If people go to out-of-network providers, they will typically be responsible for much higher bills, and their expenses will not count toward plan deductibles or out-of-pocket maximums. Therefore, the quality of the health care they have access to is low, and the financial protection they receive is diminished.

In my piece, I also mentioned solutions to improve the value of ACA plans – fixing its broken risk adjustment program, appropriating the cost-sharing reduction program, giving low-income enrollees an option to take a portion of their government subsidy as a health savings account deposit rather than a direct payment from the U.S. treasury to the insurer, and building on the Trump administration’s individual coverage health reimbursement arrangement rule.

Reminder of Medicaid Expansion Problems

Finally, Gary Alexander wrote a National Review piece on the problems with states’ acceptance of Medicaid expansion under the ACA. He cited numerous studies in illustrating his recommendation that states should resist Medicaid expansion, including a Paragon study on how expansion discriminates against the most vulnerable and has led to a reduction in their access to health care; a Paragon analysis on how Medicaid’s true improper payment rate ranges between 15 and 25 percent, resulting in improper payments in excess of $100 billion annually; and an economic study showing that Medicaid recipients often value the program much less than the government’s cost to provide the coverage.

All the best,

Brian Blase
President
Paragon Health Institute