The extent to which the Affordable Care Act succeeds in making affordable health insurance more widely available depends to a great degree on the success of the state-based health insurance exchanges that are currently being developed. A piece by Ewout van Ginneken and Katherine Schwartz in the latest New England Journal of Medicine offers some advice and cautions about the exchanges, based on the experiences of the Netherlands and Switzerland. Both those countries rely extensively on private insurers plus substantial government involvement.
Risk adjustment is one key to exchanges’ success. To avoid the problem of cherry-picking, in which insurers try to hold down their costs by offering policies to only the healthiest applicants, risk adjustment redistributes premium dollars in an attempt to ensure that more of the money goes to insurers with the highest-risk patients. Van Ginneken and Schwartz report that effective risk-adjustment systems are feasible but require thought and good data:
The Dutch and Swiss reforms provide a second cautionary lesson for state exchanges. States at the forefront of creating exchanges are just now considering risk-adjustment mechanisms to reduce insurers’ incentives to attract healthier enrollees and avoid sick people. The Dutch and Swiss experience indicates how critical a good risk-adjustment formula is. Until January, the Swiss risk-adjustment system had been relatively crude and ineffective: there were large premium differences both within and among cantons. Switzerland has just added prior hospitalization as an adjustment factor, and adjustments for patients’ medical conditions will follow. The Dutch have a more sophisticated formula based on 20 years’ experience, which thus far has discouraged insurers from engaging in risk selection.
Both countries also struggled initially with increases in the proportions of uninsured people, due to problems with enforcing the requirement that everyone must obtain coverage, and additional government measures were required. The U.S. insurance system is more complex, because the exchanges will function alongside employer-sponsored coverage, plans purchased outside the exchanges, and public coverage (Medicaid, the Children’s Health Insurance Program, and Medicare). This intricacy makes the challenges of implementing risk adjustment, assessing eligibility, enforcing the mandate, and administering subsidies more difficult and complex. However, the Dutch experience, especially, shows that with good data, solutions to these problems are technically feasible.
The piece also reminds us that exchanges alone are not the solution to US healthcare problems:
A sobering message is inescapable: although exchanges will help greatly to cover previously uninsured people, cost containment and quality improvements are not outcomes to be expected from the exchanges alone. The experience of Switzerland and the Netherlands suggests that reforms involving the provision and purchasing of health care are needed along with health insurance exchanges. Massachusetts, which established the first exchange in the United States, recognizes this lesson. Continuing in this direction, just 3 weeks ago (on July 31), the Massachusetts legislature passed a bill that establishes a commission to monitor the growth in health care costs, creating incentives for hospitals and other providers to reduce costs, and encourages the creation of accountable care organizations.
Creating exchanges is just the beginning of reforms — involving all three markets (health insurance, health care purchasing, and health care provision) — that are needed to achieve greater efficiency and quality in health care. As the Swiss and Dutch experience demonstrates, these reforms take time and require midcourse corrections, and we should expect them to be a work in progress for many years to come, with uncertain outcomes.
The Affordable Care Act’s main achievement has always been its plan for slashing our country’s shameful rates of uninsurance and underinsurance. (As I’ve said before, the ACA is not the ideal solution to these problems, but it’s the best we could get.) It does contain several provisions that could start us on a path toward paying for healthcare quality rather than quantity, but healthcare cost containment is an issue we’ll have to keep working on. Setting up a system that rewards insurers for health-improving innovations rather than risk-shifting innovations can help, but it will require strong and effective health insurance exchanges.