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JAMA Forum Archive, 2012-2019: Health policy commentary from leaders in the field
JAMA Forum

Lessons From the ACA Crash

The Affordable Care Act (ACA) had a rough October and November. First, the federal health insurance exchange website (http://www.healthcare.gov) did not work as intended, making it virtually impossible for people who wanted coverage to sign up. Second, a number of people received insurance cancellation notices that they were not expecting. Insurance cancellation is common this time of year, but these notices were particularly troubling because people were told to look for replacements on the (nonfunctioning) exchange website.

As outrage over these failures intensified, President Obama relaxed the ACA rules for this coming year. He gave health insurers the right to continue offering their current policies to people who were enrolled in 2013, even if their plans did not meet the ACA’s requirements. It is unclear how extensive this opt-out will be. State insurance commissioners have to approve it, and not all have. In addition, it’s up to insurers to offer the policies, and not all want to. But some will take it up.

David Cutler, PhD

The failure of the ACA rollout has many ramifications, its effect on national politics being an obvious one. But there are substantive implications well beyond politics. Two are particularly central to physicians and their patients: the future of the insurance exchanges and the lessons for running complex enterprises.

The Future of the Insurance Exchanges

The immediate danger from the rollout fiasco is to the health insurance exchanges. The exchanges are central to the ACA: they give greater choice of policies to people without employer-provided insurance than were previously available; their bulk purchasing power results in lower prices; and they enforce rules such as those that prohibit insurers from dumping sick people from plans or charging them more than they charge healthy individuals. All of these are necessary elements of a well-functioning insurance market.How many large employers allow insurers to pick and choose who they want to cover? How many permit premiums to vary by preexisting condition? None do, so the nongroup market under the ACA cannot do so either.

The potential problem with the president allowing insurers to opt out of the ACA rules is that it creates a 2-tiered system for individuals getting insurance outside of an employer’s plan. One tier includes young and healthy individuals who can buy outside the exchanges; the second includes people who are older and those with preexisting conditions, for whom the exchange is the only option. Such an outcome could be very damaging.

One immediate concern about the 2-tiered option is that insurers who have chosen to enter the exchanges will lose money. For policies that are offered in the exchanges and are priced to the average mix of enrollees, a less healthy distribution will lead to losses for the insurers. Big insurers will survive this; what they lose in sick people on the exchange, they will make up in sales to healthy people insured outside of the exchange. But small insurers, many of which were created by the ACA and sell only in the exchanges, are in more trouble. These plans are often the low bidders in the exchanges and cannot afford to get a disproportionate share of people who are likely to require expensive medical care.

The ACA has provisions to protect plans from losses in the first 3 years, but it will be incumbent on the administration to watch out for these vulnerable plans. Having some of the most innovative plans fail in the first year would not be a good way to start reform.

There are concerns over time as well. It is okay, if not optimal, to insure healthy and sick people separately for 1 year. But a prolonged separation would be damaging. If the healthy are not in the exchange, the premiums in the exchanges will rise, further discouraging healthy people from joining them. This will lead to higher administrative costs as insurers screen sick and healthy individuals, higher costs for the less fortunate who unexpectedly become sick, and a continuing need for people to change insurance policies when they develop an illness.

The administration needs to develop a plan to merge the exchange and nonexchange populations in short order. In this case, “in short order” means a deadline of late spring 2014, when insurers will set premiums for 2015. If insurers are not convinced that the exchange and off-exchange markets will be merged by then, they will price the exchange plans high for 2015 and virtually require a continuation of the opt-out policy. So mark down a merge within 6 months on the punch list of tasks to accomplish.

Pay Attention to Management

The second lesson from the rollout debacle is about the importance of good management. The federal government is trying to do something new with the exchanges: run a website for private insurance. The Centers for Medicare & Medicaid Services (CMS) has some experience with private insurance but not a good deal; it interacts with them only insofar as they participate in Medicare. Any time an organization wants to do something new, there are management challenges. It is clear that the administration was not prepared for them.

Many businesses have to reinvent themselves over time. Most US business has been remade in the past 3 decades, and reinvention is coming to health care as well. In medicine, the push is to manage population health and provide care more efficiently. Both of these tasks are somewhat familiar to clinicians (as private insurance is to CMS), but currently, neither is done well.

Experience from other industries that have undergone transformation shows that there are 3 ingredients to successful reform. First, businesses must use information technology (IT) well. They need to know who is doing what, how good the outcomes are, and where they need to improve. All of the most admired health care systems—the Mayo Clinic, the Cleveland Clinic, Geisinger Health System, Virginia Mason Medical Center, Kaiser Permanente, and so on—have first-rate IT systems. Outside health care, Walmart became the largest company in the world in large part because of its good IT system. Second, businesses need the right reward structure. Good companies promote those who do well and let go or counsel those who do not. Third, successful businesses have a good management structure. People in charge are familiar with the problems and able to focus effort, and operational employees are empowered to identify and solve problems.

The Obama Administration failed in this last task. The team lacked a “CEO” who could focus the efforts, and line employees were stifled or ignored. As a result, deadlines were missed, minority opinions were ignored, and possible problems were not considered. The universal opposition of Republicans to the ACA made the administration’s task more difficult, but it does not excuse the failure.

Fixing the administration’s implementation efforts will require more than just fixing the website. It will mean changing the entire organization of the government’s ACA efforts. Undoubtedly, some people need to leave or move on to other positions. More important is who needs to come on board, and that’s people with management skills and experience in startup businesses. There is no successful organization without good senior leadership.

In this sense, the ACA failure is indicative of what is coming in health care overall. Change needs to occur; the question is who will do it well. I hope the government has learned its lesson. Let’s hope the government failure provides a lesson to physicians as well.

About the author: David M. Cutler, PhD, is the Otto Eckstein Professor of Applied Economics in the Department of Economics and Kennedy School of Government at Harvard University and a member of the Institute of Medicine. He served on the Council of Economic Advisers and the National Economic Council during the Clinton Administration and was senior health care advisor to Barack Obama’s presidential campaign.