The Affordable Care Act has helped decrease the number of uninsured Americans, with about 20 million more people gaining health coverage since passage of the law in 2010, according to the U.S. Department of Health & Human Services. But with news of sharply increasing premiums there is debate over how the act should be modified going forward and what a new administration should do to help decrease health care costs for Americans.

Stanford experts say the next administration could take several steps to improve the Affordable Care Act’s coverage and financial sustainability. (Image credit: LUHUANFENG / Getty Images)

Three Stanford experts spoke with Stanford Report to offer their insights on the ACA.

M. Kate Bundorf is an associate professor of health research and policy at Stanford’s School of Medicine. Her research is focused on health policy and the economics of health care systems.

Lanhee J. Chen is director of domestic policy studies and a lecturer at Stanford’s Public Policy Program and is the David and Diane Steffy Research Fellow at Stanford’s Hoover Institution. Chen served as the policy director on the Romney-Ryan 2012 campaign and was a senior appointee at the U.S. Department of Health & Human Services during the George W. Bush administration.

Mark Duggan is the Trione Director of the Stanford Institute for Economic Policy Research and the Wayne and Jodi Cooperman Professor of Economics. His research focuses on the health care sector and on the effects of government expenditure programs. He served as a senior economist in President Barack Obama’s Council of Economic Advisers from 2009 to 2010.

What has worked with the ACA and what hasn’t?

Duggan: A primary goal of ACA was to slow the growth rate of health care costs, and I believe the act has made progress on that front. From 2000 to 2005 to 2010, the share of U.S. gross domestic product (GDP) going to health care increased from 13.3 percent to 15.5 percent to 17.3 percent. But during the next four years, the spending was virtually unchanged, growing from 17.3 percent to just 17.5 percent. This is all the more surprising when one considers that during that period the oldest baby boomers have been entering the Medicare program.

Bundorf: The ACA dramatically increased health insurance coverage – that worked. There were about 13 million fewer uninsured people in 2015 than there were in 2013. The ACA also increased government spending on health insurance because most of the new enrollees received subsidized coverage, either through exchanges or Medicaid.

There has been quite a bit a controversy over whether ACA would or did slow the rate of growth of health care spending. My take is that, while there was a slowdown in growth in per capita spending around the time the ACA was implemented, it is not clear that it was driven by the provisions of the ACA.

Chen: While ACA has increased the number of Americans with health insurance coverage, those gains have come predominantly through the expansion of the Medicaid program rather than through the creation of competitive marketplaces that have brought down costs for consumers. Unfortunately, too many Americans still find coverage to be unaffordable, which suggests the law has failed to address some of the fundamental cost drivers in our health care system.

Why are premiums higher than expected?

Bundorf: The issue for 2017 open enrollment is that premiums have increased fairly dramatically – about 20 percent on average. Underlying the large increase, however, are substantial differences across areas; premium growth has been low in some areas and high in others. We don’t have much direct evidence on what is causing this, but a likely culprit is that some insurers and exchanges have experienced more adverse selection than others. Many insurers may have incorrectly estimated the likely spending of people enrolled in their plans and are now setting premiums much higher in anticipation of attracting more relatively high-risk people.

Chen: The law itself was poorly designed. Two components of the law, called guaranteed issue and modified community rating, have worked together to drive up premiums in many states. The first of these requires insurers to offer coverage to anyone who wants it. The second limits the maximum differential in premiums that can be charged between older and younger enrollees. The architects of ACA assumed that enough young and healthy consumers would purchase health insurance on the law’s exchanges to compensate for the increased risk created by the older and sicker Americans who have signed up for coverage. Unfortunately, that dynamic simply has not materialized. Thus, insurers have been left with disproportionately sicker groups of covered individuals. This has forced them to raise premiums to compensate.

Duggan: The rise in premiums in the ACA health insurance exchanges from 2016 to 2017 partly reflects premiums being lower than expected in 2016. Premiums in 2016 were 12 percent lower than what the Congressional Budget Office originally predicted for that year. And so despite the big increases we are seeing for next year, premiums are about in line with what the CBO projected several years ago.

The major negative for the exchanges is that in many markets only one or two insurers are participating, with some insurers dropping out due to the low prices. I am optimistic we’ll see stronger participation by private insurers in 2018 with these higher prices.

What will be the biggest challenge for the new administration when it comes to ACA?

Bundorf: The stability of the health insurance exchanges is an important issue. A new administration could take a number of steps to address this, including allowing greater risk rating of premiums. For example, the age rating bands could be expanded from 3:1 to 5:1, meaning insurers would not be able to charge older people more than five times what younger patients pay.

Another step would be to tighten up special enrollment periods, which would, hopefully, get more people to purchase coverage when they are healthy rather than waiting until they are sick. Also, the mandate penalty could be increased and some of the insurer risk protection programs could be reworked.

Duggan: Some states have benefited enormously from the legislation while others much less so, and that needs to be addressed. For example, California elected to expand its Medicaid program under ACA, while Texas did not. So as of 2015, the fraction of Texans without health insurance is 22.3 percent versus 11.8 percent in California. Interestingly, this Medicaid expansion is being paid almost exclusively by the federal government. So taxpayers in Texas are contributing to California’s and many other states’ Medicaid expansion while not receiving this same benefit.

Also, the new administration should make sure that a sufficient number of health insurers are competing in the ACA health insurance exchanges. It’s very important to stimulate price and quality competition and to give people multiple options.

Chen: The affordability of coverage in the ACA’s exchanges, rising costs in the health care system, and the fiscal pressure the Medicaid expansion has placed on state budgets are the most significant concerns. Also, in many states, there simply isn’t a competitive marketplace for health coverage for individuals and small businesses – this means not only higher premiums, but narrower networks of coverage too.

Looking beyond the ACA, what are some measures the new administration could consider to reduce health care costs in this country?

Bundorf: Changing how providers are paid is very important. Moving providers away from payment systems that create incentives for them to do more to payment systems that promote value-based care will be important for reducing health care spending in ways that benefit patients.

Since the government runs Medicare, it has the most control over payments to providers when they treat Medicare beneficiaries. Centers for Medicare & Medicaid Services has set some ambitious goals for reducing and changing provider payment, so how the next administration implements them will be important to watch.

Duggan: Reducing the tax subsidy to private health insurance, especially for high-income taxpayers, would be at or near the top of my list. This would increase tax revenue, simultaneously reducing the coverage of low-value health care services.

Chen: A big problem with the ACA is that it limits choices for consumers. For example, consumers are forced to select plans that may be more expensive and include more generous coverage than they need or want. The next administration would be wise to consider ways to expand those choices, so consumers can choose health plans that best suit their needs. This should include plans that more closely mirror “true insurance” – with higher deductibles, more basic coverage, but much lower monthly premiums as well.