Democrats Have Given Up on Private Health Care Markets — and for Good Reason

The Democratic Party has fully mobilized multiple times this year in defense of the Affordable Care Act. But when it comes to the future of health care, the party has quietly given up on the idea of trying to make the ACA principle of regulated private insurance markets work. Instead, they see expanding public health insurance as the future.

Republicans have only themselves to blame.

The most visible sign of this shift from private to public was the release of Vermont independent Sen. Bernie Sanders’s Medicare for All bill. His measure garnered 16 co-sponsors, including every senator seen as a 2020 Democratic presidential contender, but it was by no means the only bill of its kind.

Sen. Ben Cardin, D-Md., introduced a bill with a public option. In August, a group of senators introduced a bill for Medicare buy-in for those age 55 and above. Sen. Brian Schatz, D-Hawaii, has started working on a detailed Medicaid buy-in plan while Sen. Chris Murphy of Connecticut is working on a universal Medicare buy-in for individuals and large companies to create a path to single-payer. Sen. Tim Kaine, D-Va., is pushing a bill that would create a “Medicare Part E,” with E standing for everybody, Kaine said. At the state level, Democrats are also trying to come up with ways to let people buy into Medicaid or other public programs.

A big reason for this shift, which Democrats are unlikely to ever fully acknowledge, is how much the ACA has failed to live up to expectations. The relentless claims by Republicans that the ACA will pull the plug on grandma, or that it will explode, have allowed Democrats to redefine barely functioning as success. It has made it easy to forget, though, how great former President Barack Obama’s team thought the law would turn out.

The ACA exchanges have become a last-resort option used almost exclusively by those who qualify for tax credits, but they weren’t meant just for the individual market. A significant part of the law was dedicated to setting up small business exchanges, which were intended to expand to companies of all sizes. Some members of the Obama team honestly believed their new private insurance exchanges would be so popular with individuals and companies that they would rapidly expand to become the main way people get insurance.

One of Obama’s top health care advisers, Dr. Ezekiel J. Emanuel, even went so far as to predict that by 2025, fewer than 20 percent of workers would be getting traditional employer-sponsored coverage, because the exchanges would be humming with competition and low prices and crowding everything out.

Obama promised that using the exchanges would be as easy as shopping “for a plane ticket on Kayak or a TV on Amazon.”

Before implementation, Obama promised that using the exchanges would be as easy as shopping “for a plane ticket on Kayak or a TV on Amazon.” But it turns out that buying health insurance is not, in fact, like buying a TV. Despite California spending big on outreach and taking extra steps to simplify the shopping process by standardizing all insurance plans, researchers found 31 percent of enrollees likely eligible for assistance in the state chose the wrong type of policy, effectively depriving themselves of free money. Studies involving real people using Healthcare.gov found individuals have trouble understanding insurance terms and choosing plans that match their preferences. Nobody who has gone through the process would find any of these numbers hard to believe.

Most importantly, before the law passed, Obama claimed its main purpose was to dramatically increase competition, telling Congress, “My guiding principle is, and always has been, that consumers do better when there is choice and competition. Unfortunately, in 34 states, 75 percent of the insurance market is controlled by five or fewer companies. In Alabama, almost 90 percent is controlled by just one company.” This year, 34 states have five or fewer insurers operating in at least one county on their exchanges. Fewer than 5 percent of counties have five or more insurers for people to choose form on their ACA marketplace.

A regulated private health insurance market system can create universal coverage, but it is very difficult.

Countries like Switzerland, Germany, and the Netherlands show a highly regulated private health insurance market can produce universal coverage, but it is now clear to many Democrats that accomplishing this in the U.S. is far more difficult than they imagined a decade ago. It requires extremely strong regulation and a proactive government constantly responding to problems with quick regulatory adjustments.

While many of the problems with the ACA should or could have been predicted, much of the Democratic establishment was convinced they could put together something vaguely resembling these other systems, get broad bipartisan support, and it would work. They put a lot of faith into the idea that by creating insurance markets with some basic regulations, insurance competition would solve a myriad of problems including out of control costs.

It hasn’t worked for several big policy and political reasons. On a policy front, one of the largest problems is that in our system, private insurers lack the leverage to negotiate good rates with providers, making insurance competition nearly impossible and even counterproductive.

In much of the country, hospitals operate as de facto monopolies, either because they are the only hospital in a rural area or due to hospital system mergers in urban areas. As of 2016, 90 percent of Metropolitan Statistical Areas have highly concentrated hospital markets. This has left private insurers relatively powerless to demand fair prices from hospitals, and it has pushed the insurance market toward greater consolidation to be large enough to get at least some leverage.

As a result, only public insurance programs have sufficient leverage to negotiate reasonable rates. A new Rand report shows just how bad it has gotten. It looked at large, private employer-provided insurance plans in Indiana over the last few years and found that the examined private plans paid $695 million in claims to community hospitals. If they had leverage to negotiate the same rates Medicare pays, however, those private plans would have spent just $255 million.

Switzerland and other countries solved this issue and created competitive insurance markets by using all-payer, an aggressive government price control mechanism to force all providers to accept the same rate from all insurers. The problem is any universal all-payer system in the U.S. would likely cut hospital and drug maker reimbursement rates by as much as single-payer would — meaning the industry is likely to fight it just as hard as it would single-payer.

The health care industry is openly engaged in a conspiracy to keep health care prices high.

Just look at the American Medical Association, a lobbying group for doctors. The group opposes allowing Medicare to directly negotiate with drug markers for lower drug prices, even though it would likely save the government and vulnerable seniors money. The reason, according to the AMA president-elect, is that “if we advocated for the price-fixing of pharmaceuticals, we have no leg to stand on if we say we don’t like price-fixing for physicians.” The health care industry is openly engaged in a conspiracy to keep health care prices high.

Politically, Democrats have until now continuously underestimated Republican opposition to universal health care. Making regulated private insurance markets work requires nimble and committed regulators at all levels. For years, Democrats assumed that if they embraced expansion via private insurance, like then-Gov. Mitt Romney did in Massachusetts, Republicans would get on board. After all, the structure of Romneycare, which became the model for Obamacare, was initially a project of the conservative Heritage Foundation.

Forget about being nimble: With Republicans displaying outright hostility to the Affordable Care Act, even standard drafting errors present in any large legislation have gone uncorrected.

In 2007, Sen. Ron Wyden, D-Ore., created the Healthy America Act with Sen. Bob Bennett, R-Utah. It would eliminate employer-provided health insurance and Medicaid, moving everyone under the age of 65 onto a regulated private health insurance exchange with an individual mandate. Yet Bennett, Sen. Lamar Alexander, R-Tenn., Sen. Lindsey Graham, R-S.C., and several other Republican co-sponsors came out aggressively against an individual mandate once Democrats actually moved to implement it.

Back in 2009, former Sen. Max Baucus, D-Mont., spent weeks negotiating with some of the most conservative Republicans, honestly believing he could find bipartisan support for the ACA only to have it eventually pass without one Republican vote.

Democrats assumed that, after the law was passed, the GOP would have to accept it and try to make it work. Instead, the Obama administration was left flat footed when conservative groups convinced state Republicans to refuse to set up their own exchanges.

After the Supreme Court made the Medicaid expansion optional, many Democrats and liberal writers thought there was no way Republican governors would turn down effectively free federal money, but to a large degree they did. Obama believed in 2012 that by winning reelection, he had put the matter to political rest. Many Democrats and even some prominent Republicans also assumed the law being fully implemented in 2014 would finally put an end to the Republicans’ “repeal and replace” efforts. But Donald Trump still ran on the repeal message and won in 2016.

Some Democrats again assumed the very public debate of “skinny repeal” on the Senate floor, during which it narrowly failed, would finally get Republicans to accept the ACA. Yet the GOP quickly abandoned efforts to find modest bipartisan fixes as soon as it looked like the Graham-Cassidy repeal effort had even a tiny chance of working. Now, while the GOP hope for repeal appears dead for now, Trump still works to undermine the law administratively.

The Trump team is using the regulatory tools they have to weaken it. They slashed funding for Healthcare.gov outreach efforts to get people to sign up; scheduled a suspicious amount of Healthcare.gov maintenance outages during the open enrollment; made it more difficult to sign up outside the open enrollment period; weakened consumer protections; effectively turned the office designed to aid in implementing Obamacare into a deregulation hub; and indicated they wouldn’t enforce the individual mandate.

This is critical because the only way to create a universal health care system without automatically enrolling people in public insurance is to aggressively force individuals to buy or maintain private insurance. This requires a society that sees maintaining coverage as a true social duty and a country willing to heavily enforce an individual mandate with big fines. The Swiss system earned its broad public legitimacy when voters approved it in a national referendum. In Switzerland, lying about having coverage can result in prison time.

The Republicans’ years of attacking the individual mandate makes turning it into a broadly accepted social duty difficult. And, with 66 percent of the public opposed to our weak individual mandate, it would likely take a bruising political fight for Democrats to push for a dramatically stronger individual mandate that could result in prison time. Even if Democrats did, it would be easy for a Republican president to undermine it administratively like Trump is doing now to the current mandate.

On the other hand, the expansions of public programs like Medicaid have gone very well, at least in states where Republicans haven’t prevented it. These programs are significantly cheaper, easier to implement, and more popular. The public strongly supports the ACA’s Medicaid expansion: 84 percent believe it is important to continue to fund it. Surveys show that on average people who received Medicaid through the expansion are more satisfied with their coverage and more likely to rank their coverage as excellent than those who bought private coverage on the new exchanges. People who have exchange coverage actually envy those with Medicaid.

The Republican rhetoric highlights this. If you watched the Senate Finance Committee hearing for Graham-Cassidy or the floor statements from Republicans for previous repeal bills, you would notice that almost all the attacks on the ACA were about problems people had experienced with the regulated private insurance exchanges. In a joint statement about their failed repeal bill, Sens. Graham, Bill Cassidy, R-La., Dean Heller, R-Nev., and Ron Johnson, R-Wisc., said, “Obamacare’s problems are widespread and well known. Forty-five percent of counties or parishes in the U.S. are down to single provider. Premiums are skyrocketing.” Noticeably absent from the statement was any talk about premiums with Medicaid. Republicans almost never talked about problems people had with the Medicaid expansion because it went well where it was implemented.

Faced with the dual realization that creating affordable universal coverage via private insurance markets will require significantly more regulation, and the fact that the current Republican Party has little desire to try to make the system work, Democrats are left with three choices.

They can try to achieve affordable universal coverage without Republican support by expanding popular public insurance programs. It would create a serious fight with the health care industry, but it would have real grassroots support. A Kaiser Family Foundation poll found that 75 percent of Democrats favor a Medicare buy-in and 70 percent favor single-payer.

Or Democrats can try to achieve affordable universal coverage via private insurance exchanges without Republican support by fighting for the rules that make the Swiss system work. That includes aggressive government price controls on health care, big new regulatory powers, forcing all basic insurance to be nonprofit, significantly increasing subsidies, and a stronger individual mandate. The health care industry will likely oppose these regulations as much as it would single-payer since they would create a similar reduction in profits.

Yet there is no major grassroots group rallying around an actual Swiss approach. Bad headlines, purposeful sabotage by Trump, and relentless attacks on the exchanges by Republicans combined with the high deductibles there has left the public with little faith in them. A recent Kaiser Family Foundation poll found 50 percent of the public believes the ACA exchanges are collapsing, while only 35 percent think they are not. Even among self-identified Democrats, 38 percent believe the marketplaces are collapsing and 47 percent say they are not.

Finally, Democrats could just give up on trying to achieve truly universal coverage anytime soon, accept the ACA as good enough, and spend the time on easier issues — like, say, rescuing the planet from catastrophic climate change.

There are many Democrats and progressives making the case for option one right now. There are even some prominent figures like Paul Krugman and Bill Sher making the case for option three. Krugman pointed to New York’s uninsured rate of 5.4 percent as successful enough and advised that “progressives should move beyond health care and focus on other holes in the U.S. safety net.” Sher believes the party should “pocket the win and move on” to other pressing issues such as climate change.

Senate Democrats now seem to accept that if they actually want to get affordable universal health care, it is going to take a bruising fight.

The past several years have forced Democrats to give up on the seductive idea that if only they could find just the right mix of policies, they could create affordable, universal coverage that would make, among others, Democrats, Republicans, hospitals, insurers, drug companies, poor people, and donors all happy. It was a very appealing myth that took several big election losses, years of massive premium increases on the ACA exchanges, multiple failed repeal efforts, and the boorishness of Trump to finally dispel.

Senate Democrats now seem to accept that if they actually want to get affordable universal health care, it is going to take a bruising fight, so they might as well fight for something popular and simple to understand — expanding public health insurance.

To steal from Winston Churchill, the Democrats can be counted on to do the right thing, after they’ve tried everything else.

Top photo: Left to right, Rep. Richard Neal, D-Mass., Senate Finance Committee ranking member Sen. Ron Wyden, D-Ore., House Minority Leader Nancy Pelosi, D-Calif., Senate Minority Leader Chuck Schumer, D-N.Y., House Budget Committee ranking member Rep. John Yarmuth, D-Ky., Rep. Barbara Lee, D-Calif, and Senate Budget Committee ranking member Sen. Bernie Sanders, I-Vt., hold a news conference critical of the Republican tax and budget plan at the U.S. Capitol on Oct. 4, 2017.