HEALTHCARE REFORM: The 'Three-Legged Stool' of Health Insurance Reform Under the ACA
By Joel E. Miller
The Affordable Care Act represents the most significant transformation of our health insurance market in more than 40 years. One of the law’s key goals is to fix the broken small-group and non-group insurance markets—where small businesses and people not covered through their jobs get their health insurance. Insurance prices are very high and variable in these markets today, and sick individuals who most need coverage are not able to get it.
AMHCA Executive Director & CEO
At the health law’s core is a “three-legged stool” approach to reforming these markets:
- New rules that prevent health insurers and health plans from denying coverage or raising premiums based on pre-existing conditions
- Requirements that everyone buy insurance
- Subsidies to make health insurance affordable.
But some confusion exists about how the stool’s three parts fit together—confusion that’s compounded by claims that some parts will work without others and by efforts to repeal key elements of the ACA law. The truth is that all three legs of the stool are necessary to assure affordable health coverage.
The first “leg” refers to regulations that prohibit health insurance companies from excluding coverage due to preexisting illnesses.
This is a highly popular reform, but it doesn’t work in a vacuum. If insurance companies must charge the same price to people whether they’re sick or healthy, many healthy people will view this as a bad deal and not buy insurance. This results in higher prices that chase even more people out of the market. The result is a “death spiral” that leads only the sick to purchase insurance at very high prices.
Several states have tried such community-rating reforms—offering health insurance within a given territory at the same price to all persons without medical underwriting—in their non-group markets over the past two decades, and sharp rises in insurance prices ensued along with rapidly shrinking market size.
This fact motivated healthcare reform advocates to add a second “leg” to the stool: a requirement, or mandate, that all residents purchase insurance. In this way we can ensure a broad distribution of health risks in the market and fair “community-rated” pricing to all.
The problem with this solution in a vacuum, however, is that many families cannot afford health insurance at those community-rated prices.
Therefore it was important to add a third “leg” in the form of premium subsidies that make health insurance affordable for those below four times the poverty line (as well as some targeted exemptions from the mandate for others who could not afford coverage).
On several occasions, legislation has been introduced in Congress
to repeal some parts of the health law—or repeal the ACA outright. Critics who propose to “repeal and replace” the Affordable Care Act don’t seem to understand that all three legs of the stool are critical for reform. Pulling out any one of the legs will critically undercut real gains from health reform.
Removing the Affordable Care Act’s mandate would eviscerate the law’s coverage gains and greatly raise premiums. And going further (by keeping only the market reforms and the subsidy tax credit) would virtually wipe out those coverage gains and cause an enormous premium spike.
Without all three legs, the stool—and effective health reform—will not stand.