The Accomplishments and Failures of the Affordable Care Act and What's Next

What should the future of the Affordable Care Act be? originally appeared on Quora - the knowledge sharing network where compelling questions are answered by people with unique insights.

Answer by Mario Schlosser, CEO and Co-Founder of Oscar Health, on Quora.

The Affordable Care Act did some great things, but also needs to be overhauled in some material ways. It had a big impact in the short term, and it set in motion what I believe will be a fundamental redesign of healthcare in the US in the long term.

First, there are now 21.3 million fewer uninsured people in the US than there were before 2014. Irrespective of your political beliefs, if you are a human being, you should think that this is a good thing. The leading cause of bankruptcies in this country is related to medical bills. If you followed the Oregon Experiment (an interesting natural experiment where the state of Oregon due to budget reasons was forced to give just a random subset of its population Medicaid coverage, so researchers could follow a de-facto A/B test as to what health insurance does), you know that having insurance doesn't immediately mean you'll live a healthier life, but it has huge impact on your mental well-being because it removes the worry of what might happen if you get seriously sick. So the fact that we have become a civilized country in which everyone can finally get health insurance to me is a big deal, and the ACA did that.

Second, it did that in ways that were actually very intelligently engineered. For example, the so-called risk adjustment program re-distributes premium income (what members pay insurers each month) between health insurers based on the risk of the member population that they attracted: the higher the risk among an insurer's members, the more other insurers will transfer premiums to that insurer. In theory, that is great because it incentivizes insurers not to attract certain members, but only to make sure that once a member is on board, we work to lower the member's healthcare costs and long-term healthcare risk.

Let's talk about the shortcomings starting with risk adjustment: the formula is broken and currently biases insurers against getting too many 30-year old members. But too few 30-year old members (who generally are healthy and are effectively, indirectly paying premiums to eventually utilize healthcare when they are older) means that the overall risk pool of ACA marketplaces is too risky, and premiums would have to rise in order to cover that extra cost. There are lots of these seemingly small "engineering" and mechanical issues in the current ACA regulations. ("Seemingly small": an issue that costs insurers just 1% in additional medical loss in the ACA market is an issue of a cool 2-3 billion dollars a year! By my rough math of using 3 trillion in annual healthcare costs and the ACA market representing about 5-10% of our population today.) In any other, normal time, those would simply have to be fixed over time. Look at today's most profitable health insurance market, the Medicare Advantage market: it started in 2000 or so, then enrollment fell and the market got clobbered until 2005 or so, then a bunch of regulations were fixed, and now the market is very profitable, it has real competition, and enrollment is 5x what it was back then. The problem is, we have to make sure that those regulatory changes happen and the discussion doesn't get stalled before it starts.

Another quick word on this: some of the great achievements of the ACA are "guaranteed issue" and "community rating". That means that nobody can be denied insurance, and everyone basically pays the same rate (except for some difference by age in some states). However, that also means that the "risk" (mix of medical conditions and the cost of treating those conditions) insurers are going to face is almost a complete guess. Not only that, but at Oscar, we had to set our 2016 prices (which we can't change for the entire year, and for which we will enroll every member who shows up) almost a year in advance, with almost no data on the prior year (because that had barely begun when we priced), and certainly with no data on the future year (because, well, that was in the future). In that situation, it is virtually impossible to set the right prices. Many insurers tried their best to price competitively (a great thing!) and to the best of their knowledge what the market would look like, and most were wrong. The government anticipated this and put in place something called "risk corridors", which were supposed to buffer the initial losses and gains in the first three years of the ACA. Alas, the political infighting dismantled that program, and therefore changed the game long after any losses had been locked in. That's not how you build stable and functioning insurance markets.

What will the future of the ACA be? Here is where the long-term comes in. What the ACA did is to finally create an individual insurance market. Isn't it ironic that it was the government, of all economic players, that really for the first time built a website that created real price transparency in health insurance (in the form of Get 2017 health coverage. Health Insurance Marketplace)? It shows how backwards this market was, and how we (as a society) allowed healthcare costs to rise to the point where they are almost bankrupting us. Now, in the individual market at least, people can vote with their feet, make their own choices, and insurers (and by extension, healthcare providers, such as hospitals), have to really compete on value for money. That is a much tougher market than what existed before, but it's the only way that the healthcare value chain will experience the pressure it needs to become more efficient and more competitive along the entire chain. The EpiPen's CEO's statement went something like, "we didn't think that anyone would actually pay the insanely high price that we put on the EpiPen, because insurers were just supposed to charge co-pays for it" -- there is something fundamentally, absurdly wrong with this statement. Of course we've all, collectively as a society, been paying for the incredible inefficiencies, fantasy prices and lack of competition in the healthcare value chain, through rising premiums or deductibles, because the dollars must come from somewhere. I think those things will be much less possible if individuals have clearer choices, see insurers and others more clearly compete for their business, and, yes, also have more direct financial participation through deductibles and premiums that hit their wallets directly.

So the ACA took us from a world in which we were paying almost a fifth of our GDP on healthcare and didn't really fully notice it, to a world where we're still paying a fifth of our GDP on healthcare but are now really painfully noticing it. And hopefully, through increased competition and innovation, the business that it catalyzed (consumer-oriented health insurance) will now take us to a world where some of the things that we and others are doing will start bending that curve and increasing value for money.

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