1. QUADRANT A — MEDICARE UTILIZATION

The ACA's policies to control utilization in Medicare focused primarily on altering Medicare payment models to providers to reduce overutilization and waste. Because Medicare sets prices for services administratively, reducing overutilization plays an outsized role in cost-containment. The ACA's focus on utilization was also shaped by Atul Gawande's influential New Yorker article, “The Cost Conundrum,” which convinced the drafters of the ACA that nearly a third of Medicare spending could be cut without affecting quality or outcomes by reducing overutilization and waste.^{Reference Gawande25} The resulting policies were the ACA's Medicare payment reforms to encourage fragmented providers to work together and coordinate care to improve quality and efficiency, including establishment of Medicare ACOs and bundled payments, which reward groups of providers by paying them a share of the money they save Medicare or paying a lump sum for a patient's entire episode of care.^{Reference Cutler26}

The ACA also refined federal fraud and abuse laws as part of a larger push for greater federal enforcement of health care fraud and abuse laws under the Obama administration.

2. QUADRANT B — UTILIZATION IN THE PRIVATE MARKET

The ACA contained two main strategies to curb over-utilization in the private market: supply-side payment reforms and demand-side tools to increase consumerism among patients. On the supply-side, many of the payment reforms implemented in Medicare were adopted by private payers, such as ACOs and other risk-based arrangements to reduce provider-driven overutilization. By 2017, over 900 ACOs had formed, covering more than 32 million people, or over 10% of the population.^{Reference Muelstein27} Nearly 60% of the ACO contracts and “covered lives” were with private payers, with Medicare and Medicaid making up the rest.²⁸ Although the ACA did not direct the creation of private ACOs, the incentives and regulatory glide-path created for Medicare ACOs sped the adoption of these models among private payers.^{Reference Greaney29}

The second strategy to control utilization in the private market focused on sensitizing patients to the costs of health care consumption and reducing demand through increased cost-sharing. Although high-deductible health plans with high levels of cost-sharing preceded the ACA, the plans sold on the ACA marketplaces continued this trend and generally featured fairly high rates of patient cost-sharing. To dampen the adverse effects of cost-sharing on lower-income individuals, the ACA implemented cost-sharing reductions for individuals whose household income falls between 100-250% of the federal poverty level and who purchase silver plans on the marketplace.³⁰

For employer-based coverage, the ACA contained a provision known as the “Cadillac tax” on high-cost employer-based plans, which was designed to reduce health care spending by increasing employees' share of those costs.³¹ Currently, employee compensation paid in the form of health benefits are not subject to payroll or income taxes, which skews incentives toward paying employees in health benefits rather than in taxable wages. Having too much health insurance creates moral hazard, which drives up utilization and health care costs. To correct for the inefficiency created by moral hazard and excessively generous insurance, the Cadillac Tax imposes a 40% excise tax on health coverage that costs in excess of $29,000 for family coverage, $10,700 for individual coverage.^{Reference Furman, Fiedler, Mankiw and Summers32} The Cadillac Tax is unpopular particularly among unions and employee groups subject to the tax, but also because its indexing formula will apply the tax to a broader swath of less-generous health benefits over time.^{Reference Lemieux and Moutray33} As a result, Congress has twice delayed implementation of the Cadillac Tax, first from 2018 to 2020,³⁴ and then until 2022.³⁵

3. QUADRANT C — MEDICARE PRICES

Unlike private health care prices, which are established through negotiation between providers and health plans, provider prices in public programs are administratively set. The ACA's primary policy to constrain public prices took the form of significant cuts to Medicare reimbursement rates — $716 billion over 10 years — particularly for hospitals and Medicare Advantage plans.^{Reference Kliff36} The ACA imposed a variety of hospital payment cuts, such as cuts to disproportionate share payments, and also cut rates to the private managed care plans that serve Medicare beneficiaries to levels closer to amounts spent on beneficiaries in “traditional” Medicare.

The ACA also created the Independent Payment Advisory Board (IPAB), an agency that would prescribe Medicare payment cuts that would automatically go into effect to constrain Medicare spending growth to the rate of GDP growth plus one percent.³⁷ Because of IPAB's statutory constraints and Congress' long struggle to hem in Medicare's physician payments, many believed IPAB would rely on physician payment cuts to reduce Medicare spending.^{Reference Marciarille and DeLong38} Since the ACA was enacted, however, Medicare's projected growth never exceeded the threshold for IPAB to take action, and the Board was never constituted before being repealed in 2018.^{Reference Cunningham39} Despite political opposition, IPAB was designed as a safety valve to constrain Medicare spending through provider payment cuts, circumventing the political pressure members of Congress face from powerful provider groups that can prevent Medicare rate cuts from going into effect.^{Reference Ho40}

4. QUADRANT D — PRIVATE PRICES

Applying the cost control framework to the ACA reveals it lacks comprehensive policies to control private health care prices. In short, the ACA has a blind spot in quadrant D.⁴¹ As mentioned above, there are three policy options to control private health care prices: market solutions that focus on consumerism and price competition, antitrust enforcement, and rate regulation. Of these three price control strategies, the ACA favored market solutions.

The ACA's market-based strategies included increasing transparency of hospital charges, promoting competition among plans on the marketplaces, and narrowing provider networks for marketplace plans.^{Reference Ginsburg and Pawlson42} Narrow provider networks are the key strategy to constrain premiums when medical underwriting is prohibited.^{Reference Dafny43} But market approaches only work when there are choices among providers or plans, and the ACA contained few policies to address rising prices in noncompetitive markets. The ACA weakened antitrust scrutiny for Medicare ACOs, which have driven much of the recent industry consolidation.⁴⁴ Antitrust can do little to restore competition or constrain price growth once consolidation has occurred. On rate regulation, the ACA did little beyond encouraging states to test rate setting models. Overall, the ACA had few policies to control private prices and may have inadvertently spurred further consolidation through its emphasis on risk-based payment and ACOs.

An earlier version of the bill that became the ACA contained a more robust price control strategy: the public option.^{Reference Berenson45} A public option could have allowed a publicly operated health plan to compete with commercial plans on the marketplaces, importing public payers' administrative price controls into the marketplaces for individual and small group plans. In light of current marketplace instability, rising premiums, and insurer exit caused by the Trump administration's disruptions, a public option may have been the only option remaining in many regions that struggle to retain even a single health plan in the marketplace. The public option was ultimately eliminated from the ACA, but states have begun to explore their own public options.^{Reference Hervey46}

5. ASSESSING ACA's THEORY OF COST CONTROL

Without a unified measure of consumers' health care costs, it is difficult to pinpoint the effect of the ACA's cost control policies. On broader measures of health spending, the ACA appears to have been somewhat successful. The overall rate of health care spending growth moderated in the years following the ACA, though much of this effect may be due to the economic recession.^{Reference Holahan47} Medicare spending growth was also slower than average, growing only 1.3% annually between 2010 to 2016, down from 7.4% annually from 2000 to 2010, in part due to the ACA's Medicare payment cuts and reforms.^{Reference Cubanski and Neuman48} But the evidence is mixed whether ACOs can reliably generate savings from reduced utilization and improved efficiency.^{Reference Lewis49} What is clear is that health care costs cannot be constrained on utilization alone.^{Reference Papanicolas50} In the private market, premium growth has been moderate, but it has been offset by rapidly increasing deductibles and out-of-pocket costs.^{Reference Hancock and Luthra51} Private health care prices have also been rising, particularly for outpatient services and prescription drugs, while utilization growth has been low.⁵² And there is little evidence of improvement to high administrative costs, driven by the complexity of a fragmented health care payer landscape.^{Reference Tseng53}

The ACA also contained policies promoting health care affordability — the Medicaid expansion, premium and cost-sharing subsidies for marketplace plans, and cost-sharing limits — even if these policies did little to constrain underlying health care costs. These provisions limit the amount lower-income and sicker individuals spend on health care, but they do not curtail the price or quantity of health care services provided. In this regard, these ACA affordability provisions are better characterized as policies to promote health care access than to control health care costs.

1. QUADRANT A — UTILIZATION IN MEDICARE/MEDICAID

None of the Republicans' proposals would have altered the Medicare payment and delivery reforms of the ACA. In particular, no changes were proposed for Medicare ACOs, and the Trump administration has largely maintained the bundled-payment program.^{Reference Pear58}

Nor has Congress or the Trump administration made significant changes to Obama-era fraud and abuse enforcement laws or policy, proposing increased budgets for enforcement of health care fraud and abuse.^{Reference Sweeney59} With annual recoveries for federal health care programs typically topping $2 billion,⁶⁰ bipartisan support continues for aggressive fraud and abuse enforcement for federal health care programs.

2. QUADRANT B — UTILIZATION IN PRIVATE MARKETS

The GOP proposals' main policies to curtail overutilization in the private markets were to increase consumers' financial “skin in the game” through increased reliance upon health savings accounts (HSAs) and high-deductible health plans. All three bills would have increased the tax-free annual contribution limits to HSAs, and the BCRA and Graham-Cassidy would have allowed individuals to use HSA funds to pay for premiums.⁶¹ These represent a change in degree rather than in-kind from existing law, under which tax-preferred HSAs are permitted for enrollees in high-deductible health plans.⁶² High deductibles are a demand-side policy tool to reduce utilization driven by moral hazard. The increased tax-free contribution limits would further encourage high-deductible plans and primarily benefit high-income individuals, who are more likely to contribute to such accounts and benefit from the tax break.^{Reference Levey and Kim63}

Other changes in the Republican proposals would have increased consumers' out-of-pocket costs, particularly in the non-group market.^{Reference Altman64} First, reducing the required actuarial value of plans sold on the marketplaces would mean more plans would have higher cost-sharing.⁶⁵ Second, reducing or allowing states to waive the essential health benefits that plans must cover would increase costs for those who need non-covered benefits.⁶⁶ Third, allowing states to waive annual cost-sharing limits would mean that cost-sharing levels would rise or become uncapped.^{Reference Fiedler67} Fourth, the termination of the ACA's cost-sharing reduction payments for those earning between 100-250% of the federal poverty level would expose low-income marketplace enrollees to higher cost-sharing amounts.⁶⁸

Although increasing consumer cost-sharing reduces moral hazard, it does not get at the larger driver of overutilization — the financial incentives for physicians to induce demand for health care services.^{Reference Nyman69} Even modest cost-sharing dampens the utilization effects of moral hazard, yet patients tend to cut back on necessary as well as unnecessary care.⁷⁰ Increasing cost-sharing disproportionately burdens the poor and those with chronic illnesses^{Reference Fung71} and also reduces afford-ability. When ordinary people hear policymakers promise that health care will be more affordable, most people believe their premiums and out-of-pocket costs will go down. The bills to repeal and replace the ACA would have done the opposite.

3. QUADRANT C — MEDICARE/MEDICAID PRICES

The Republican proposals did not alter the ACA's various Medicare provisions, including its provider rate cuts.⁷² However, Republicans repealed the ACA's Independent Payment Advisory Board (IPAB) in February 2018 in a wide-ranging budget deal.⁷³ Although it is unclear whether IPAB would ever have been allowed to take action, the CBO estimated that repealing IPAB will cost the government $17.5 billion over a decade, because it will eliminate a mechanism to curtail Medicare spending growth over time.⁷⁴

More significantly, the GOP's 2017 bills proposed momentous changes to the Medicaid program in the form of massive federal spending cuts and substantive program alterations.^{Reference Rosenbaum75} The AHCA would have cut federal Medicaid spending $834 billion over a decade.⁷⁶ The BCRA would have cut Medicaid by $772 billion, Graham-Cassidy by $1 trillion.⁷⁷ All the bills would have reduced or eliminated enhanced federal funding for the Medicaid expansion and converted federal Medicaid financing to a per capita cap or block grant, effectively moving the federal government's Medicaid funding from an open-ended obligation to a limited budget.⁷⁸ Other substantive changes to the Medicaid program, such as allowing states to impose work requirements on Medicaid beneficiaries, have subsequently been adopted administratively by the Trump administration.⁷⁹

The GOP's proposed Medicaid cuts were not aimed at reducing consumers' health care costs; they were designed to pay for repealing the ACA's tax on high-income earners.^{Reference Prokop80} Proponents argued that capping federal Medicaid spending and imposing work requirements would encourage enrollees to seek private coverage through employment and reduce taxpayer spending on Medicaid. But shifting individuals from Medicaid, with little or no premiums or cost-sharing, to private coverage would increase those individuals' health care costs. The primary effect of the Medicaid cuts would have been to reduce Medicaid enrollment by about 15 million people over the ensuing decade.⁸¹ Federal Medicaid cuts of this magnitude could lead to cuts in provider reimbursements under state Medicaid programs, but more likely would result in reductions in benefits and eligibility. Noting that Medicaid is already a poor payer, the CBO predicted that Medicaid cuts could reduce access and quality as providers drop out or curtail services to Medicaid beneficiaries.⁸² Even conservative analysts noted that the Medicaid cuts made little sense as a cost-disciplinary measure within the framework of GOP health reforms.^{Reference Ippolito83} The Republicans' proposed Medicaid cuts were not designed to control health care costs, particularly when costs are measured from the point of view of consumer affordability; their raison d’être was to pay for the bills' tax cuts.

4. QUADRANT D — PRIVATE PRICES

The GOP's primary strategy to constrain private health care prices was to improve competitive market forces, largely in terms of health insurance premiums in the non-group market. To Trumpcare's proponents, the main driver of high health insurance premiums were burdensome Obamacare insurance regulations (e.g., requiring community rating and essential health benefits).^{Reference Stein84} Allowing states to waive the ACA's insurance regulations would allow for cheaper, skimpier, and more “actuarially fair” plans to be sold on the non-group market.^{Reference Sperling and Shapiro85} Two problems arise with this strategy to control health care costs. At the macro-level, average premium costs are driven less by actuarial rules than by rising health care prices, and like Obamacare, the Trumpcare proposals did little to address the underlying prices of health care items and services. At the micro-level, the GOP proposals would only make health insurance more affordable for the young and healthy, and predominantly males, while increasing premiums for everyone else.^{Reference Sanger-Katz86} The Republican plans contained funding for states to subsidize health insurance costs for sicker individuals through high-risk pools or risk-adjustment, but many believed this funding was inadequate to make up for the higher premiums these individuals would face.^{Reference Jost87} Eliminating the individual mandate penalty, the only ACA provision that the GOP was able to effectively repeal in 2017, will raise premiums in the marketplaces by about 10% as healthier people drop coverage.⁸⁸ In other words, it was at best a half-truth that the GOP's plans would make premiums cheaper, which undermines its primary theory of cost control.

5. ASSESSING THE GOPS PLANS' THEORY OF COST CONTROL

Without comprehensive policies aimed at controlling health care costs, the Republican plans lacked a general theory of cost control. To be sure, proponents of the GOP's health reform bills did not really tout them as a vehicle to reduce health care costs. The exception was President Trump, who tweeted the day that AHCA passed the House, “Insurance companies are fleeing ObamaCare — it is dead. Our healthcare plan will lower premiums & deductibles — and be great healthcare!”^{Reference Trump89}

Health policy analysts, even conservative ones, attacked the ACA replacement proposals for lacking an effective plan to control costs.⁹⁰ A common conservative critique was that the GOP's bills would not restore or strengthen the ACA's Cadillac tax on high-cost, employer-based health plans and failed to curtail the tax-exclusion of employer-based health coverage, which they argued leads to inefficient care and dampens consumers' cost-sensitivity.^{Reference Capretta91} Contrary to these economic arguments, in early 2018 the Republican-controlled Congress passed a measure to further delay the implementation of the Cadillac Tax until 2022.⁹²

In broadest strokes, the GOP's collective legislative and administrative attempts to repeal and replace the ACA in 2017 sought to restore the U.S. health care market to a pre-ACA state. The theory's flaw is that the pre-ACA market to which the GOP would have returned us had runaway health care cost inflation. Returning to a pre-ACA state would not solve the rampant market imperfections that prevented competitive forces from disciplining health care spending and costs in that era.