The Affordable Care Act (ACA) has been assailed by challenges and controversy ever since its passage in 2009. Barack Obama’s signature piece of legislation has survived multiple constitutional challenges (some legitimate, some farcical), more than fifty attempts at repeal, a literal government shutdown over its passage, and a sustained deluge of vitriolic derision from the right. The policy has been dogged by controversy from the start, and the election of a President Donald Trump may finally forecast the dismantlement of the twenty-first century’s premier source of conservative hand-wringing.
The ire against Obamacare recently came into full force, with many commentators and pundits seizing on revelations of premium hikes as vindication of their opposition. Major insurers like UnitedHealth Group and Blue Cross Blue Shield have pulled out of the public exchanges due to shrinking profits, and the Obama administration itself has been forced to admit that premiums are rising. The Department of Health and Human Services issued a report estimating that premiums will rise by an average of 25 percent in 2017—for context, that’s roughly triple the 7.5 percent increase from 2015 to 2016. Certainly, these recent developments are distressing, and must not be ignored, but proclaiming Obamacare a failure is hyperbolic, as it skates over the very significant progress the law has made. With the specter of its repeal looming ever larger, a discussion of how to protect the gains the ACA has achieved, as well as an assessment of likely replacements by Trump, is more important than ever.
It would be a mistake to overlook the very meaningful strides which the ACA has made. The statute, after all, has achieved its stated purpose: reducing the number of people without health insurance. However, it accomplished this primarily through two of its most contentious provisions. The first was the establishment of government-operated exchanges for the sale of insurance plans, along with subsidies for low to medium income earners. The second was an expansion of Medicaid eligibility, with the crucial caveat, established in NFIB v. Sebelius, that the decision to accept these expanded federal funds lies with the states. The first quarter of 2016 saw the rate of Americans without health insurance hit an all-time low of 8.6 percent, the first time in the country’s history that that number has dipped below 9 percent. The uninsured rate has been on a consistent downward trajectory since Obamacare’s institution in 2010, at which time 16 percent of the population was uninsured—which makes a total of 21.3 million people who now have health insurance as a result of Obamacare. Medicaid expansion has lowered the average amount of medical debt for its enrollees by up to one thousand dollars. The outlawing of discrimination on the basis of pre-existing conditions, and the ability for young people to stay on their parents’ plans, have proven enormously popular.
All of which is to say that it is important to keep a sense of perspective—as serious of a problem as the recent rate hikes have been, they should not obscure the benefits the law has produced. It must also be noted that the problem of rising premiums is not nearly as disastrous as many pundits make it out to be. Many experts consider the 2017 premium spike to be a one-time course correction due to plans being underpriced, and a whopping 85 percent of exchange enrollees will not be significantly affected by the price increases anyway, since they are shielded by government subsidies that will increase in tandem; three-fourths of consumers will still be able to find plans for less than one hundred dollars a month. In reality, the number of people who will bear the brunt of these premium increases is relatively small—around 9 percent of the population gets its insurance through the individual markets of which Obamacare is a part, and, again, 85 percent of that number won’t be affected in any meaningful way. The remaining 15 percent of the 9 percent is composed of two types of patients: those who don’t qualify for the federal subsidies because their incomes exceed 400 percent of the federal poverty line, and those afflicted with such chronic (and costly) health conditions that even with the rate increases, they will be much better off than if they were paying their costs out of pocket. Thus, the number of people who will really feel the squeeze of the premium increases is relatively small compared to the number of people who will no longer be staring down financial ruin as a result of an unforeseen and unpreventable medical emergency.
The biggest problem with Obamacare is the insurers pulling out of the exchanges, and the premium increases which are accompanying their withdrawal, and any attempt to alleviate these problems will require an accurate diagnosis of what exactly they stem from. Insurance companies are losing money to the tune of tens of millions of dollars—but why? The core of the problem is an insufficient number of new, healthy enrollees. Like all health insurance, Obamacare exchange plans operate on the idea of shared risk. Certain customers will be healthier than others, and will very rarely, if ever, have to access health care. The premiums these healthy customers pay offset the cost of the frequently astronomical medical bills that the insurance company picks up on the part of the sick people. For the insurance company, the ideal situation is having a lot of the former, and as few as possible of the latter, because this garners the most profit. This is why the customers of a health insurance company are referred to as their “risk pool.” The problem with Obamacare is that the risk pool is far smaller and sicker than anticipated, leaving the insurers stuck with lots of costly patients without enough premium intake from healthy people to balance them out.
Before the ACA, insurers were able to balance out their risk pool by simply opting to not sell insurance to patients with pre-existing conditions, since these people were virtually guaranteed to have large bills. But the ACA has made this kind of discrimination illegal. Thus, the best option left for insurers was to try and draw in as many young, healthy people (who would not be accessing health care frequently, if at all) as possible. These are the customers from the ages of 18–34, or the so-called “young invincibles”—this was the reason behind the administration’s big social media push. Unfortunately, not even the magic of Zach Galifianakis was enough to boost youth enrollment to sufficient levels. Experts estimate that at least 35 percent of the risk pool needs to be composed of customers aged between eighteen and thirty-four for the markets to be financially viable, but right now, the number hovers around 28 percent.
Furthermore, the individual mandate, playing the role of the proverbial stick which accompanies the carrot, was supposed to provide an additional incentive for the uninsured to sign up by leveling a tax penalty on those without a qualified health plan. However, the current penalty lacks the force to persuade enough young people to sign up, because it actually costs less than the price of a health plan. Many figure it is more cost-efficient to pay the penalty than to pay for insurance that they don’t think they’ll need, thus depriving the markets of badly-needed customers. Essentially, the problem is this: premiums are rising because insurers are abandoning the exchanges, insurers are abandoning the exchanges because they’re losing money, and they’re losing money because not enough healthy people are signing up.
An effective solution will change the incentive structure which currently dissuades young and healthy people from buying insurance. Since the problem is an insufficient number of people in the market, the solution revolves around making coverage more appealing. This could be done by rolling in certain types of care not normally included in insurance, like vision coverage and prescriptions, to make insurance seem like a better deal. Another idea which has been gaining traction lately is the institution of a public option which would compete against private insurers. Some have floated the abolition of age-based community rating as a way for insurers to make up their losses. And another possible route would be to increase the cost for not having insurance through a stricter individual mandate.
Unfortunately, the likelihood of enacting any of these changes is slim, given the the ceaselessly muttered Republican mantra of the last four years: “repeal and replace.” Without a sixty-member supermajority in the Senate, the law can’t be completely repealed, but many of its most crucial provisions can be axed through a special budgetary process known as reconciliation. That would look very similar to a bill passed by the Senate last year (and vetoed by Obama), which attempted to eliminate funding for the ACA’s Medicaid expansion, exchange subsidies, individual mandate, and employer mandate.
It now appears that repealing Obamacare will be the easy part for Republicans; far thornier will be their attempt to replace it. While the repeal process has already started, Republicans have yet to offer a comprehensive replacement bill, instead opting for a “repeal and delay” strategy which will buy them time to draw up alternatives (even though this strategy is likely to wreak havoc on the exchanges). One possible route they may choose to take is the reform plan released by Donald Trump’s campaign. Given Trump’s repeated injunctions on the importance of stopping “people [from] dying on the streets” because of a lack of health care, it’s a shame that his plan would result in exactly that. Outside experts have estimated that almost twenty-one million people would lose their health insurance under Trump’s plan. Trump has promised to keep the very popular provisions of Obamacare which ban discrimination on the basis of preexisting conditions and allow children to stay on their parents’ plans. Unfortunately, the reality of the legislation is a bit more complicated than picking and choosing the parts you like. The discrimination ban can only function when paired with the parts of Obamacare that Trump presumably would repeal, such as the marketplaces and individual mandate, which compel healthy people to purchase insurance and balance out the risk pool. Otherwise, the risk pool will be overwhelmingly composed of the very sick—to a much greater degree than it is right now—and premiums will spike dramatically.
Trump’s plan isn’t the only alternative that has been proposed by Republicans, although even the best of them offer little comfort. Most notably, Speaker of the House Paul Ryan unveiled his “Better Way” plan back in June. Modeling of its effects estimates that it would result in a coverage gap of four million people, and that’s not even accounting for the plan’s disproportionate impact on the elderly and the poor. The plan as it exists now is quite vague, but it includes a number of familiar conservative proposals, such as allowing insurance sales across state lines and emphasizing “health savings accounts.” A few of its provisions in particular demand closer scrutiny.
Better Way would privatize Medicare by establishing a system of “Medicare exchanges” wherein private insurers compete with the government and customers receive vouchers to pay for plans, hypothetically increasing the program’s efficiency and alleviating cost overruns. This argument ignores the fact that Medicare is already more efficient than private insurance, and that Obamacare has helped to rein in its costs to historic lows. Beyond the nonexistence of the purported efficiency issues, privatization is misguided because it would actively harm those Medicare is supposed to help: studies have consistently demonstrated that privatized Medicare plans perform worse than those run by the government. The reason why Medicare was established in the first place was that insurers didn’t want to insure the elderly at all, which led firms to charge premiums well beyond what many could afford. Consequently, many seniors found themselves in catastrophic financial situations when they got sick. Privatization would herald a return to these conditions, and vouchers are likely to make little difference, especially when their value will rise at a much slower rate than the costs: estimates indicate that by 2022, healthcare spending under privatized Medicare would take up half of a typical sixty-five year-old’s Social Security check, as opposed to 22 percent right now.
Proceeding with the same anti-government zeal, Better Way would convert Medicaid from an entitlement to a block grant. This means that instead of simply providing coverage to the eligible, the federal government would distribute a set amount of funds to the states and charge them with that responsibility. Spending would be capped beforehand, instead of expanding to meet need. Proponents argue that this would pave the way for greater efficiency, increased flexibility, and lower federal spending. Block granting certainly would trim federal spending, but it would do so by simply failing to provide coverage to those who need it most. The massive reductions in spending (Ryan’s 2013 plan was projected to cut Medicaid by about half the program’s total budget) would have to be compensated for either with increased state funds or restricted eligibility—and what are the chances that Republican-controlled states will pony up the funds to subsidize the welfare of the poor? Past experiments with block granting prove that states, especially Republican-controlled ones, will just use the money as a slush fund for other projects. Intuitively, spending less on Medicaid will result in fewer people getting covered; block granting is estimated to result in tens of millions of enrollees losing their coverage.
Like Obamacare, Better Way would also offer tax credits for purchasing insurance, but would base those credits on age instead of income. This effectively means that an elderly and wealthy person like Bill Gates would qualify for a subsidy, but a young and poor person wouldn’t. Together with the gutting of Medicare and Medicaid, these changes would effectively favor the wealthier and the healthier at the expense of the poorer and the sicker. The result would be chillingly reminiscent of the pre-Obamacare days, with millions of poor people unable to afford the insurance they need.
The future of America’s health care policy looks bleak. The gains made by the ACA have never been at greater risk, Donald Trump’s proposed replacement is likely to be disastrous, and the most likely conservative alternative is still a far cry from sufficient. But not all hope is lost: perhaps Trump will advance a more robust health care policy, or, if he sticks with his current plan, perhaps moderate Republicans will balk at its sheer incompetence. For Congress to snatch away the health insurance of over twenty-two million Americans would require a truly monumental indifference to its constituents. Many Republicans may well conclude that the political cost will be too great. However, as of now, the signs point towards millions of Americans once again being left out in the cold, without health insurance, facing financial ruin because of some unforeseeable medical calamity, or dying because they can’t afford the exorbitantly expensive health care needed to treat their condition. As important as the policy details are, equally important is an understanding of why those details matter. We must remember that lives are quite literally on the line, and a health care system under which people who fall ill or have an accident are driven into bankruptcy is not one which is doing its job properly. The ACA has done much to move us away from that kind of system, but we may be going back soon.
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