Here we are a
little over six years, and two Supreme Court challenges, after enactment of
President Obama’s signature piece of legislation, The Patient Protection and Affordable Care Act (also known as ACA
and Obamacare), and today’s question is how well is it doing?
To answer
that question, I think it important first to remind ourselves what the
Administration and the Congress said when it was enacted. What did they promise?
Much has been
made of the promises of the President, i.e. “if you like your Doctor you can
keep him, if you like your insurance you can keep it, etc.” but as in most
things said by the government the devil is in the details and the marketing BS
is usually just that. At the end of the
day what were the real expectations by those who wrote the legislation?
When it was
enacted by the Congress it promised: Lower costs, coverage for those previously
uninsured, removal of co-payments and coverage caps for essential services, an
on-line exchange to promote competition, subsidy payments for those who could
not afford the costs of mandated insurance, penalties for those who chose not
to participate, and changes to Medicare and Medicaid to improve affordability,
and penalties for small business and corporations that did not provide
government approved coverage for their employees.
I don’t
intend to get into the philosophical debate on whether universal health care is
a human right, and an obligation of the government, or rather an undue
imposition on a free market system.
Those who have opinions on this have already made up their minds on the
answer and nothing I will write will make any difference to them. I intend only to examine, with the help of
the internet, how well the administration has kept its promise, and where it
has fallen short perhaps look at why.
The one caveat I will make - is to point out we, the United States of
America, already spend more on individual health care per capita than most of
the rest of the developed world, and we as a nation also spend way more on
everything than we take in through taxation and tariff. Just to be clear when we create a new program
it comes with a cost. That cost is
either paid through our revenue or our borrowing. Right now these programs are part of our deficit
spending.
So let’s get
to the discussion.
At its
enactment, the proponents for the ACA said it would lower an average family’s
health care costs by about $2,500 per year.
According to Forbes what we have actually seen is a continuation of
straight line growth in costs that far exceed a simple inflation index. For example, at the time of the ACA enactment
the average family of four’s annual cost of health care was $18,074 (this
included employer contributions, employee contributions, and out of pocket expenses). In 2013 that cost had risen to $22,030,
averaging over $6.5% per annum (a bit lower than the historical average), in
2015 (one year after full enactment) that annual cost had climbed to $24,671,
or a 4.5% per annum increase[i]. So, from what I find on Forbes, and the
Milliman actuarial firm’s analysis, this promise of lowered costs goes unmet. One could and I suppose the government would
say it has seemed to have a relatively minor impact (lower slightly) on the
cost growth medical care has seen since the mid-90s.
The ACA
changed the way the health insurance industry managed its risk (to maintain or
increase their profitability). Under the
ACA the insurance companies must: allow young people to remain on their parents
plans until 25, not drop customers who get sick while insured (i.e. reach their
insurance caps), remove limitations for pre-existing conditions, and finally
establish requirements for essential services and limit co-payments. Essential services are defined by the
government as covering about 8 to 10 specific areas ranging from ambulatory
care to pediatric care.[ii] Of course this government requirement
directly affects the profitability of the health insurance industry so there is
a quid pro quo requirement the government placed on the citizens and the taxpayer. Specifically, all eligible people are
mandated to have insurance and therefore increase the number of healthy people
who will pay the costs of the sick. The
legality of this requirement was the basis for the first challenge to reach the
SCOTUS. In National Federation of Independent Business v Sebelius[iii]
the court ruled the mandate equated to a tax and Congress had the right to
impose such a tax.
Obviously it
has been easy for the government to mandate the changes to industry standards,
but in those mandates it has also attempted to continue its push to fully
mandate the inclusion of abortive services on those organizations who sought to
claim a religious exemption provided under the Religious Freedom Restoration
Act (an act proposed by Democrats, passed almost unanimously by the House and
Senate, and signed into law by a Democratic President[iv]). In Burwell
v Hobby Lobby[v]
the court found for the defendants, forcing the government (i.e. Department of
Health and Human Services) to develop a compromise position that ultimately
overcame the defendants objection of having to pay for services they found
morally objectionable.
Now we come to
the question of the individual mandate.
This individual mandate is central to the success or failure of the
ACA. For those who don’t understand how
insurance works it is really simple. You
might not like it, but it is really simple. Think of it as a Las Vegas table
game. A group of investors, really smart
people, get together to bet that something will not happen. They have looked at all the odds, they have
weighted all the possibilities and they think the odds are a ship won’t sink, a
plane won’t crash or you won’t get sick.
They then offer this bet to the person who wants to be protected if
something bad happens. They know the
odds, and are willing to take some risk, but they also want to win the bet so
they don’t enter into the agreement haphazardly. They make similar bets with all kinds of
people. What they want to do is bring
down their risk to as low as possible.
If they only insured people who know they were going to get sick they
would not make a return on their bet, so they would have to charge the person
who was sick a lot more. What they want
is a pool of really healthy people who are paying to cover the cost of the
people who do get sick. To help them out
with this the Government promised them it would make all the healthy young people
buy insurance to cover the cost of paying for the older sick people. This is the individual mandate. If you do not buy the insurance the
government promised to insurance companies you would buy then they will lose
money, stop insuring people, or raise the rates as we have seen for the past 40
years. To incentivize you to buy the
insurance they threaten you with a penalty in the form of an increase to your
taxes. If too many people choose to pay
the penalty the cost of insurance goes up.
It is in the
Government’s interest to paint a rosy picture about how many people are
enrolling for insurance under the individual mandate. In the first enrollment period in late 2013
to mid-2014 the government claims that over 8 million Americans signed up. They are proud of the fact that of these 8
million about 2.2 million are in the young (18 to 34) age group. What goes unsaid is that about 5.8 million
would be in the older age groups more likely to need the insurance they are buying. As Kavata Patel of the Brooking Institute[vi]
points out this skewing of sign ups was not totally unexpected and the ACA has
provisions for allowing the health insurance companies to increase rates to
address the increased risk.
According to
the IRS (always a trustworthy source), almost an equal number of people (7.5
million) chose to pay a penalty rather than sign up for insurance. Additionally, another 12.5 million claimed
exemptions that allowed them to not sign up. This is significantly higher than
what the administration had projected and does not bode well for the ACA if the
trend continues. At the end of the day
there are still 48 million Americans who do not have health care coverage. I don’t believe this accounts for all the
illegal refugees the administration has allowed entry so the number may be
significantly higher.
To improve competition,
the ACA called for states and the Federal Government to establish on-line
insurance registration where an individual should, in theory, be able to shop
around and get the best insurance for their personal needs at the most
affordable rates. This on-line exchange
was supposedly modeled on what Massachusetts had established for its statewide
programs. We should all recall the
fiasco that Secretary Sebelius and the Department of Health and Human Services
went through as they tried to launch the federal site.
Research
shows the federal government has spent over $5 billion dollars trying to get
the state exchanges up and running with a variety of successes and failures. A significant number of states have opted not
to even establish a state exchange. From
what I see only 17 of the 50 states have established an exchange,[vii]
so competition certainly cannot be at the levels expected by the proponents of
this legislation. This fact is probably
a significant contributor to the lack of participation and the increased costs
of insurance the ACA has seen.
The next
thing ACA did was to authorize subsidies for those who can’t afford the
insurance. We can debate the pros and
cons of this, but so far no one seems willing to discuss the only germane
question. What do we not do to pay for
this? So far no one is willing to say
how the government will balance the books.
Next we come
to changes in Medicaid (state and federally funded programs for the poor and
those with approved disabilities) and Medicare (federal program for the
elderly). The ACA changed the eligibility
requirements for Medicaid, upping the income eligibility to 133% of the poverty
level. For Medicare there is a fundamental
shift in how the government intends to reimburse the doctors and hospitals that
provide care. More on that in a couple
of paragraphs.
Since
Medicaid is jointly run by the states and the federal government it is hard to
say definitively that everything is good or bad. The ACA has in a number of cased
significantly expanded the eligibility of the disabled to gain access to
Medicaid, and the ACA promises to fully fund the expansion of coverage for the
first three years and then fund only 90% of the cost after that. Prior to the ACA Medicaid covered roughly 60
million citizens, after ACA it is estimated fully half of the newly insured
people will come from the Medicaid expansion.
This is obviously a bill directly to the taxpayer or an increase to the
annual deficit.
Medicare and
Tricare remain as previously defined in law, but ACA funds the expected
Medicare bills through 2029 (assuming Congress actually does what it
promises). The most significant change
is how Medicare will reimburse the Doctors and Hospitals for care.
When the ACA
was enacted people like Sarah Palin talked about “Death Panels” who would make
a determination on the amount of heath care an individual would receive. President Obama assured the nation that was
not true, and the press ridiculed her for not knowing what she was talking
about. The Democrats remained united
that this would not happen. Well it
turns out she was kind of right. It all hinges on the way the medical
profession is compensated for their efforts.
Prior to
enactment of the ACA Medicaid reimbursed Doctors and Hospitals for services
rendered. It is alleged that is why your
doctor orders 18 different tests to determine your headache is not a brain
tumor, or why the hospital bills you for using the toilet, or why each tissue
you use is inventoried and billed to the government. Under the ACA there is an expectation that
payments will be made on an outcome basis.
Specifically, different illnesses have different expected outcomes and
costs. Rather than reimburse the Doctor
or Hospital for what they have done, the government will provide a sum of funds
available for treatment with the expectation the doctors/hospitals will spend
that money wisely to insure the best possible outcome for the patient. The problem comes up when the funds run out
and the government says they won’t pay anymore and the patient is still
sick. If medicine were an exact science
and patient care was fully understood and standard this might work, but I think
we can agree it isn’t. So somewhere
along the line the Medical Professional will have to make a call, do I continue
treatment or do I cast the patient off for someone else?
So who
decides what the appropriate outcome based cost reimbursement schedule should
be. Why a group of bureaucrats and
medical experts sitting on a panel in Washington of course. What could possibly go wrong with this?
Finally, the
ACA said that employers must provide group health insurance and pay their employees
enough so they can afford any co-payment.
This has an obvious impact on the number of employees a company may
hire, but so far that is okay for the proponents. The limited job growth does not seem a
reasonable excuse for those who want universal insurance.
Summary:
We see that
the ACA has failed on reducing the cost of health care for the average
family. It is more expensive today than
it was when enacted and it does not appear that it will reduce costs anytime
soon. Why? I think the answer to this is the fact the
government proponents entered into this contract with the people and the
insurance industry by placing the insurance industry’s needs and wants first. They laid out a series of talking points and
lies to convince the people it was a good deal, but at this time it is only
making the insurance companies richer.
It has been
successful in expanding coverage of the poor, the sick and the disabled, but it
has failed to draw in the requisite number of healthy people to offset the
costs. This will mean future year costs
for those who pay for coverage will be more expensive then the estimates show
today.
The outcome
based reimbursement schedules have not yet been fully implemented so it will be
interesting to see how that affects the medical professions willingness to work
with the Medicare dependent elderly.
In
conclusion: I found this video to be a
good (i.e. neutral) summary of what ACA is supposed to do.
