The Affordable Care Act, popularly known as Obamacare, is the focus of plenty of heated and divisive arguments. The sweeping health insurance overhaul sounds great in theory, but many industry experts and others nerdy enough to crunch the numbers will tell you: This legislation faces major roadblocks in its goal to expand health insurance coverage.
To back that up, we’ve assembled this handy, argument-winning cheat sheet.
Before we dive into the killer conclusions that will make you look like a wonk extraordinaire, let’s brush up with a quick overview of the landscape and how Affordable Care Act aims to expand coverage.
Got that? Ok, time to win some arguments…
1. If they say: Insurance companies won’t be able to deny coverage to people with preexisting conditions, or be able to charge a lot more to cover older or sicker people than they do young and healthy people.
You say: That’s actually going to make coverage cost more for the majority of people—which isn’t a good thing for anyone.
These two changes—guaranteed issue, or the reform saying insurers must offer coverage to everyone, and community rating, which means that there is a 3:1 ratio for the cost of coverage for the riskiest consumer to the least risky—will mean widespread changes for all segments of the health insurance market. In the 90’s, 10 states tried making it so coverage couldn’t be denied to those with preexisting conditions, and pricing could not vary much between the riskiest and least-risky consumers—two changes that the Affordable Care Act implements nationwide. Those states experienced a phenomenon that’s known as the Adverse Selection Death Spiral. If everyone can get coverage, and coverage is not more expensive to buy when you’re sick than when you’re healthy, then healthy people will wait until they are sick to buy insurance. So only sick people are buying insurance, and this drives the cost of coverage up.
These reforms to underwriting will have very different effects on different segments of the health insurance market. A study by Milliman looked at the implications of implementing the Affordable Care Act in Ohio, and found that premiums should increase (on average) 55-85% above current market averages for the individual market, 5-15% for the small group market, and 3-5% for the large group market. There is a misconception that the large group market isn’t affected by the new legislation, but as coverage costs rise and the employer mandate proves an ineffective enforcement mechanism (as I discuss below), many consumers may be forced into the individual market, where they won’t necessarily be able to afford the coverage that’s available.
2. If they say: The individual mandates makes everyone buy insurance, which will mean more people will have coverage, and stop the adverse selection death spiral.
You say: That’s only if the individual mandate works—right now, estimates say millions will choose to pay the penalty rather than buy insurance.
The individual mandate is necessary—it makes the healthy get in the pool and diversify the risk profile, normalizing coverage costs. Governor Romney found he needed one with his health care reform in Massachusetts. BUT the penalty is going to be just $95 in 2014, phasing up to $695 in 2016. In the short term, paying the penalty will be cheaper than buying insurance. Which option would you pick?
And in the long-term, it will still cost less:
Source: Milliman Research Report, “Measuring the Strength of the Individual Mandate.” Mar. 2012.
This chart compares the out-of-pocket cost of premiums of a “bronze” plan, or the basic, lowest level coverage (the green line), with the individual mandate penalty at projected levels in 2016, for a 35 year-old person (blue line). As you can see, the researchers found that if the person’s income exceeds 200% of the federal poverty level, the out-of-pocket costs of premiums dramatically exceed the individual mandate penalty. Between 300% and 400% of the FPL, they found the penalty could be as little as 25% of the cost of premiums for the lowest level of health insurance coverage. (Note: the FPL is currently $11,170 for a one-person household, making 300—400% currently $33,510—$44,510).
The Supreme Court itself held up the individual mandate’s toothless nature as proof of its Constitutionality. Chief Justice Roberts cited a Congressional Budget Office study that predicts four million people per year would pay the IRS the fee rather than buy health insurance. “We would expect Congress to be troubled by that prospect if such conduct were unlawful,” Roberts wrote in his majority opinion. “That Congress apparently regards such extensive failure to comply with the mandate as tolerable suggests that Congress did not think it was creating four million outlaws.” So the penalty is legal because it is not a strict enforcement mechanism—meaning it will not work.
3. If they say: Medicaid will be expanded, so it covers more low-income people.
You say: Yes, but the Supreme Court decided to make the expansion of Medicaid optional for states—and many already said they will not expand their programs.
The Affordable Care Act will drastically expand Medicaid. In fact, of the 30 million people who are supposed to be newly insured under the reform, half of that is envisioned to be via Medicaid. But Medicaid is jointly funded by state and federal government, and managed by states (within federal parameters).
The Supreme Court said that it would be unconstitutional for the federal government to withhold funding from states’ existing Medicaid programs if they did not expand to the ACA’s new level of coverage. So there is no enforcement mechanism for the expansion, and many states (including some with the highest concentration of Medicaid enrollees, such as Texas and Florida) have already said they will not expand their existing programs.
4. If they say: Even if the exchanges offer expensive health coverage, low-income people will get subsidies, so they don’t have to pay the full amount for the coverage.
You say: The subsidies aren’t enough to make a difference for the low-income people they’re designed for.
The eligibility for exchange subsidies is determined by the federal poverty line. Subsidies will be available for individuals making up to 400% of the FPL—that’s about $43,000/year currently for a one-person household. If you make less—say $22,000 a year—are you going to pay a hundred dollars or more per month, unless you really need the coverage? And for those making above $43K a year, there’s no assistance available for the potentially soaring costs of health insurance in the individual market.
Also, the subsidies begin right where the expanded levels for Medicaid end. That means that plenty of people will switch back and forth between Medicaid and the private insurance systems as their income fluctuates—something that’s been found to cause provider network disruption, translating to poor health care access, and also can result in a loss of coverage if enrollees don’t transition successfully to private insurance.
Imagine your income is 133% of the federal poverty level, and then it goes up to 140% due to a raise in pay or new job. Now you need to re-enroll in a separate health care plan, and start to pay the balance of the premiums that the subsidies don’t cover. Studies found that up to 40% of adults who are under the 133% threshold would experience income fluctuations that disrupted their Medicaid access in a six-month period.*
5. If they say: The Affordable Care Act will compel more employers to offer coverage.
You say: Employers can choose to pay a penalty instead of offering coverage—and the penalty will be less than the cost of providing coverage.
Compare a $2,000, or even $3,000, penalty with the average costs of insurance coverage today to an employer: $5,000 a person, and $15,000 a family. Also, there’s a loophole: the penalties kick in when at least one employee buys a subsidized plan on an exchange. So, if the subsided coverage for sale on the exchange were not affordable to employees, the employer would not have to pay the penalty. Remember, too, that the employer mandate only applies if you have 50 or more full-time employees—about 1/3 of the workforce getting employer-sponsored care falls outside that group.
Some studies have shown as high as 30% of employers will choose to pay the penalty rather than continuing to offer insurance. That study notes that the legislation might discourage employer-offered coverage because the changing health care landscape would eliminate the moral responsibility of providing health benefits that’s historically been implicit in an employer-employee relationship. Right now employers offer benefits to retain long-time employees and attract talent—but will the existence of the exchange marketplace change that? It could become simply a business decision. So long as the cost of coverage outweighed the penalty, it will be an attractive option.
So there you go. This is all you need to be a hit at your next dinner party.
It’s unfortunate that many arguments taking place about the Affordable Care Act aren’t informed at all. A recent study from Stanford University researchers found that only 29% of a large and representative sample of U.S. citizens knew that the bill makes health insurance for sale for every American. Beyond knowing the basic components of the bill, how about knowing how the components work together? The number of people with a good understanding of the whole system of changes drops even lower.
In the absence of knowing enough to win arguments with facts and logic, the debates going on about the ACA just take place along party lines, with plenty of rhetoric and misinformation thrown in. Break the cycle, and go out there and win some arguments!
* Sommers, Benjamin D., and Rosenbaum, Sara. “Issues in Health Reform: How Changes in Eligibility May Move Millions Back and Forth Between Medicaid and Insurance Exchanges.” Health Affairs, Aug. 2011.
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