In the tradition of sweeping federal statutes, the U.S. healthcare law passed in March, 2010, received a grandiose official name: The Patient Protection and Affordable Care Act. Known popularly as Obamacare, it may be the most misunderstood law to be enacted in recent years. Given how rocky its first few weeks of existence have been, let's assess how viable Obamacare may be in the long run, and what could replace it should it fail. In the interest of full disclosure, I am one of the 4.2 million individuals who had his insurance cancelled as a result of Obamacare, insurance I felt was perfectly acceptable. I will now have to pay more for coverage I don't want.
The Main Points
The act itself runs 389,365 words long, or 823 PDF pages, so encapsulating its salient points and thwarting any misconceptions requires a summary of a summary of a summary. Here’s a short version of what the law entails:
- An individual mandate to purchase health insurance - You don’t have a plan via your employer? Even if you visit your physician annually as recommended, and pay out-of-pocket, that’s now unacceptable. Fail to purchase health care insurance, and you’ll pay a fine.
- An employer mandate to purchase insurance - If you have 50 full-time employees, you have to purchase insurance for them and if you work for said company, it must offer you health insurance. One way around this is to cap workers’ hours under the full-time threshold of 30 a week.
- Uniform pricing on the part of health insurers - Are you a male triathlete who subsists on nothing but steamed broccoli and skinless chicken breasts? Or an obese, sedentary female with a fifth-of-bourbon-a-day habit? Congratulations, if you’re the same age, you’ll be paying similar premiums.
- Minimum policy standards, regardless of what fits you - If you’re a celibate Buddhist monk, your plan must cover HIV screening and counseling. A woman in a healthy marriage to a respectful man? Your plan has to cover domestic violence screening, because you never know when he might turn on you.
- Taxpayer money for those who buy Obamacare-approved policies - If you make up to quadruple the official federal poverty level – $45,960 for a single person in the lower 48, slightly more in Alaska and Hawaii – you pay less than face value for your mandated policy. The federal government will credit you and send the rebates directly to your insurer.
Insurers in the pre-Obamacare world chased profit, just as any other business would. That meant doing some actuarial work, figuring out how much it would cost to insure particular demographic groups of customers, and pricing accordingly. A diabetic is going to need insulin, and his non-diabetic neighbor with similar vital statistics won’t. Such assessments account for some of the discrepancies in costs between the two policyholders' plans.
The most visible manifestation of Obamacare is the health insurance “exchanges,” one for every state. They’re essentially
a health insurance versions of Expedia or Priceline, or they would be if they were functional enough to enroll people into plans. South Dakota’s exchange is averaging 1.9 signups per day, a rate that will cover everyone in the state by the year 3233, assuming no one is born in, nor moves to, South Dakota in the next 1,220 years.
The Main Flaw
The individual mandate is the keystone of Obamacare, a metaphor that fits on multiple levels. Remove the individual mandate, and the remainder becomes structurally unsound. Why? Because of the situation that Obamacare was enacted to counter: millions of people not having health insurance. The usual estimate given is 47 million, which is often cited without asking a more fundamental question: How many of those people don’t have health insurance because they’d rather spend money on something else?
To a healthy 25-year-old with decades ahead of her and relatively low premiums available for purchase, forgoing insurance means having more money to spend elsewhere: rent, gas, even shoes. This near-uniform pricing among age groups means necessarily overcharging the young and virile folk while undercharging the older and hospital-prone. As the former outnumber the latter, the former’s participation is crucial to making Obamacare work.
The idea of insurance is to pool risk, but under Obamacare you can’t do much to lower your health risks and also reduce your premium (other than quit smoking). Risk here is being pooled without regard for conditions or predispositions. Buy an old cabin in the middle of a National Forest, miles away from the nearest fire station, and your fire insurance premium will be greater than that for the new house with the smoke alarms and sprinkler systems that sits adjacent to a firehouse. And that’s assuming you could even get insured in the first place. If fire insurance were written according to the rules of Obamacare, you wouldn’t pay extra for the “pre-existing condition” of your house being constructed in a place where fires are inherently hard to extinguish.
Obamacare opponents understand both the importance and fragility of the individual mandate. Postponing it for a year or otherwise weakening it would seem fair to the tens of millions of Americans who a) never wanted insurance in the first place; b) recently had their policies cancelled or their prices increase through no fault of their own; and/or c) can’t get on Healthcare.gov to buy a policy. But getting rid of the individual mandate would make it impossible to sustain the subsidized policies being sold to those with pre-existing conditions (and cited as a positive aspect of the legislation.)
Political pressure to weaken the mandate is growing, as even some of Obamacare’s most ardent supporters are looking for ways to modify the law. Senators Mary Landrieu of Louisiana and Dianne Feinstein of California co-sponsored the “Keep Your Health Plan” bill. The bill, which was passed on Sept. 14, allows health insurers to sell individual coverage throughout 2014, even if it doesn’t meet the Obamacare standards. Had the mandate been deferred, the inevitable reduction in insurance company receipts would likely spell the collapse of the whole system.
There’s also the slim possibility that the federal government could completely disengage itself from the private health insurance market, allowing Anthem Blue Cross/Blue Shield, Wellpoint and their competitors to provide salable policies that people want to buy. The new Obamacare-compatible plans must cover conditions that buyers don’t necessarily want/need to be covered for. By including that extraneous coverage, the policies often become too expensive to buy, and thus impossible for insurers to profit on.
One thing’s certain, however: the current trajectory of federally mandated health insurance is unsustainable for much longer. Even if the websites were working perfectly, there’s still the matter of millions of people having already lost their coverage via cancellation notices, which were sent out as a direct result of health insurance now being federally mandated.
So what practical alternatives remain? Repeal of Obamacare requires a veto-proof majority in both houses of Congress, unlikely given that the Senate is controlled by Democrats. Besides, there remains the problem of asymmetric risk. Obamacare sells artificially expensive policies to low-risk insureds while selling artificially cheap policies to high-risk insureds, which can work in the short term. But allowing the former to opt out would make a new system inevitable, given that there’d be insufficient money coming in to cover those difficult to insure. The healthy and resilient by definition outnumber the sick, i.e. those who consume the most health-care resources per capita. Selling high-risk policies at below market price requires subsidization of some sort. If not from the low-risk insureds, then possibly from taxpayers at large.
The Bottom Line
Despite noble goals and intentions, healthcare reform is now poised to get worse before it gets better. Insurers continue to send out cancellation notices several dozen times faster than people are signing up for Obamacare-compliant policies. Given that federal law by definition affects all citizens, the only course of action for someone looking to save on healthcare expenses in the limbo of Obamacare’s aftermath is to shop around or, failing that, pay the fine for non-coverage. Oh, and don’t smoke: tobacco users are the only remaining group whom it’s still legal for insurers to punish with discriminatory pricing.
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