5 Ways Obamacare Will Fail, Revisited

Few laws in history have inspired such a bifurcation of opinions as the Affordable Care Act, the law affably known as Obamacare.

Source: White House on Flickr.

On one hand there are plenty of supporters of this controversial health-care reform law that believe it'll curb the rate at which medical costs are increasing by spreading out premium costs across a greater number of citizens. In the other column, those who oppose Obamacare believe it won't do a thing to slow rising medical costs and view it more as a government intrusion of their rights as a citizen to choose whether or not they want to purchase health insurance.

Understanding this blatant difference of opinion I offered up my predictions a little more than a year ago on the "5 Ways Obamacare Will Succeed," as well as the "5 Ways Obamacare Will Fail." The goal of these articles was not to demonstrate that one side or the other would end up completely in the right (I figured it would likely be a melding of the two), but rather to demonstrate the potential and challenges that the law would face over the coming years. With a full year of enrollment now under our belt, I'd suggest it's time to take a closer look at my projections and determine how accurate they were.

Today, we're going to revisit my bearish thesis, "5 Ways Obamacare Will Fail," and determine how spot-on or off-base my predictions turned out to be.

Prediction one: health insurers will keep most of their leverage.
The primary basis for this prediction was a 2013 decision from the Centers for Medicare and Medicaid Services which would have dropped Medicare Advantage reimbursements by 2.3%. Instead, the CMS reversed course a few weeks later after heavy lobbying from the insurance industry and increased Medicare reimbursements by 3.3%. Following this decision it looked as if HMOs would stay in control of pricing their plans.

The verdict: Thus far I'd call this projection mostly debunked. Rather than pricing their plans however they'd like insurers have had to submit their proposals to the Office of the Insurance Commissioner where bargaining on those rates often ensues. Online marketplaces do seem to be doing a good job of allowing consumers to make educated side-by-side comparisons of health plans, causing insurers to remain more competitive on their pricing. Of course, Obamacare tax increases and higher branded drug prices are also pushing insurer premiums up, so they certainly haven't lost their ability to request price increases, either.


Source: StockMonkeys.com, Flickr.

Prediction two: premiums will continue to rise.
The idea that insurance premiums would continue to rise stemmed from a study from the Society of Actuaries which predicted that 37 of 50 states would see premiums rise by 20% or more over the next four years. The SOA believed adding higher-risk and sicker patients to the coverage pool would adversely impact insurance rates and push them markedly higher.

The verdict: This has mostly turned out to be true, although we should keep a couple of things in mind. First, Obamacare was never designed to lower medical costs, but simply to keep them from ballooning out of control. Although most of the early stage premium proposals that we've witnessed are for mid-to-high single-digit increases, there have been a couple of instances where premium price reductions are being requested, such as from Molina Healthcare (NYSE: MOH  ) in Washington state.

The second point here is that pricing Obamacare plans is just as much a learning curve for insurers as it is for consumers. Molina Healthcare, for instance, has never dabbled in the individual health insurance market previously, so they might as well have been playing pin the tail on the donkey with premium pricing prior to 2014. As the uninsured rate drops and insurers get a better bead on what the make-up of their member base looks like (i.e. sick members versus healthy), then it's quite possible that premium prices will be less volatile in each successive year.

Prediction three: it will encourage job and R&D outsourcing, as well as domestic hourly cutbacks.
The expectation that Obamacare's implementation would lead to a lack of enterprise innovation and outsourcing was based on the actions of a few select businesses, such as Stryker and Wendy's, which cut jobs or hours specifically in response to the higher labor force costs associated with the health reform law.

The verdict: Again, it would appear that after one year half of this projection has proven true. With very few exceptions American businesses have not moved their operations overseas to avoid Obamacare. However, we have seen a number of businesses cutting workers' hours to part-time in anticipation of the full implementation of the employer mandate by Jan. 1, 2016. Regal Entertainment Group (NYSE: RGC  ) , the nation's largest owner and operator of movie theaters, cut thousands of its employees to part-time last year in direct response to Obamacare. As long as workers average fewer than 30 hours per week employers aren't required to provide health-care options for them as Regal has shown.

Of course, not every business is looking for the cheap way out since the building or maintaining their brand image depends on it. Darden Restaurants (NYSE: DRI  ) , the company behind The Olive Garden, had tinkered with the idea of moving its full-time staff to part-time, but ultimately decided that the damage it would cause in customer-server relations would be greater than the money it would save by pushing employees to part-time.

Prediction four: hospitals and physicians will be overwhelmed with the influx of millions of newly insured people.
The idea here was that Obamacare was going to allow millions of previously uninsured persons to be insured, but that physician growth in the U.S. has been generally anemic for years. If newly insured people decide to take advantage of preventative care and emergency room visits then our physicians and hospitals could wind up being overwhelmed by an influx of patients, adversely affecting the quality of patient care.


Source: Adrian Clark, Flickr.

The verdict: The truth is that we're going to need more time to determine if this projection is accurate or not. Through the first few months emergency room visits didn't surge, but that appears to have been more a function of the polar vortex keeping people in their homes than anything else.

The signs would appear to point toward an eventual surge in ER visits. A number of doctors simply don't accept Medicare since the reimbursement rate is sometimes viewed as too low, so patients will simply opt to go to the ER instead. Also, with our population aging and living longer the chronic needs of the elderly could mean an ER surge is on the way whether Obamacare is implemented or not. This topic will be worth a further look, but with a study from Health Affairs noting a juicy 8% margin on hospital emergency departments (which may only head higher), the potential for our nation's largest hospital operator HCA Holdings (NYSE: HCA  ) to make bank from privately insured individuals appears very real.

Prediction five: The middle class will pay, pay, and pay some more.
Lastly, the premise of this projection was that higher taxes on upper-income individuals wouldn't prove to be enough to fund Obamacare's Medicaid expansion. Middle-class individuals that make more than 400% of the federal poverty level (about $46,000), fall outside the scope of receiving federal aid, and even the cheapest bronze level plan can cost an average of $200 or more per month. When added to penalties that will total the greater of $695 or 2.5% of household income for not purchasing insurance in 2016, the expectation was that the typical middle-class consumer would feel their pocketbook pinched.

The verdict: Similar to the previous prediction, the verdict here is on hold. The big unknown is exactly how many of these middle-class consumers had their policies cancelled for not complying with the new beefed-up minimum benefits requirements of the Affordable Care Act, and subsequently how many then qualified for expanded Medicaid coverage. It may be a few more months before we know the answer to this question, but consumer spending could be a possible sign. If we notice a tapering or decline in spending, or a major surge in credit balances, it could be a sign that Obamacare premiums are straining middle-class consumers' wallets.

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Read/Post Comments (20) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 08, 2014, at 7:15 PM, mchap480 wrote:

    Obamacare and extended medicaid are fully funded. There are no new taxes on the middle class to fund either one. In fact, low to moderate wage earners get tax credits. The majority of people want either Obamacare or single payer. A small minority oppose healthcare reforms for political reasons.

  • Report this Comment On June 09, 2014, at 9:52 AM, JuliaDelajusta wrote:

    Only a hyper-partisan fool would defend this mess, which is why nearly all Dems running this year are avoiding talking about it.

    Health insurance should be like car insurance and should kick in when there are major problems. Can you imagine what an oil change would cost if it was covered under your auto insurance? You don't bill your car insurance for oil changes or little scratches in your car's paint job.

    Also - unlike the gov website, auto insurance sites actually work! I pay $25/month for car insurance at Insurance Panda. With healthcare dot gov, it takes me hours to get an unaffordable BS rate. Who can afford $600/month insurance?

    All in the plan. Problems at the end so more can say they tried but couldn't so now anyone can get an extension, further helping enrollment numbers. Add this to the 38 changes made to the law since passage, the joke continues. But, it's the law of the land and cannot be changed!

  • Report this Comment On June 09, 2014, at 10:15 AM, hs321 wrote:

    Originally Obamacare was said to cost ~848 billion. Then in Feb 2014, the CBO said it would 2 trillion. In April the CBO revised it's cost to ~1.8 trillion. The Obama administration and liberals are lauding the cost reduction from the February estimate.

    Obamacare will eventually be like Romneycare. In order for it to succeed, it will have to be heavily subsidized.

  • Report this Comment On June 09, 2014, at 11:08 AM, sabebrush6 wrote:

    My daughter company dropped their employee health care and the employees had to get their own & it cost her over $400. a month vs $180. a month prior for an equivilant coverage & a huge deductable.

    Oh yeah, it's working just fine. You Democrats keep telling yourself that.

  • Report this Comment On June 09, 2014, at 11:30 AM, redmanrt wrote:

    All irrelevant. The ACA was born dead.

    "We have to pass the bill to see what's in it, away from the fog of controversy."

  • Report this Comment On June 09, 2014, at 11:33 AM, PanzerWatts wrote:

    "Obamacare and extended medicaid are fully funded. There are no new taxes on the middle class to fund either one."

    Actually, there are multiple new Obamacare taxes that hit the middle class; 1) 2.3% Tax on Medical Device Manufacturers 2014 2) 10% Tax on Indoor Tanning Services 2014 3) higher Tax on Brand Name Drugs 4) An annual $63 fee levied by ObamaCare on all plans 5) Medicine Cabinet Tax

    Over the counter medicines no longer qualified as medical expenses

  • Report this Comment On June 09, 2014, at 11:49 AM, Coloradogirl52 wrote:

    My insurance premiums have increases every year since this was voted on, first the HR dept tells us it's because we now have to cover "children" until the age of 26 - hell I was out my parents home by 19 and working. Next year the premiums increased, my copays increased and my deductibles increased. Then again last year everything increased PLUS we were also told now there would be a $5.25, per person per month fee to maintain the exchanges! Obamacare has done nothing but hurt my paycheck. It appears I now have to pay for insurance for people that don't want to work so I get to work longer and harder to support them. It's just crazy and I hate it.

  • Report this Comment On June 09, 2014, at 11:49 AM, ETFsRule wrote:

    "However, we have seen a number of businesses cutting workers' hours to part-time in anticipation of the full implementation of the employer mandate by Jan. 1, 2016."

    The numbers don't support this idea. For instance:

    http://www.businessinsider.com/full-time-vs-part-time-job-gr...

  • Report this Comment On June 09, 2014, at 11:49 AM, ETFsRule wrote:

    testing

  • Report this Comment On June 09, 2014, at 11:49 AM, vet212 wrote:

    Will fail? it has already failed me, my ACA compliant insurance dies not pay nearly as much as my pre ACA coverage, my first heart attack cost nothing fir the hospital for my 2nd I've already received a 40000 buck bill

  • Report this Comment On June 09, 2014, at 11:51 AM, kennyhobo wrote:

    Has Obama actually replaced Osama? It sure looks like we have an anti-American President out to destroy the United States. He will have a civil war waging before he leaves office.

  • Report this Comment On June 09, 2014, at 12:04 PM, JackMurphy143 wrote:

    ACA allows insurers to limit MOHS surgery a type of skin cancer surgery designed to limit total cost and keep disfigurement of facial features at a minimum.

    Why because insurers have this dirty little trick they play - they demand notes on treatments in order to pay and then lose the notes and ask over and over again for the doctor to resend the notes - hoping he will get sick of it and write the charges off.

    With MOHS surgery the requirements arr quite clear and and its worth going into court to sue the insurance company if the claim is denied since typical charges are around 6 to 10k - the insurer can lose big on a single transaction.

    ACA allows the insurer not to allow MOHS unless it becomes cost effective for the insurer if you really need it but the insurer says no - you have to pay for it out of pocket.

  • Report this Comment On June 09, 2014, at 12:06 PM, desertrattwo wrote:

    Well, first of all, most of us were told at a very young age not to believe everything we were told or read. I still take that advice my grandfather gave to me over 60 years ago.

    Obamacare has been in operation for...maybe six months, not a year. Before it started, health care in the U.S. was ranked about 30th in the world. That's strange, isn't it? Because people come to this country specifically for a particular operation or care for a certain illness...that is...if they are wealthy enough to afford it.

    Comparing health care to automobile insurance, as one commenter did, made me laugh. ROTF...! Can I get "full coverage" with that, including $500,000 non deductible on my "body" in case it's "totalled" in an accident or "expires" on its own?

    Seriously? As a "retired military" I was told early on that, if I reenlisted and became a "lifer" I would get "free medical" for life...including my "retired years." Well, I did become a lifer and did retire...but guess what? They lied about the free health care for life. We all know what happened to that. Oh yes, we have the VA. But the VA for veterans is analogous to a "free clinic" for the homeless. Tri-Care replaced the "free" health care... LOL...but its not free. And it's not available unless a military retiree is also enrolled in medicare.

    Well, anyway, my take on Obamacare is that it another tax taht simply moves more of the "middle class wealth" into the hands of the top one percenters. Obamacare is not economical, and from what I read (again...believe...not!), a lot of people are being charged thousands of dollars per year. I can't afford that on my fixed income.

    And what happened to the tens of thousands of dollars that I paid into medicare while I was working?

    Health costs will continue to rise until there is no more middle class to support the "needs" of the wealthy.

    My prediction is Obamacare will not improve the quality of health care in this country; and unless more quality doctors are produced, it will not make health care available to everyone. Maybe we should take a "health care" lesson from our neighbor to the north.

  • Report this Comment On June 09, 2014, at 12:29 PM, cupera1 wrote:

    Top 15 indications you have Ob☭m☭Care, channeling Letterman

    (15) Do the new nurses and orderlies in the hospital still carry the “will work for food” signs?

    (14) The Bronze plan from the color of your fingers after a self-prostate exam

    (13) Does the hospital that you are assigned still have the “Piggly Wiggly” sign on it?

    (12) After signing up and paying your premiums you find out you are now registered to vote in 13 different states

    (11) Are the only prescription drugs that are 100% covered for assisted suicide?

    (10) Is your annual breast exam now done at “Centerfolds”?

    (9) Do the directions to your doctor's office include "Take a left when you enter the trailer park."?

    (8) Do the tongue depressors at your Ob☭m☭Care Doctor's Office taste faintly of Fudgesicles?

    (7) Is the only proctologist in the plan a guy named "Gus" from Roto-Rooter?

    (6) Is the only item listed under Preventive Care Coverage "an apple a day"?

    (5) Is your primary care physician wearing the pants you donated to Goodwill last month?

    (4) "The patient is responsible for 200% of out-of-network charges," is not a typographical error on the admission form at your Ob☭m☭Care Doctor's Office.

    (3) Is the only medical expense covered 100%…. "Embalming"?

    (2) Does Your Prozac come in different colors with little M's on them.

    (1) When you ask for Viagra does your Ob☭m☭Care Doctor give you a prescription for Popsicle sticks and duct tape?

    Why, YES, You've got Ob☭m☭Care.

  • Report this Comment On June 09, 2014, at 1:17 PM, rkinne01 wrote:

    Life is easier without insurance. I ditched my plan years ago when I figured out that medical insurance was more a hindrance than helpful. I have a condition that must be monitored and treated closely, my doctor and I came up with plans that would keep me healthy but found those plans denied by my insurance company. The funny part is that the plan we came up with was CHEAPER than what the insurance company suggested. Their plan didn't work and had a negative effect on my health, so I canceled my policy and never looked back. It is expensive which meant I had to cut things out of my budget (cable tv, eating out, making my car last longer, etc.), but it was worth it.

    It is so nice to be charge of my own health and not have to worry about some company who only cares about the shareholders interfering with my health decisions. I've opted out of the ACA and will continue to do so until I can't afford to or congress neuters the law. Insurance companies aren't the solution, they're the problem.

  • Report this Comment On June 09, 2014, at 3:25 PM, smilingdon wrote:

    This is such a national fiasco and disaster that it is a shame on our country to the rest of the world.

  • Report this Comment On June 09, 2014, at 8:20 PM, LaryB wrote:

    Prediction #2: As Republicans predicted prices have continued to rise and will do nothing to lower the overall cost of healthcare.

    Prediction #3: Because of all the Obama changes we haven't even seen the beginning of the move to part time jobs yet. Large corporations have been trying to get rid of their large union health plans for their employees and retirees for decades. They now have a way of forcing the issue.

    Prediction #4: With the addition of millions of medicaid patients the emergency room will be the only place they can get treatment. Physicians have been dropping out of the medicaid system for years. While the poor may have insurance they will have virtually no choice of where to get care. It will definitely smother our ER's in every hospital forcing some hospitals to close their ER's.

    Prediction #5: Of course the middle class will bear the brunt of the new taxes which haven't even started yet.

  • Report this Comment On June 09, 2014, at 9:12 PM, malclave wrote:

    @cupera1

    "(11) Are the only prescription drugs that are 100% covered for assisted suicide?"

    You're forgetting birth control pills and abortifacents.

  • Report this Comment On June 09, 2014, at 11:59 PM, doraglasberg wrote:

    These articles are just pointless as this time.

    Is Julie Boonstra dead yet?

  • Report this Comment On June 09, 2014, at 11:59 PM, cyfan2000 wrote:

    1) Obamacare requires the Feds to reimburse the insurance companies for a portion of any losses they incur. This is essentially an annual bailout courtesy of the taxpayer.

    2) Premiums rose 40% on average last year and early indications are we'll see 20-30% increases this year. That's a bending of the curve already, but bending it UP ($$$), not down. How does the author not have those well-published numbers?

    3) The employer mandate isn't in effect yet because of another Obama random delay in the lay - so you can't decide anything about job-shifting until it is.

    4) While ER visits surged, Obamacare will decrease demand long-term Why? Because people can't afford $3500 deductibles per family member. So they will avoid getting services instead of being encouraged to do so (once they figure out the ugliness of their new plan). Welcome to the age of insurance you can't use.

    5) Obamacare is funded primarily through debt because even the CBO admits they can't predict how much this disaster will cost us now.

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