Since its inception, the Affordable Care Act has been a veritable punching bag for a skeptical American public.
The ACA, which is probably better known as "Obamacare," has regularly proven unpopular in polls that analyze public opinion surrounding the health law of the land. The Kaiser Family Foundation's Health Tracking Poll has examined the favorability of Obamacare nearly every month since it was signed into law by President Obama in March 2010. You can count on just two hands how many months the number of "favorable" respondents outnumbered the "unfavorable."
Obamacare has been a punching bag for skeptics
The law's unpopularity stems from a number of key factors. For starters, consumers aren't thrilled with the individual mandate and attached Shared Responsibility Payment. In plain English, the mandate requires you, as an individual, to purchase health insurance. If you don't, you'll potentially face a penalty that, in 2016, is the greater of $695 or 2.5% of your modified adjusted gross income.
The Kaiser Family Foundation (KFF) forecast that the 2016 SRP should average $969 per person. Being "forced" to buy health insurance, and being penalized for not doing so, hasn't sat well with some Americans.
Millions of Americans also lost their coverage under Obamacare despite President Obama's reassurance that Americans "would get to keep their plan." Beefed up minimum benefit requirements pushed a number of plans out of compliance, and coerced some physicians to stay out of Obamacare networks. The result was a major headache for these millions of Americans who were forced to change plans.
However, the biggest criticism of Obamacare is the affordability of the plans, which was expected to be its selling point. Under Obamacare, insurers were expected to compete in an open and transparent marketplace designed to allow consumers to make informed decisions that would maximize the value they received from their health plans. Unfortunately, a number of insurers, including national giants UnitedHealth Group (NYSE:UNH) and Humana (NYSE:HUM), have been losing money hand over fist on Obamacare. Subsequently, both companies are reducing the states they're offering insurance in next year.
Tack on the failure of 16 of Obamacare's 23 healthcare cooperatives, and we have a scenario where competition is decreasing, and insurers are rapidly increasing their prices in order to turn a profit. For instance, KFF's analysis of the lowest-cost silver plans in 14 major cities in mid-June predicted a premium increase of 11% next year.
The "affordability" of the Affordability Care Act clearly seems to be in question. Or is it?
Surprise! Obamacare actually lowered premiums
According to a newly published study from Loren Adler and Paul Ginsburg of the Brookings Institution in Health Affairs, Obamacare has actually had a surprising effect on premiums: it's pushed them substantially lower.
Adler and Ginsburg admit that there are components of Obamacare that have worked to increase premiums compared to the standard of care prior to Obamacare. The aforementioned minimum essential benefits for health plans, and mandating guaranteed acceptance even if you have a pre-existing condition, are two examples of premium-increasing benefits tied to the ACA.
However, other features of the ACA have worked to lower premium prices. The individual mandate that requires consumers to buy health insurance, and the expansion of Advanced Premium Tax Credits to consumers and families earning less than 400% of the federal poverty level, has increased the size of insurers' patient pools and decreased prices. Additionally, making plan comparisons more transparent should allow consumers to make educated decisions.
What Adler and Ginsburg found by analyzing the second-lowest-cost silver marketplace plan in 2014 was that there was an immediate drop in premium costs of between 10% and 21% from 2013 (i.e. before Obamacare). All the while, the amount of benefits the consumer received increased.
Looking in the rearview mirror, Adler and Ginsburg estimated that annual healthcare expenditures for a plan that covered roughly 60% of healthcare expenses was $3,480 in 2009. The same premium in 2014 for the second-lowest cost silver plan was about $3,800. Though this is a 9% increase, a silver plan covers 70% of expenses, not 60%, thus making an Obamacare silver plan a more affordable and valuable option for the consumer.
Furthermore, the authors estimated that Obamacare premiums would have to increase an almost unfathomable 44% in 2017 just for ACA prices to catch up with the trajectory we were on prior to the implementation of Obamacare. In sum, Obamacare is actually saving Americans money.
Is the ACA sustainable?
There are, as to be expected, a few caveats with Brookings' analysis of Obamacare.
To some extent, it's comparing apples to oranges when factoring in the pre-ACA environment, where people with pre-existing conditions could be denied coverage, and the post-ACA environment, where acceptance is guaranteed. A meta-analysis from the Blue Cross Blue Shield Association has shown that Obamacare enrollees are 22% more expensive than employer-based enrollees. This probably has a lot to do with the fact that sicker individuals, who were previously excluded, are now able to enroll.
Additionally, as noted in the Los Angeles Times, premiums don't tell the entire story when it comes to healthcare costs. Lower premiums have been balanced in many instances by higher copays or deductibles. Thus, consumers who are healthy and don't head to the doctor often tend to benefit from low premiums. Sicker individuals might perceive low premium costs to be in their favor, but higher deductibles could be costing them quite a bit of money.
The big question, though, is whether this program is sustainable -- and to that end, the jury may be out for two reasons.
First, political uncertainty could push Obamacare to the brink. Democratic presidential candidate Hillary Clinton has every intention of keeping Obamacare and building upon its success. Her rival, Republican presidential candidate Donald Trump, wishes to repeal Obamacare in its entirety. That certainly creates some concerns for investors and insurers until, at least, the first week of November, when the election will be decided.
The second reason, which assumes Clinton heads to the Oval Office, is that competition is being adversely impacted within the ACA. UnitedHealth is shrinking from 34 state exchanges to just three by 2017, and Humana is shedding its operations in at least eight of 19 states by next year.
The failure of two-thirds of the co-ops has also reduced low-cost options for Americans. With fewer choices, the remaining insurers have little incentive to be competitive with their premium pricing, which is bad news for the consumer.
If there's one factor working in favor of the survival of the program, it's that approximately 85% of people enrolled through a marketplace exchange (federal or state) are receiving a subsidy. These subsidies create an allure to the program, and they can largely help shield lower-income consumers and families from premium hikes. Based on this premise, Obamacare may have the capacity to continue chugging along just fine.
We should know a bit more by November, but it remains uncertain times for investors, insurers, and even consumers.