It's been six and a half years since the Affordable Care Act was signed into law by President Obama, and over that time we've had no shortage of pundits predicting how well or poorly it'd perform. I even threw my hat in the ring in April 2013, offering up a handful of ways I believed Obamacare, as the ACA is more commonly known, would succeed, and a number of ways I expected the law would fail to live up to its billing.
As we look back at nearly three years of implementation (the individual mandate went into effect on Jan. 1, 2014), a number of the prospective positives and negatives have indeed come true.
Obamacare hit a number of key goals
In the plus column, millions of lower-income individuals and families that had previously been shut out of getting healthcare now have access to medical care. Medicaid expansion in 31 states accounts for about half of all Obamacare-related enrollment, and it's played a vital role in lowering the uninsured rate in the U.S. to just 8.6% in the first quarter of 2016 according to the Centers for Disease Control and Prevention. That's a new all-time low. Obamacare has also been a godsend for persons with pre-existing conditions who were shut out of the healthcare system prior to the ACA's implementation.
As expected, hospitals were also prime beneficiaries of Obamacare. Having more people insured meant less in the way of doubtful provisions, or, in layman's terms, fewer uncollectible accounts. For fiscal 2013, the nation's two largest hospital operators, HCA Holdings (NYSE: HCA) and Tenet Healthcare (NYSE: THC), lost 10.3% and 7.9% of their revenue to doubtful provisions. As of their fiscal 2015 full-year report, HCA Holdings' doubtful provisions had dropped to just 9% of revenue , and Tenet's was down to 7.2%. The extra cash could allow these hospital giants to expand and purchase new equipment, which is good news all around.
And it fell short in other areas
Likewise, some of those most common predictions of the ACA's shortcomings came true. For instance, an Office of the Insurance Commissioner (OIC) was designated in each state to help keep insurer rate hike requests in check. The OIC was designed to be something of a watchdog to protect consumers and ensure that health-benefit providers had valid reasons for raising premiums. Unfortunately, OIC's haven't had much authority in controlling premium pricing, meaning premium inflation continues to surge higher at a much faster pace than the national inflation rate.
Obamacare is also, as expected, hurting the middle-class consumer. Of the 11.1 million people enrolled via an Obamacare marketplace exchange as of March 31, 2016, roughly 85% were receiving the Advanced Premium Tax Credit (APTC). The APTC is nothing more than a subsidy provided by the federal government to make health insurance premiums more affordable. If premiums are rising, consumers receiving the APTC are mostly shielded from the increases. However, for people making more than 400% of the federal poverty level ($47,520 in 2016), there are no subsidies, exposing this group of middle-class consumers to the full brunt of premium and/or deductible inflation.
Two surprising Obamacare outcomes
Two outcomes, however, are completely the opposite of what was predicted by the majority of ACA analysts.
1. Obamacare was not a job killer
One of the more prevalent concerns surrounding Obamacare's implementation of the employer mandate -- the actionable component of Obamacare that requires employers to offer health coverage options if they have 50 or more full-time equivalent employees (FTE) -- was that it would coerce employers to reduce full-time employees to part-time, or it would result in job cuts.
During the early stages of Obamacare, we did indeed see some pushback against the employer mandate. Regal Entertainment (NYSE: RGC), the largest movie theater chain in the U.S., wound up cutting thousands of full-time jobs to part-time to skirt around any potential penalties it could have been liable for for not providing health coverage options. These penalties range from $2,000 to $3,000 per employee. Papa John's International's (NASDAQ: PZZA) founder and CEO John Schnatter said in 2012 that Obamacare costs would increase his pizza prices by $0.11 to $0.14, and could result in job or hourly cuts for employees.
Yet a new report from the Kaiser Family Foundation suggests that Obamacare was a relative non-event when it comes to the jobs market. Since Obamacare was officially launched, 7% of employers with 50 or more FTE bumped part-time workers up to full-time compared to just 2% of employers who cut full-time workers to part-time, presumably to skirt the liability tied to the employer mandate. An improving economy and historically low interest rates certainly take some of the credit for these full-time job gains, but they key point here is that Obamacare was nowhere near the job-killer it was made out to be prior to its implementation.
2. Competition among insurers is a genuine issue
On the other hand, Obamacare has done far less to control premium pricing than many had expected.
Even with insurers maintaining a good chunk of their pricing power, it was believed that the transparency of Obamacare's marketplace exchanges would help consumers make more informed purchasing decisions. Furthermore, with tens of millions of potential enrollees on the line, it was believed that insurers would be chomping at the bit to bring these new consumers into the fold, thus driving the competition designed to keep premium inflation relatively tame.
As we head into the 2017 open enrollment period, one thing is pretty clear: inflation is heading higher, and by its fastest pace in more than a decade.
For starters, competition among insurers is actually declining. Original enrollment projections from the Congressional Budget Office turned out to pie-in-the-sky high, leaving insurers to fight over a much smaller enrollment pool than expected. The failure of the risk corridor -- a risk-pooling fund designed to pull money from overly profitable insurers and pay money to those losing excessive amounts of money from pricing their premiums too low -- also wound up putting 16 of Obamacare's 23 healthcare cooperatives out of business, and coerced three of the nation's five largest health insurers to dramatically pull back on their coverage offerings in 2017. What's left are a number of markets with just one or two competing insurers in 2017, which doesn't work in the consumer's favor.
The other issue is that we're not seeing consumers necessarily making informed purchasing decisions with the information afforded to them. In each of the past two years millions of Americans have auto-enrolled in their previous year's plan, which is a potentially terrible idea. Plan coverage options and premiums change each year, and what may have been the best value one year may not be the next. What this essentially demonstrates is that the consumer isn't taking the time to shop around, which is further putting pricing power back into the hands of insurers.
What the future holds for Obamacare is anyone's guess at this point.