Since the inception of the Affordable Care Act, the uninsured rate in America has dropped from 16% to less than 9%, according to the latest update from the Centers for Disease Control and Prevention. In terms of enrollment figures, an October update from the Centers for Medicare and Medicaid Services found that 10.4 million people were enrolled and paying via the ACA's marketplace exchanges by the end of June, with millions more netting health coverage via the expansion of Medicaid in 31 states.
Yet, the enrollment figures and uninsured rate only tell half the story behind Obamacare, which is what the ACA is more commonly called.
Behind a lower uninsured rate stands a sea of disgruntled, money-losing insurers, a relatively low favorability rating of the health law from the American public, and rapidly rising premiums. Even more prominent is the looming presidency of Donald Trump, who's set to take office in a hair over a month. Among Trump's dozens of campaign pledges, perhaps none stood out more than his call to repeal and replace Obamacare once in office. With Republicans maintaining control of both houses of Congress and Trump in the Oval Office, a path to healthcare change seems quite possible. Even if a complete repeal of Obamacare takes longer than expected, a majority vote via a reconciliation bill could remove the meat and potatoes of Obamacare in no time.
If Obamacare fails, these will be the reasons for its demise
Obamacare was an ambitious plan of President Barack Obama given that it had been a long time since we'd seen a major change in the way Americans purchased health insurance and received medical care. Looking back at Obamacare after three years of its implementation, it's clear the program has had some shortcomings. Should Obamacare be repealed, it's likely that the following five factors will be credited with its demise.
1. The CBO's estimates misled insurers from the start
Estimates are estimates for a reason -- they might change from time to time. The Congressional Budget Office's total enrollment estimates, however, were so far off the mark that they left health-benefit providers to fight over a pie that was less than half the size it was expected to be.
Before Obamacare was implemented, the CBO estimated that 201 million people would have private health insurance by 2016. By the time 2016 rolled around, the CBO had revised its estimate down to 177 million people, a shortfall of 24 million people! Even as recently as this past January, the CBO had been calling for 21 million people to be enrolled in Obamacare's marketplace exchanges by the end of 2016. Its updated estimate calls for just 10 million.
What went wrong? The CBO was wrong from the start in estimating how many people were uninsured before Obamacare's implementation, and it overstated how many people would switch out of employer-sponsored health insurance and into the ACA marketplace exchanges. This resulted in insurers expecting a bountiful pool of patients and instead fighting over a much smaller pool than expected.
2. The risk corridor was ineffective
The risk corridor program, which was designed to encourage competition among insurers and support money-losing insurers until they found a sustainable premium, was a dismal failure. It was to be funded by overly profitable ACA insurers, with those funds then being channeled to money-losing insurers that priced their plans too low. However, there were a few key problems. For starters, there simply weren't many profitable insurers, meaning just $362 million found its way into the risk corridor program. Conversely, there were a lot of money-losing insurers that, in total, requested nearly $2.9 billion. This gap between money requested and money available meant many money-losing insurers either pulled out entirely or closed their doors. This included three-quarters of the nearly two dozen approved healthcare cooperatives on the Obamacare exchanges that have shuttered their doors over the past year.
It may also be possible to point the finger at the federal government. Health insurer Highmark has sued the federal government over what it alleges was a pledge to initially cover the difference in the risk corridor program if excessive insurer profits didn't cover what was requested by money-losing insurers. As a budget-neutral program, the risk corridor wasn't set up for success, ultimately dooming many new entrants (e.g., co-ops) and smaller regional players.
3. The Shared Responsibility Payment never hit home with young adults
Another big problem with Obamacare is that it didn't do a very good job of getting younger, healthier adults to enroll, despite imposing a penalty (i.e. the Shared Responsibility Payment, or SRP) for not purchasing health insurance.
Aside from the fact that most Americans didn't like the idea of being penalized for not purchasing health insurance, there was a major bifurcation between what the penalty would amount to and what the cost of a cheap health plan was for the full year. The SRP penalty in 2016 is the greater of $695 or 2.5% of your modified adjusted gross income. The Kaiser Family Foundation estimated the average household without health insurance in 2016 would owe a $969 penalty. That might sound like a lot, but the average annual cost of a bronze plan around the country in 2015 was $2,484 according to KFF, and it's risen again in 2016. Even with possible tax deductions, many healthier adults elect to take a substantially lower penalty and save money.
Without healthier adults as members, insurers flat out struggled to turn a profit. Younger adults are less likely to head to the doctor or have costly medical conditions, meaning their premiums are almost pure profit for insurers. Conversely, the ACA required health insurers to accept all Americans, whether or not they had pre-existing medical conditions. This meant that the millions of people with pre-existing conditions who'd been shut out of the previous system before Obamacare were able to rush in beginning in 2014, and insurers had very little in the way of healthy adult enrollment to offset this member enrollment shift.
4. The checks and balances on insurers were too weak
One of the more intriguing aspects of Obamacare was expected to be the fact that it would slow down premium inflation and eliminate unjustifiable premium increases, which did happen from time to time before the ACA was implemented. However, the checks and balances put in place didn't do much to avert high premium inflation.
Each state was designated an Office of the Insurance Commissioner (OIC). The OIC was something of a consumer watchdog agency that insurers were to submit their premium rate requests to in advance of the open enrollment period. The OIC was expected to go to bat for the consumer and make insurers that were requesting a 10%+ increase in premiums explain and justify their actions. In other words, it was believed to be a heavy-handed negotiator.
Instead, OIC's around the country were mostly pushovers. There was some solid negotiation in 2014 when insurer competition was increasing, but as some large national insurers began pulling back on their coverage in 2017, the remaining insurers gained the upper hand when it came to pricing power. Using sustainability as their justification, some insurers were able to net every cent of premium hike they requested, some of which were as high as 50% for 2017. Three years later, there's little standing in the way of health insurers getting what they want when it comes to premium pricing.
5. Medicaid expansion was never mandatory
Finally, the Supreme Court somewhat doomed Obamacare when, in 2012, it gave the states the choice of whether they wanted to opt into or out of the Medicaid expansion by a 7-2 vote. Though 31 states chose to accept federal aid and expand Medicaid for those earning up to 138% of the federal poverty level, millions of low-income Americans in the remaining 19 states were left in a coverage gap where they didn't qualify for subsidies and made a little too much for the traditional Medicaid income threshold.
Why wouldn't states want to take essentially "free" federal money and help ensure the coverage of more low-income residents? The reason lies in the declining federal match beginning in 2017. By 2020, the federal government was to provide 90% of the money needed to cover the premiums and medical expenses of Medicaid expansion patients, leaving the states to make up the difference. Some states, like Texas, simply believed that this would be far too costly and decided not to take part in the Medicaid expansion. Without these millions of potentially government-sponsored members, insurers have yet another reason why their prospective member pool is smaller than expected.
While the future of healthcare in America is still up in the air, Obamacare's shortcomings are plain as day.
Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.