Despite its many criticisms, the Affordable Care Act has arguably been the closest thing to universal healthcare that Americans have ever seen. According to data from the Centers for Disease Control and Prevention, the uninsured rate in the U.S. fell from 16% in the quarter immediately preceding the implementation of the ACA, which is more affably known as Obamacare, to just 8.9% by mid-2016. Obamacare is the first health law to push the combined uninsured rate, inclusive of Medicare, into a single-digit percentage.
Why Obamacare has succeeded in reducing the uninsured rate
A number of factors have been responsible for Obamacare's success in enrolling more than 20 million previously uninsured people. To begin with, the Obamacare mandate for insurers that denied them the right to exclude persons with pre-existing conditions from purchasing health coverage was important. Prior to Obamacare, one of the key ways insurers were able to manage their costs was by denying coverage to those with costly pre-existing conditions, such as cancer or heart disease. Under Obamacare, anyone who wants insurance and can pay for it is eligible to enroll. Insurers can charge a bit more if you're older or smoke, for example, but they can't deny you coverage, regardless of your medical history.
The Medicaid expansion was another critical cog that allowed millions of individuals and families to enroll. Under the expansion, every state was given the option of taking federal funds to allow individuals and families earning up to 138% of the federal poverty level to enroll in Medicaid. The catch was that beginning in 2017 some of the responsibility of paying for these new Medicaid enrollees would fall to the states. In total, 31 states chose to expand their Medicaid programs.
The Advanced Premium Tax Credit (APTC) and cost-sharing reductions (CSRs) also made healthcare far more affordable for lower- and middle-income Americans. The APTC reduces the cost of monthly premiums for individuals and families earning less than 400% of the federal poverty level, while the CSRs make receiving care more affordable by cutting copays, deductible, and/or coinsurance costs. CSRs are available to Obamacare marketplace enrollees earning less than 250% of the federal poverty level who also bought a silver-tier plan. In 2017, based on data from the Department of Health and Human Services, 72% of consumers will be able to find a marketplace plan that costs them less than $75 per month.
Finally, the threat of having to pay the Shared Responsibility Payment (SRP) probably coerced some younger, healthier adults to enroll. The individual mandate that accompanied Obamacare's passage into law essentially stated that if consumers didn't purchase health insurance, they would be subject to a penalty -- the SRP. In 2016, the SRP was the greater of $695 or 2.5% of your modified adjusted gross income. The Kaiser Family Foundation estimated that the SRP penalty could average nearly $1,000 per household in 2016.
One trend even Obamacare can't ebb
However, Obamacare has also had its shortcomings, especially when it comes to ebbing what employees pay for health insurance as a percentage of their annual income.
According to recently released data from The Commonwealth Fund, the overall cost of premiums and deductibles as a percentage of U.S. median income has grown from 6.5% in 2006 to 10.1% as of 2015. As you can see below, in every single year since 2006 (excluding 2007, where data wasn't available) health plan costs for employees have grown more expensive.
The culprit behind rising health plan costs as a percentage of wages could be employers' growing use of high-deductible health plans (HDHPs). The idea behind an HDHP is to push the onus of costs away from the employer and toward the employee in order to keep an employers' healthcare expenditures reasonable. Between 2006 and 2016, according to a Kaiser Family Foundation report, employee enrollment in HDHPs jumped from just 4% to 29%. That's nearly one-in-three employees who could be stuck paying a huge deductible before their insurer steps in and offers coverage.
For some employees, an HDHP isn't all bad news. HDHPs have low premiums because they have high deductibles should you need to seek medical care. As such, HDHPs can be a relatively good choice for younger, healthier adults that won't visit the doctor much. Unfortunately, HDHPs are bad news for individuals with a chronic medical condition, or families with children that require regular medical care.
Introducing your friend, the HSA
The good news is a majority of workers enrolled in an HDHP probably qualify to open and contribute to a Health Savings Account (HSA). In order to qualify, you simply need to be enrolled in an HDHP with a minimum annual deductible of $1,300 for an individual or $2,600 for family coverage. More than 80% of all working Americans meet this qualification according to the Kaiser Family Foundation. Further, you can't be enrolled in Medicare or be claimed by someone else as a dependent on their tax return. If you meet these qualifications, the annual contribution limit in 2017 is $3,400 for individuals and $6,750 for family coverage.
What's particularly intriguing about an HSA is that the account-holder, regardless of how old you are, can use HSA funds to pay for qualifying medical care costs on a penalty-free, tax-free basis. In other words, if you have to seek medical care and are expected to be hit with a high deductible from your insurer, you can lean on your HSA to cover part, or all, of your deductible, regardless of your age, on a tax-free and penalty-free basis.
But, let's say you don't use the money in your HSA for many years. That's fine, too, because an HSA acts like a retirement plan in that you can invest what's in your account and continue to roll it over until you reach age 65, at which point withdrawals are treated as tax-deferred income.
One final benefit is that contributing to an HSA can probably reduce your tax liability. Money placed into an HSA is pre-tax, meaning you could wind up with a lower tax bill.
With drug-pricing power remaining strong and the checks and balances on insurer premium pricing remaining weak, an HSA could be your best weapon to defend against rising healthcare costs.
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.
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