It's mid-April. By now, most pundits had expected that the Affordable Care Act's (ACA) eulogy would have been read, and the insurance industry would be preparing for the introduction of "Trumpcare" over the coming years. However, the Trump administration has taught us never to count your chickens before they're hatched.
Obamacare, as the ACA is more commonly known, appears as if it's here to stay in the near term, with House Republicans unable to wrangle enough votes to pass the American Health Care Act (AHCA). Some members of the Republican Party felt the AHCA simply didn't go far enough to remove Obamacare's Title 1 mandates, whereas others were concerned that it would remove too much financial assistance for low-income folks. Long story short, Obamacare isn't going anywhere anytime soon.
Love it or hate it, Obamacare got a lot of things right
In many ways, Obamacare got a lot of things right. For example, the introduction of minimum essential health benefits provided a base guideline of coverage that ACA-based insurers were bound to follow. These minimum essential benefits also provided a foundation that disallowed insurers from capping lifetime benefits derived from these essential services. In other words, it set the precedent for what basic health coverage should be.
Second, Obamacare opened the door for millions of Americans who previously had been on the outside looking in. Prior to its full implementation at the beginning of 2014, health insurers had the option of declining coverage on people with preexisting conditions or they could underwrite considerably pricier policies for those with preexisting conditions. Obamacare ended that practice and required that insurers accept all members and not base their premiums on preexisting medical conditions.
Building off the previous point, the ACA also made it so low-income folks had an opportunity to obtain health insurance and covered medical care. The Advanced Premium Tax Credit allowed people and families earning up to 400% of the federal poverty level to receive monthly premium assistance. Meanwhile, cost-sharing reductions helped lower the cost of copays, coinsurance, and deductibles during medical visits for those earning between 100% and 250% of the federal poverty level who also purchased a silver plan.
We also saw 31 states take federal funds and expand their Medicaid programs to those earning up to 138% of the federal poverty level (traditional Medicaid funding stops at 100% of the federal poverty level).
Obamacare may not have always been well liked, but it has gotten the job done. The Centers for Disease Control and Prevention found that the uninsured rate immediately prior to its implementation was 16%, and that it had fallen to around 9% just a few years later -- an all-time low.
Two things Obamacare got very, very wrong
Yet, despite Obamacare successfully getting more than 20 million people to enroll via its marketplace exchanges or through Medicaid expansion, there were clear struggles.
Three of the five national insurers have significantly reduced their plan offerings this year. UnitedHealth Group (NYSE:UNH), the largest health insurer in the U.S., reduced the number of states it's offering ACA plans in to just three from 34. Humana (NYSE:HUM) went even further by reducing its county-based coverage by nearly 90% and announcing recently that it plans to not participate at all in 2018.
We've also witnessed significant premium inflation in 2017. According to data from HealthPocket, bronze and silver plans, which comprise what four in five marketplace enrollees purchase as an aggregate, saw their premiums rise by 21% and 17%, respectively, this year.
Obamacare's inadequacies can essentially be boiled down two things that its creators got very, very wrong: the Shared Responsibility Payment and the checks and balances enforced by each state's Office of the Insurance Commissioner (OIC).
1. The Shared Responsibility Payment
The Shared Responsibility Payment (SRP) is the penalty component of the individual mandate. In plainer terms, it's the penalty you paid if you didn't buy health insurance. In 2014, the SRP averaged just $150, so it wasn't too much of a sting to consumers' wallets. By 2016, according to estimates from the Kaiser Family Foundation, it was expected to average $969 per household.
This penalty was designed to coerce younger, healthier adults to enroll. Insurers count on healthier enrollees to help counteract the higher costs of treating older, sicker patients. With insurers no longer allowed to deny coverage to patients with preexisting conditions, they're clearly dealing with some degree of adverse selection.
However, the architects behind the SRP weren't even in the ballpark with their estimates of what it would take to encourage young adults to get health insurance. Even if the average SRP per household comes out to around $1,000, the average bronze or silver plan costs around $3,700 and $4,400 on an unsubsidized basis, respectively, in 2017. It made very little sense for healthy adults to enroll for health insurance when they could save thousands by staying uninsured and paying the penalty.
And yet, quite a few young adults who didn't buy health insurance also didn't pay the penalty. The Internal Revenue Service laid out the ground rules for failing to buy health insurance years ago, and they didn't entail garnishing wages or seizing property. At worst, the IRS could withhold part or all of your federal tax refund to account for your portion of SRP costs. Some consumers simply stopped netting a federal refund, or failed to fill in line 61 on their federal tax filing, which let the IRS know if they were insured, and if they paid the SRP.
The SRP completely failed to encourage young adults to enroll, which effectively doomed most insurers to losses.
2. OIC checks and balances
The other thing Obamacare got very, very wrong was that it failed to put an appropriate amount of checks and balances on health benefit providers. Don't get me wrong: There were a number of mandates that insurers had to follow in order to list their health plans on the ACA exchanges. But when push came to shove, the OICs in each state completely failed to have an impact on premium pricing.
The idea seemed like a winner on paper: Each state's OIC would review premium increase or decrease requests if they involved a 10% or greater swing from the previous year. The OIC would act as the arbiter that would require a valid explanation for double-digit percentage premium increases and decreases. This should, in theory, keep insurers from increasing their premiums by ridiculous amounts from one year to the next.
The snafu is that the OIC wasn't designed with any real power other than to suggest what insurers should price their policies at. If an insurer didn't agree with the suggestion of the OIC, but it had a valid reason to price its plan 20%, 30%, or even 50% higher than last year (e.g., it was losing money), then it did so. In 2014, we saw some degree of cooperation between OICs and insurers, but as the losses built up for insurance companies from ACA plans, their patience wore thin and the OICs were exposed as being almost entirely useless.
The good news is that Obamacare can be fixed. The bad news is that it's going to take some tough decisions to eliminate these issues, and that's unlikely to happen with Republicans in control of both houses of Congress. Without these fixes, Obamacare will continue to face challenges that will almost certainly keep it from thriving.