Few laws in history have inspired such a bifurcation of opinions as the Affordable Care Act, the law affably known as Obamacare.
On one hand there are plenty of supporters of this controversial health-care reform law that believe it'll curb the rate at which medical costs are increasing by spreading out premium costs across a greater number of citizens. In the other column, those who oppose Obamacare believe it won't do a thing to slow rising medical costs and view it more as a government intrusion of their rights as a citizen to choose whether or not they want to purchase health insurance.
Understanding this blatant difference of opinion I offered up my predictions a little more than a year ago on the "5 Ways Obamacare Will Succeed," as well as the "5 Ways Obamacare Will Fail." The goal of these articles was not to demonstrate that one side or the other would end up completely in the right (I figured it would likely be a melding of the two), but rather to demonstrate the potential and challenges that the law would face over the coming years. With a full year of enrollment now under our belt, I'd suggest it's time to take a closer look at my projections and determine how accurate they were.
Today, we're going to revisit my bearish thesis, "5 Ways Obamacare Will Fail," and determine how spot-on or off-base my predictions turned out to be.
Prediction one: health insurers will keep most of their leverage.
The primary basis for this prediction was a 2013 decision from the Centers for Medicare and Medicaid Services which would have dropped Medicare Advantage reimbursements by 2.3%. Instead, the CMS reversed course a few weeks later after heavy lobbying from the insurance industry and increased Medicare reimbursements by 3.3%. Following this decision it looked as if HMOs would stay in control of pricing their plans.
The verdict: Thus far I'd call this projection mostly debunked. Rather than pricing their plans however they'd like insurers have had to submit their proposals to the Office of the Insurance Commissioner where bargaining on those rates often ensues. Online marketplaces do seem to be doing a good job of allowing consumers to make educated side-by-side comparisons of health plans, causing insurers to remain more competitive on their pricing. Of course, Obamacare tax increases and higher branded drug prices are also pushing insurer premiums up, so they certainly haven't lost their ability to request price increases, either.
Prediction two: premiums will continue to rise.
The idea that insurance premiums would continue to rise stemmed from a study from the Society of Actuaries which predicted that 37 of 50 states would see premiums rise by 20% or more over the next four years. The SOA believed adding higher-risk and sicker patients to the coverage pool would adversely impact insurance rates and push them markedly higher.
The verdict: This has mostly turned out to be true, although we should keep a couple of things in mind. First, Obamacare was never designed to lower medical costs, but simply to keep them from ballooning out of control. Although most of the early stage premium proposals that we've witnessed are for mid-to-high single-digit increases, there have been a couple of instances where premium price reductions are being requested, such as from Molina Healthcare (NYSE:MOH) in Washington state.
The second point here is that pricing Obamacare plans is just as much a learning curve for insurers as it is for consumers. Molina Healthcare, for instance, has never dabbled in the individual health insurance market previously, so they might as well have been playing pin the tail on the donkey with premium pricing prior to 2014. As the uninsured rate drops and insurers get a better bead on what the make-up of their member base looks like (i.e. sick members versus healthy), then it's quite possible that premium prices will be less volatile in each successive year.
Prediction three: it will encourage job and R&D outsourcing, as well as domestic hourly cutbacks.
The expectation that Obamacare's implementation would lead to a lack of enterprise innovation and outsourcing was based on the actions of a few select businesses, such as Stryker and Wendy's, which cut jobs or hours specifically in response to the higher labor force costs associated with the health reform law.
The verdict: Again, it would appear that after one year half of this projection has proven true. With very few exceptions American businesses have not moved their operations overseas to avoid Obamacare. However, we have seen a number of businesses cutting workers' hours to part-time in anticipation of the full implementation of the employer mandate by Jan. 1, 2016. Regal Entertainment Group (NYSE:RGC), the nation's largest owner and operator of movie theaters, cut thousands of its employees to part-time last year in direct response to Obamacare. As long as workers average fewer than 30 hours per week employers aren't required to provide health-care options for them as Regal has shown.
Of course, not every business is looking for the cheap way out since the building or maintaining their brand image depends on it. Darden Restaurants (NYSE:DRI), the company behind The Olive Garden, had tinkered with the idea of moving its full-time staff to part-time, but ultimately decided that the damage it would cause in customer-server relations would be greater than the money it would save by pushing employees to part-time.
Prediction four: hospitals and physicians will be overwhelmed with the influx of millions of newly insured people.
The idea here was that Obamacare was going to allow millions of previously uninsured persons to be insured, but that physician growth in the U.S. has been generally anemic for years. If newly insured people decide to take advantage of preventative care and emergency room visits then our physicians and hospitals could wind up being overwhelmed by an influx of patients, adversely affecting the quality of patient care.
The verdict: The truth is that we're going to need more time to determine if this projection is accurate or not. Through the first few months emergency room visits didn't surge, but that appears to have been more a function of the polar vortex keeping people in their homes than anything else.
The signs would appear to point toward an eventual surge in ER visits. A number of doctors simply don't accept Medicare since the reimbursement rate is sometimes viewed as too low, so patients will simply opt to go to the ER instead. Also, with our population aging and living longer the chronic needs of the elderly could mean an ER surge is on the way whether Obamacare is implemented or not. This topic will be worth a further look, but with a study from Health Affairs noting a juicy 8% margin on hospital emergency departments (which may only head higher), the potential for our nation's largest hospital operator HCA Holdings (NYSE:HCA) to make bank from privately insured individuals appears very real.
Prediction five: The middle class will pay, pay, and pay some more.
Lastly, the premise of this projection was that higher taxes on upper-income individuals wouldn't prove to be enough to fund Obamacare's Medicaid expansion. Middle-class individuals that make more than 400% of the federal poverty level (about $46,000), fall outside the scope of receiving federal aid, and even the cheapest bronze level plan can cost an average of $200 or more per month. When added to penalties that will total the greater of $695 or 2.5% of household income for not purchasing insurance in 2016, the expectation was that the typical middle-class consumer would feel their pocketbook pinched.
The verdict: Similar to the previous prediction, the verdict here is on hold. The big unknown is exactly how many of these middle-class consumers had their policies cancelled for not complying with the new beefed-up minimum benefits requirements of the Affordable Care Act, and subsequently how many then qualified for expanded Medicaid coverage. It may be a few more months before we know the answer to this question, but consumer spending could be a possible sign. If we notice a tapering or decline in spending, or a major surge in credit balances, it could be a sign that Obamacare premiums are straining middle-class consumers' wallets.