Two weeks from today open enrollment will begin for a second time for the Affordable Care Act, more commonly known as Obamacare, and things are certain to be different this time around.
For starters, there's a shorter timeframe with which people can enroll or reenroll for health insurance of just three months compared to the six months last year. In addition, insurers are vying for a tougher-to-reach crowd while also attempting to retain existing customers that want the best possible price. Most importantly, everyone is looking for a smoother start to the program following last year's multitude of technical glitches that left total enrollment well behind estimates throughout much of the open enrollment period and flat out frustrated consumers.
In many ways Obamacare has delivered on one of its goals of reducing the rate of uninsured persons in this country. With 7.3 million paying members out of roughly 8.1 million enrollees through mid-August, the overall uninsured rate per Gallup was down to just 13.4%. However, that doesn't mean Obamacare couldn't still stumble in a big way.
It's definitely going to take some time to feel out what is and isn't working with Obamacare, but the following three factors could potentially wind up leading to its unraveling.
A subsidy revocation
One of the most important aspects of Obamacare is the federal and state-sponsored premium subsidies which make health insurance affordable for a vast majority of exchange-based enrollees. According to figures from the Department of Health and Human Services, 87% of those who signed up for health insurance via the exchanges last year received some form of subsidy. Furthermore, these subsidies tend to cover about three-quarters of subsidy-eligible individuals' bills.
However, three lawsuits are currently working their way through U.S. District Courts which allege that only state-level subsidies are legal based on the language of the ACA. In other words, the federal subsidy, which will be supporting millions of Americans across 36 states, could be struck down as illegal by the U.S. court system. If that were the case, per the National Bureau of Economic Research, Obamacare's enrollment would plummet by nearly 70% since premiums would therefore be unaffordable for a vast number of existing enrollees on Healthcare.gov!
The U.S. Supreme Court already upheld the legality of the individual mandate, but could, if things continue to proceed as they are now, take up these lawsuits as early as next year. Because subsidies are such a vital component to Obamacare's continued success, this is clearly one of its biggest threats.
Young adults find ways around Obamacare and its penalties
In order for Obamacare to succeed, and I've been saying this for more than a year now, the law needs to attract a substantial amount of young adults into the fold. The reasoning is that young adults tend to be healthier and don't go to the doctor very much. Since just 5% of Americans account for about half of all annual medical expenses according to the Agency for Healthcare Research and Quality, young adult premiums are needed by insurers to help offset the costs of treating elderly and terminally ill patients.
But, what if young adult enrollment fails to climb? It's quite possible this could become a reality based on three scenarios. First, as was mentioned above, subsidies help encourage young adults to enroll. A lack of subsidies could dramatically reduce their enthusiasm with regard to signing up for health insurance.
Secondly, penalties are in place for non-compliance with the individual mandate in order to encourage uninsured consumers (especially young adults) to enroll. These penalties are the greater of $325 or 2% of their annual income in 2015, although certain exemptions, including low income, apply and can get a person an exemption from these penalties. Ultimately, these penalties may prove to simply be too low to encourage young adults to sign up. With most bronze plans running $2,000 a year or higher many young adults may prefer to pay the penalty on their taxes during the following year than to purchase health insurance.
Lastly, the IRS has made it practically impossible to collect penalties should young adults wise up about how they claim tax on their income. In the U.S. more than 80% of tax filers get a refund. Per the IRS, it can withhold some or all of your refund if you owe the individual mandate penalty. However, the IRS can't garnish your wages or your property if you remain uninsured, nor will it seek to prosecute individuals that owe ACA-based penalties. Long story short, if young adults simply reduce or eliminate how much is taken out in taxes from their paycheck and aren't owed a refund at the end of the year, then they'll never have to worry about paying a penalty.
The dilemma over Medicaid expansion
The final concern, unlike the prior two hypothetical scenarios, is actually occurring – the big question is whether or not the dilemma over Medicaid expansion will grow into a major detriment over the long run for Obamacare.
States have the authority to decide whether or not they are going to extend Medicaid benefits to their citizens under the proposed Medicaid expansion. This expansion would allow individuals earning up to 138% of the federal poverty wage to qualify for full Medicaid benefits. While it might seem like a no-brainer for states to jump onboard with this expansion on the surface, especially since it was being funded by federal dollars, the reality is the federal government, beginning in 2016, was going to begin dialing back how much it gave to states to support Medicaid enrollees. In short, a larger burden of payment for Medicaid members was going to fall back on the states. The fear of the costs associated with this burden was enough to have two dozen states reject Medicaid expansion as of last year.
"Why is this a problem" you ask? Since they make more than the federal poverty line but not enough to qualify for subsidies they're left in a Medicaid coverage gap. Based on data from The Huffington Post in July, the uninsured rate for adults earning less than poverty wages in states that chose not to expand their Medicaid program dipped in 2014 from 2013 by a measly 2%.
Put plainly, if these impoverished adults aren't brought into the fold, it's possible the costs that hospitals and insurers will absorb throughout their lifetime could destroy any chance Obamacare has of keeping medical cost inflation under control.
Only time will tell if these scenarios come to fruition and threaten Obamacare's livelihood, but it's safe to say that while Obamacare has been successful thus far, it's not out of the woods just yet!
Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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