It's arguable, but perhaps no greater legacy will be left from the presidency of Barack Obama than the implementation of the Patient Protection and Affordable Care Act, which is often referred to as Obamacare.
Since being signed in March 2010, this health reform law completely revamped access to healthcare for millions of Americans, while giving millions of others a headache. Today, we'll closely examine Obamacare, its pros and cons, as well as where we stand about a year and a half later following its official implementation.
To start, however, it would probably help to understand the short-term and long-term goals of Obamacare.
Obamacare's main goals
Obamacare really has two main purposes.
First and foremost, it's designed to help lower the rate of uninsured people in the United States. Uninsured persons that receive care in hospitals and can't afford to pay cause hospitals and/or insurers (in the case of underinsured persons) to absorb a loss. In response, medical care costs and health plan premiums move higher for everyone else. Having more people insured allows insurers to spread their expenses over a greater swath of the population, which can in turn help keep medical cost inflation low. The more short-term effect, however, is giving more Americans access to medical care should they need it.
The long-tail goal of Obamacare, which sort of builds off the first point, is to help control the inflation rate of medical costs. The law does this in two ways. The first is described above, with insurers able to spread their medical expenses among a larger percentage of the population. Secondarily, though, if more people are insured, and those people take advantage of their coverage by visiting their primary care physician (PCP) somewhat regularly, then there's a chance that PCPs will catch chronic or serious diseases ahead of time, before they become costly later-in-life problems for the consumer and insurer.
Through two full enrollment periods, Obamacare has allowed nearly 12 million people to enroll for health insurance.
Now that we have a better bead on the story behind Obamacare, let's take a closer examination at some Obamacare pros and cons.
- Transparent apples-to-apples comparisons: Without question, one of the biggest improvements with Obamacare is the ability for consumers to compare insurance plans on an apples-to-apples basis. Prior to Obamacare you'd have to call each individual insurance company, or do the back-and-forth dance between websites, to get a feel for pricing. Now, with the online exchanges, consumers have a very transparent method of making comparisons and smart buying decisions.
- Insurers can no longer pick and choose their members: Another positive with Obamacare is that it eliminates the ability of insurers to deny members based on preexisting conditions. Although this means insurers could see their margins hit by taking on a sicker or older consumer base, it means everyone willing to pay for health insurance, or who qualifies for a subsidy, will be eligible to seek the medical care they need, and deserve.
- More comprehensive health benefits for consumers: Obamacare also established minimum defined benefits for its four-tiered health plans. These new benefits included mandatory coverage for hospitalization, prescription drugs, maternity, and newborn care. Obamacare plans are often more comprehensive than pre-Obamacare plans, thus giving consumers more coverage where they may need it. A recent study from The Commonwealth Fund suggested that 86% of people who've purchased health insurance through Obamacare are "very satisfied" or "somewhat satisfied" with their coverage.
- A big boost for hospitals: Obamacare isn't just a boost for the consumer. Hospitals see a benefit from a lower uninsured rate, too. HCA Holdings (NYSE:HCA), the nation's largest for-profit hospital operator, witnessed its doubtful provisions (or services rendered that won't be collected due to non-payment) drop $205 million in Q1 2015 from the previous year. As a percentage of revenue, doubtful account provisions totaled just 6.3% compared to 8.8% in the year-ago period. This extra profit could mean better care for patients as it may allow hospitals to purchase newer equipment and to differentiate themselves from one another.
- Millions insured who couldn't previously afford health insurance: Last, but certainly not least, Obamacare made healthcare affordable for millions of people who previously couldn't afford it. Between the Medicaid expansion in 29 states that now covers individuals and families making above 100% of the federal poverty level (FPL) and up to 138% of the FPL, to the Advanced Premium Tax Credit (the official name for Obamacare subsidies), which allows for substantial discounts for lower-income workers and families, Obamacare has made medical care a reality for millions who previously had no affordable access to medical care.
But, there's another side to this story, too.
- No universal Medicaid expansion: One of the biggest problems with Obamacare is that Medicaid expansion was a choice given to the states rather than a universal implementation. Thus far, 21 states have chosen not to expand their Medicaid programs for fear of higher eventual costs once the federal government began slowly reducing its Medicaid contribution to states beginning in 2016. In the process, these 21 states have left billions in federal money on the table and millions of people in the Medicaid Gap, where they're too poor to qualify for subsidies, but make too much to get fully subsidized medical care under the nationwide Medicaid program.
- Insurers still retain a lot of pricing power: Health plan premiums are clearly more transparent than they used to be, but it doesn't mean pricing will necessarily favor the consumer. Even though insurers have to justify premium hikes of 10% or more to each state's Office of the Insurance Commissioner, regulators can't keep insurers from hiking rates if they're remotely justified in doing so. Also, insurers can simply reduce competition in select states to keep premium prices up.
- Middle class individuals/families get little help: Obamacare has been a great thing for many lower-income individuals, but for the middle-class individual or family that makes just beyond 400% FPL (the subsidy cutoff), Obamacare has potentially been more of a hindrance than help. The average silver plan across the country runs $307 per month, and that doesn't include what could be a $2,000, or higher, annual out-of-pocket deductible on top of that if you do need medical care. Even if some individuals can afford the health premiums, the actual cost of getting care and paying the deductibles could be too high for some consumers.
- Individual mandate penalties: The monetary penalty associated with the individual mandate is an Obamacare "con" for two reasons. First, the idea of paying a penalty if you don't purchase health insurance makes it a very unpopular component of the Act. But, it also doesn't seem to be doing enough to coerce healthy young adults -- the group insurers need most to help offset the high costs of sicker enrollees -- to enroll. Between the penalty representing just a fraction of full-year premium costs and the IRS being unable to aggressively seek these penalty payments beyond withholding them from a taxpayers' refund, the mandate penalties appear to not be doing an effective job.
- Personalized medicine threatens inflation controls: Finally, Obamacare's attempt to mitigate the rising cost of medical care could be far outweighed by the rise of personalized medicine. Personalized medicine involves the use diagnostic tests, medical devices, and prescription drugs that target specific genes within a patient. As you might imagine, these therapies can be pricey, and it doesn't look as if Obamacare as of yet has an answer to these rising costs.
What we need to remember here is that Obamacare is an evolving law. A switch was flipped that triggered its implementation, but consumers, insurers, and PCPs are all still learning how this law is going to change their lives and the lives of medical patients nationwide. If the above battle between the Obamacare pros and cons demonstrates anything, it's that we can't, with any certainty, declare Obamacare a success, or a failure, as of yet. This is an experiment that's going to need more time to hash out whether this law is truly in America's best interest or not.
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