The Patient Protection and Affordable Care Act, which you likely know best as Obamacare, could arguably be described as the most polarizing legislation to be signed into law during Barack Obama's presidency.
Turning healthcare on its head
Obamacare was designed to turn the previous way we purchased health insurance and received medical care on its head. It instituted transparent marketplace exchanges geared at boosting competition and making side-by-side comparison of insurance policies easier than ever. It also removed the ability of insurers to pick and choose who they'd cover, while requiring them to spend a minimum of 80% of premiums collected on member medical care. Obamacare also beefed up the minimum essential benefit requirements for plans offered by insurers.
But the new law didn't just transform the insurance industry. It required consumers, via the individual mandate, to purchase health insurance each year (and maintain coverage for a minimum of nine months out of the 12 months in a calendar year) or face a penalty. A similar penalty exists for employers, known as the employer mandate, which is being implemented partially this year and fully next year. Large and midsized businesses that fail to offer coverage options to full-time equivalent employees, or don't provide subsidies to those employees if the cost of their premium meets or exceeds 9.5% of their modified adjusted gross income, or MAGI, could face fines ranging from $2,000 to $3,000 per non-compliant employee.
New data suggests Obamacare whiffed on this milestone
Initial results from Obamacare have suggested that the health reform law is performing better than expected. Data from the Centers for Medicare and Medicaid Services from the end of June showed that 9.95 million customers were enrolled via Obamacare and still paying, down from the more than 11.7 million that had enrolled by the end of February.
But, what if these results aren't as reliable as you think and Obamacare is actually falling short of an important milestone? Based on the latest U.S. Census Bureau data, this could be the case.
Even though Obamacare has succeeded in pushing the nationwide uninsured rate from 14.5% in 2013 (45.2 million people) to 11.7% in 2014 (36.7 million people), the Census Bureau data suggests that only 8.5 million net people gained coverage by the end of 2014. As a refresher, the Congressional Budget Office had been projecting that in the neighborhood of 10 million people would gain coverage from Obamacare between Oct. 1, 2013 and the end of 2014. Census Bureau data indicates that this just isn't the case, and Obamacare is actually falling notably short of enrollment expectations set forth by the CBO.
You might be wondering which set of data deserves more weighting: the CMS or Census Bureau. Considering that the Census Bureau questions a whopping 3.5 million households (that's nearly 9 million people) and most other surveys conducted to date cover 100,000 or less people, the Census Bureau data is more than likely the most accurate assessment to date of Obamacare's true success.
Why isn't Obamacare performing better?
You might also be wondering why enrollment in Obamacare isn't as strong as the CBO once expected (the CBO has actually lowered enrollment expectations a number of times). I'd suggest that it boils down to the following challenges.
First, the individual mandate penalty simply isn't "painful" enough to encourage younger adults to enroll for health insurance. Persons not purchasing health insurance are violating the individual mandate unless they meet one of around a dozen exemptions. For those without an exemption, they face a penalty that's the greater of $325 or 2% of MAGI in 2015. In 2016, this penalty will rise to the greater of $695 or 2.5% of MAGI, with the penalties rising in accord with inflation in 2017 and every year thereafter.
Now here's the rub: Even the worst penalty in 2016 and beyond is likely to be cheaper than the average annual cost for the cheapest bronze or silver plan without subsidies. Many who don't qualify for subsidies could save $1,000 or more by simply paying the penalty rather than purchasing health insurance. Plus, other than asking you nicely, the IRS has no current recourse to collect the penalty other than withholding the owed amount from your federal tax refund. If you're not owed a refund, the IRS may struggle to collect the penalty.
Optional Medicaid expansion is another major flaw with Obamacare. When the Supreme Court ruled that states had the option of opting into or out of Medicaid expansion it essentially doomed millions of low-income Americans to a life without accessible health insurance options. As it stands now, 20 states have chosen not to expand their Medicaid program -- most because they believe the long-term costs of expansion will be too great once the federal government begins paring back some of its assistance dollars in 2017. With little to coerce these states to join, millions of low-income Americans in states like Texas, Florida, and North Carolina could remain without health insurance.
The other major issue is that Obamacare may not be as affordable as everyone thought. For consumers who qualify for Advanced Premium Tax Credits, or APTC, and cost-sharing reductions, or CSRs, which help lower premium payments, copays, and deductibles, Obamacare is likely affordable. But, the combination of a lack of education and/or subsidies could be making it tough for millions to afford health insurance.
For example, consumers that make less than 250% of the federal poverty level ($29,425) qualify for APTC and CSR credits... but only if they purchase a silver plan. Even though a silver plan's premiums are higher than a bronze plan, the CSRs ensure that if low-income consumers need medical care they'll likely be able to afford it. Consumers making under 250% of FPL that purchase a bronze plan aren't eligible for CSRs, and thus may not be able to afford medical care even though their premiums are affordable. This is an education gap that looks to be affecting more than 2 million eligible consumers.
Premiums could also be a major roadblock for some consumers. More plans than in previous years are requesting double-digit price increases, and it could wind up pricing middle-class consumers that are just above the subsidy threshold out of affording health insurance.
Things worth monitoring
As Obamacare moves forward there are a number of things we all should be watching, beyond just the enrollment numbers.
For instance, the 2016 elections could have huge bearing on the future of Obamacare. Depending on who takes the oval office, and which political party is in charge of Congress, Obamacare could be altered from its current state or even repealed entirely. Although the health reform law is expected to push the uninsured rate lower into the election period, its longevity as a health program isn't guaranteed.
With the insurance industry committing to Obamacare, any repeal of the law could have devastating short-term effects. Remember that employer-based insurance still represents the core of insurers' revenue and profits, but Obamacare makes up enough of some insurers' top- and bottom-line's that a repeal would certainly sting.
You'll also want to be on the lookout for tax data next year that shows how many consumers paid the individual mandate penalty, as well as how much that penalty was. This will be the first year-over-year data we'll have that could show whether or not higher penalties are coercing consumers to take the plunge and buy health insurance. In 2014 the average penalty was a mere $190, or not even the average cost for one month's premium for a silver plan enrollee without a subsidy across the country.
Finally, keep your eyes on the Medicaid expansion as there are still a handful of states that could wind up accepting federal money and expanding their Medicaid program. It'll also be interesting to see whether or not the 30 expanding states can handle the shift beginning in 2017 whereby the federal government pares back some of its funding for Medicaid enrollees. If states can't find a way to boost revenue, the program, or at least lower-income Medicaid beneficiaries, could be in trouble.
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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