The Real Reason Obamacare May Not Be Affordable After All

Image source: White House on Flickr.

The Patient Protection and Affordable Care Act has officially moved into its third open enrollment period, with the Congressional Budget Office forecasting that 10 million consumers will be covered by the end of 2016. Hopes are clearly high in the upcoming year that just shy of 1 million more people will become paying customers.

Obamacare is facing numerous challenges in 2016
But there are plenty of concerns, too, that the current open enrollment period could end in disappointment. For starters, the nation's largest insurer, UnitedHealth Group, threatened to pack up shop and leave Obamacare's marketplace exchanges as of 2017. The insurance giant is losing money on balance on its marketplace plans across two dozen states, and it would much rather give up its roughly 500,000 individual marketplace members than continue to take a hit to its margins.

What's more, more than half of Obamacare's healthcare cooperatives are shutting down. Insufficient funds in the risk corridor coupled with inadequate premium pricing caused by high medical expenses from its members doomed many of these low-cost health insurance plans. With shrinking low-cost competition in some markets, premium prices can be expected to rise -- not to mention that this will displace more than 700,000 people who now need to find a new plan and/or primary care physician.

Of course, we also have the most substantial increase in premiums this decade to contend with. Statistics from the Kaiser Family Foundation suggest that average premiums across the country, before accounting for Advanced Premium Tax Credits, will rise by a whopping 10.1% in 2016. Rising premium prices could always make consumers think twice about enrolling.

However, all of these concerns mask what could be the real reason behind why Obamacare's affordability is continuously being called into question: the rise of high-deductible plans.

More than 85% of Obamacare enrollees qualify for some sort of financial assistance toward their premium payment. The issue for consumers isn't necessarily making their premium payment so much as having to pay additional money out of pocket should they need to see a doctor.

Image source: Flickr user David Goehring.

A lack of education is part of the problem
Part of the problem can be traced to a lack of consumer education. A survey conducted by online health insurance platform ConnectedHealth showed that nearly two out of five (39%) Americans can't define the word "deductible," including nearly one in two (49%) millennials. Without understanding basic health insurance terminology, it can be next to impossible for consumers to pick a plan that meets their health and financial needs.

A deductible is the amount you're required to pay out of your own pocket before your insurer will step in and begin covering eligible medical costs. Some costs, such as vaccines, exams, and copays, are likely excluded from your deductible. But many consumers are surprised to find out that they could be footing a large bill on their own if they have an unexpected medical expense.

Another area where an education shortfall is hurting consumers relates to how lower-income individuals purchase a health plan. Consumers earning between 100% and 400% of the federal poverty level are eligible for an Advanced Premium Tax Credit, which helps lower what they pay on a monthly basis for their insurance premium. Furthermore, consumers earning between 100% and 250% of the federal poverty level may qualify for cost-sharing reductions, or CSRs. A CSR is financial assistance provided to low-income individuals to help cover deductibles, copays, and coinsurance. In order to qualify for CSRs an eligible consumer must buy a silver plan. In 2014 it's believed that around 2 million eligible consumers may have missed out on CSRs because they purchased bronze plans, which do offer a modestly lower premium payment, but no financial assistance when it comes to heading to the doctor.

Image source: Flickr user Dan Moyle.

Premium costs are digging consumers into a hole
The other part of the problem is that consumers and businesses are doing everything in their power to lower their costs. Consumers are focused on a low premium payment and aren't giving out-of-pocket deductible costs much thought. Likewise, businesses have been pushing high-deductible choices, as it means less money out of their pockets and more risk being transferred to employees.

According to eHealth's Price Index update, which was published in mid-January 2015, the average deductible for eHealth shoppers during the first-half of the 2015 enrollment period was $3,933 for individuals and $7,633 for families.

Think about that for a moment. Could you afford $3,933 in out-of-pocket expenses before your insurer stepped in to cover eligible medical costs? According to eHealth the answer for a majority of people is "no." When surveyed, 73% of subsidy recipients said that they may not be able to afford their deductible, 57% not receiving a subsidy said they may struggle to pay their deductibles, and overall 61% of respondents implied that they'd have difficulty paying their deductible if a major medical expense arose.

The real dilemma here is this: what good is paying an insurance premium if you don't have the financial means to actually see a doctor should you need one?

Image source: Flickr user Ilmicrofono Oggiono.

Is there a solution?
Finding a solution to consumers' and employers' reliance on high-deductible plans is tricky.

In 2018, Obamacare's so-called "Cadillac Tax" will go into full effect. The Cadillac Tax is a 40% non-deductible excise tax on employer-sponsored health coverage for high-deductible plans. The idea behind the Cadillac Tax is to dissuade employers from passing health insurance costs to their employees, while also keeping deductible inflation under control. It's possible this tax could change the way employers offer health insurance to their employees, or it could just precipitate another push to move employees to private market exchanges, which also effectively shifts the burden away from employers and toward workers.

For individual consumers the answer is a lot murkier. UnitedHealth's earnings warning clouds the long-term health of insurers on Obamacare's exchanges, and consumers may resist trading a lower deductible for a higher premium payment.

The one thing that is within the control of insurers is to better educate their members. As an Obamacare enrollee I can attest that my coverage provider, Centene, has definitely beefed up its mailers for the upcoming enrollment period with a specific focus on educating consumers about their trade-off options relating to deductibles and premiums. My experience may not be the same as that of other Obamacare enrollees, but tackling the education shortfall would be a good first step towards helping consumers pick out health plans that they can afford.