Americans may encounter a number of major expenses in their lifetime, from buying a new car or house to sending a child to college. However, few of those expenses may compare with the lifetime costs of medical care.
Medical care costs are huge
According to a 2013 report sponsored by the Society of Actuaries, the future healthcare needs of a retiree aged 65 (in 2013) with a 20-year life expectancy would be $146,400, or $292,800 for a couple of the same age. This figure includes health insurance not covered by the federal government under the Medicare program. Inclusive of what Medicare covers, the government is expected to spend an average of $450,000 per person on medical care, based on the previous example of a 65-year-old with a 20-year life expectancy.
These are enormous costs, and they are one of the main reasons the Affordable Care Act, perhaps known better as Obamacare, was signed into law in 2010. Specifically for retirees, Obamacare focuses on reducing costs through pioneering Accountable Care Organizations (or ACOs).
In addition, Obamacare was designed to make pricing and plan comparisons transparent, to control premium inflation by making exchanges more competitive, and ultimately to control long-term medical cost inflation by providing medical care access to as many Americans as possible. The idea is that over the long term, if consumers have easy access to their doctor, they'll be more likely to get regular checkups, which can lead to diagnosing chronic or serious problems earlier rather than later when they become costly to the patient and healthcare system.
Obamacare is responsible for this major healthcare milestone
According to the latest report from the Centers for Disease Control and Prevention, Obamacare has been hitting on some of its most important goals, taking 16 million people out of the uninsured pool since 2013. In fact, based on the CDC's most recent data -- which comes from the National Health Interview Study -- the uninsured rate has fallen into the single digits -- 9.2% -- for the first time in history. This Obamacare-induced major milestone compares with an uninsured rate of nearly 15% in 2013. Of course, readers would be wise to note that the CDC's report includes Medicare enrollees in its uninsured calculations. Of adults 18 to 64, the uninsured rate worked out to 13%.
Initial indications also suggest that this number could drop further. A few additional states have taken steps to expand their Medicaid programs, and with the individual-mandate penalty for noncompliance rising to the greater of $695 or 2.5% of modified adjusted gross income in 2016, it could coerce a number of remaining uninsured Americans to enroll sooner than later. The CDC's report pinpoints that states that chose to expand their Medicaid programs have witnessed a much sharper drop-off in their uninsured rate between 2013 and January-March 2015 (18.5% to 10.5%) than those states that chose not to expand their Medicaid program (23% to 17%).
But the big question is whether a single-digit uninsured rate is sustainable. To that end I'm not entirely sure.
Is a single-digit uninsured rate sustainable?
To begin with, the presidential election of 2016 could drastically change the look of Obamacare. As long as President Obama remains in office, it's highly unlikely there will be any critical changes to his legacy healthcare program. However, once a new president and Congress take office, it's possible the program could be modified or repealed in its entirety. Republicans have frequently expressed opposition to the program and have attempted to repeal it on numerous occasions. If the Republican Party holds its majority position in Congress and lands the presidency, it's quite possible our healthcare landscape could change dramatically.
Another key point is that medical cost inflation and medical premium inflation may not be controllable by Obamacare.
As I discussed, Obamacare's transparent marketplaces and easy access to medical care are expected to help control medical cost inflation. However, this may not prove the case. Drug and device makers' focus on specialized or personalized medicine, and insurers' lack of power when it comes to pushing back against high-priced therapies where there may be no other approved options, means the cost of medical care may only accelerate in the coming years.
The CDC data also shows a glaring problem with Obamacare: It's still not making a big enough impact on the poor. While 7.5% of the non-poor aged 18-64 were uninsured earlier this year, 28% of the poor aged 18-64 were uninsured, nearly four times higher.
Some of this problem can be tied to the 21 states that chose not to take federal money and expand their Medicaid program. It leaves Americans making more than 100% of the federal poverty level, or FPL, and less than 138% of the FPL without a means to obtain health insurance. They don't make enough to qualify for a subsidy, and they make too much to receive Medicaid.
But it could be more than just a non-universal Medicaid expansion problem. The average silver-tier plan across the nation will set a consumer back about $3,700 a year without subsidies in 2015. With subsidies (based on 2014 pricing across the nation), the average annual cost of premiums is closer to $1,000. All these premiums do is make you a member of a health insurance network. If you actually need medical care, your co-pays and deductibles are an entirely different story. For those middle-class individuals who just miss out on a subsidy, or for lower-income individuals just above 138% of the FPL, they simply may not be able to afford the deductibles associated with getting medical care, even if they're partially subsidized.
Long story short, there's no guarantee whatsoever that the uninsured rate is sustainable at sub-10% -- and that's something consumers and investors need to keep in mind as the election nears and Obamacare and the healthcare landscape continue to evolve.