The Patient Protection and Affordable Care Act, known also as Obamacare, officially went into effect on Jan. 1, 2014, and to say that the ride has been bumpy would be a major understatement.
The first enrollment period between Oct. 1, 2013, and March 31, 2014, was marked by monumental signup issues for individual state exchanges as well as the federal government's marketplace known as Healthcare.gov. Due to software and server issues, fewer than 400,000 people were able to successfully sign up via Healthcare.gov through the first two months when the Congressional Budget Office had projected that somewhere in the neighborhood of 1.4 million would enroll.
Of course, Obamacare also made quite the about-face following its disastrous start. Since December 2013 and through the entirety of its second full enrollment period between Nov. 15, 2014, and Feb. 15, 2015, Obamacare managed to enroll more than 11 million people. Per Gallup, the uninsured rate in the second quarter of 2015 fell to just 11.4%, the lowest on record since it began keeping tabs in 2008. This is also down from a peak of 18% in the quarter directly preceding the implementation of Obamacare.
Five things we still don't know about Obamacare
On the surface, these figures might suggest that Obamacare is a success. But, in reality, there are still a lot of things we just don't know about Obamacare.
1. We don't know if the individual mandate will actually work
Arguably one of the biggest question marks surrounding Obamacare is whether the actionable component of the law, the individual mandate, will work.
The individual mandate is the portion of the law that requires individuals to purchase health insurance or face a penalty come tax time. The penalties increase with each passing year, jumping from the greater of $95 or 1% of a person's modified adjusted gross income in 2014, to the greater of $325 or 2% of MAGI in 2015. The penalty will rise substantially once more in 2016 to the greater of $695 or 2.5% of MAGI before rising by the rate of inflation in 2017 and beyond.
Aside from the fact that the individual mandate isn't well liked, there's a real possibility that these penalties, which are designed to coerce healthier young adults to purchase health insurance, thus spreading insurers costs over a greater swath of the population, may not work.
For starters, the IRS has veritably no collection power. The IRS can't garnish wages or seize property if someone owes the Individual Shares Responsibility Payment, the official name for the individual mandate penalty. All it can do is withhold the penalty from a taxpayer's refund or ask nicely for the taxpayer to fork over the money.
The other big problem is that the penalties for noncompliance are peanuts compared to the cost of actually obtaining health insurance. In 2015, the average ISRP was $190 for some 6.6 million people. Compare that to the approximately $3,700 it costs on average per year to enroll in a silver plan and you can see why some consumers would just as soon take the penalty without thinking twice.
2. We don't know when the legal challenges will cease
Last month, Obamacare was saved from what seemed like certain doom when the U.S. Supreme Court ruled six to three in favor of the defense in King v. Burwell. This case challenged the legality of whether the federal government could pay advanced premium tax credits to enrollees when the language of the ACA noted that only states were allowed to make subsidy payments. For now, Obamacare rolls on with few, if any, changes -- but for how long?
Even with King v. Burwell in the books, there are still four pending lawsuits that seek to derail the entire program. For example, House of Representatives v. Burwell is challenging the current administration's agreement to pay out $175 billion to insurance companies over the next decade to help offset their losses for taking on sicker individuals. The House of Representatives alleges that the money for this program was never properly appropriated. Even though this lawsuit may not stand a large chance of making it to the Supreme Court, who's to say new legal challenges won't arise and upset the established medium in the future?
3. We don't know if Obamacare can survive much beyond the 2016 presidential election
Obamacare has survived technical glitches and legal challenges galore -- the U.S. Supreme Court has directly saved Obamacare three separate times -- but there's no guarantee that the healthcare reform law has what it takes to survive much beyond the 2016 presidential election.
As it stands now, the Republican Party, which is ideologically opposed to Obamacare as it's currently written, controls both houses of Congress. With President Obama ending his second term, we might see another Democrat step into the role of commander in chief, or we could see a changing of the guard and usher in a Republican president. If Republicans controlled the Oval Office and both houses of Congress, it's possible that Obamacare could be repealed or drastically altered from how we see it today.
4. We don't know if Obamacare can stem the rising tide of medical costs
Obamacare was designed first and foremost to lower the number of uninsured individuals in the United States. Secondarily, though, it was also geared at controlling medical cost inflation. Obamacare does this by encouraging competition in its transparent marketplace exchanges and by creating easier access to medical care whereby insured individuals can see their primary care physician annually in order to catch life-threatening or chronic conditions early before they become costly later in life.
This plan of attack on medical costs sounds great on paper, but two major question marks stand in the way of medical costs remaining under control.
First, insurers still appear to possess a substantial amount of pricing power. Under Obamacare, insurers are required to submit their rate increase requests well in advance of the start of open enrollment, and any double-digit increases (and decreases) need to be explained in detail to the Office of the Insurance Commissioner in each respective state. The idea here is that the OIC can help wrangle down unreasonable insurer premium hike requests. However, the OIC can't forcibly require insurers to lower their premiums. So if an insurer has justification to substantially boost prices, it can still do so with relative ease.
The other major problem is that medical care is growing more personal these days. A focus on molecular diagnostics and gene-based therapies aims to bring personalized and more efficient treatments to patients, but as you might have imagined, at a much higher cost than more traditional therapies. With few checks in place to keep pharmaceutical companies from pricing new drugs in the five- and six-digit annual cost range, Obamacare may be fighting a losing battle at reining in medical cost inflation.
5. We don't know if Obamacare can truly excel without a universal Medicaid expansion plan
Finally, we can't know for sure just yet if Obamacare can succeed without the support of all 50 states when it comes to expanding Medicaid.
Under the ACA, billions of dollars in federal money was made available to all 50 states so they could expand their Medicaid program to cover individuals making more than 100% of the federal poverty level but below 138% of the FPL. Currently, 29 states have taken the federal funds, while 21 states have chosen not to expand their Medicaid program. The reason given by the withholding states is that their expansion costs would be too great over the long term. Beginning in 2016 and extending through 2022, the federal government would begin paring back its assistance in the state-level Medicaid expansion from covering 100% of the full subsidies to just 90%, with states making up the remainder.
With 21 states choosing not to expand, including highly populated Texas and Florida, millions of low-income Americans are left in the so-called "Medicaid Gap." They make too much to be covered by Medicaid but -- ironically -- not enough to qualify for subsidies, which kick in at 138% of the Federal Poverty Level. The inability of these millions of people to gain access to affordable healthcare still has the potential to keep Obamacare from reaching its goals.
Sean Williams has no position in any stocks mentioned. 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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