The Unaffordable Affordable Care Act Turns 6

Commentary by Devon Herrick

Source: The Health Care Blog

This week marks the sixth anniversary of the Patient Protection and Affordable Care Act (ACA). But it’s hardly anything to celebrate. The ACA was intended to make health coverage affordable using an age-old strategy referred to as OPM (other peoples’ money). For instance, ACA regulations require insurers to accept all applicants — including unprofitable ones — at rates not adjusted for their health risk. Premiums can vary somewhat based on age, but not health status. A plethora of new taxes (mostly on medical care and health insurance) are supposed to somehow make coverage more affordable. Other funding mechanisms include draconian cuts to Medicare and higher deficits to expand Medicaid.

Most people covered by health insurance actually experience very low claims in any given year. Although annual health care spending per capita approaches $5,000 per year late into middle age, about half the population spends less than $500 annually on medical care. Thus, health plans with modest benefits would be both affordable and meet the typical medical needs of most Americans. But to accomplish the goal of making health coverage affordable to people with health concerns, the ACA had to force Americans to purchase health coverage and limit their choice of health plans. Health insurance that does not cover a plethora of preventive care, plans that cap benefits at predetermined levels and plans that reward Americans for having led healthy lifestyles are no longer allowed. Granted, insurers are allowed to discount premiums slightly for participation in wellness programs. But insurers know this is like closing the barn door after the horse has bolted. Whereas unhealthy lifestyles have little impact on 25-year olds, decades of unhealthy living makes a huge difference in 55-year olds.

In an attempt to transfer income from low-spenders to big-spenders, Obamacare has purposely undermined affordable coverage. In the process it also removed the incentives health plans use to encourage healthier lifestyles. Middle-class, healthy folks have largely shunned Obamacare Marketplace plans. The inevitable result is that the Obamacare exchange has become a high-risk pool for people who are poorer or sicker than average. Obamacare plans are a bad deal for all but the most costly enrollees or those receiving lavish subsidies. Indeed, 83 percent of exchange enrollees are ones who receive subsidies.

A report from the University of Pennsylvania’s Wharton School found all but the most heavily subsidized Obamacare enrollees would be better off financially if they skipped coverage and pay for their own medical care out of pocket. The people whose incomes fall between 1.38 and 1.75 times the poverty level will spend about three times the amount on premiums for a Silver plan as they would have out of pocket had they remained uninsured. For those earning more than 250 percent of poverty, most will be worse off financially compared to having remained uninsured.

Prior to ACA, health plans with limited benefits (or high deductibles) were less expensive than coverage with onerous mandates and costly regulations. Those who could not afford comprehensive coverage could choose to either self-insure for day-to-day medical needs (now illegal), enroll in a limited benefit plan (now banned under Obamacare) or enroll in a high-deductible plan. Of those three options the only option left are high-deductible plans. Prior to the ACA, high-deductible plans were very affordable. Premiums were low enough to have money left over to fund Health Savings Accounts to cover a portion of the costs below the deductible. Since Obamacare high-deductible plans have become costly even though they cover almost none of Americans’ day-to-day medical needs.

Consider this: according to the comparison website, HealthPocket.com, a family who receives no subsidies pays nearly $1,000 per month for a bronze plan with a high deductible. Bronze plans would cost my family $12,000 per year and require deductibles of $6,750 apiece. These plans are a poor value for most enrollees by design. A family deductible of $13,500 means that despite sending $12,000 to a health insurer, all of our health care needs must be paid out of pocket. That is anything but affordable for most families.

Overcharging healthy people causes them to avoid health insurance like the plague — resulting in a condition known as adverse selection. The ACA attempts to lessen adverse selection by forcing young and healthy people to buy expensive health coverage that’s a poor value. When these types of regulations were tried in the 1990s (without a mandate) it was a disaster. Over time health coverage became incredibly expensive. Premiums shot up to reflect the higher costs of the health plan. Coverage became a bad value for everyone except sick people for whom any coverage was better than nothing. Sound familiar? It should because that’s what’s happening to Obamacare plans today.

I’ve talked to people who say they’ve made the conscious decision to forgo health coverage and just pay the penalty and pay cash for medical care. A few even think they can get out of the penalty. One lady I talked to suggested she’d be far better off just taking the money she would have spent on largely worthless insurance coverage and using it… (hold on to your hats, this is controversial!) on actual medical care. She will pay out of pocket for her physician visits. She will use a discount pharmacy card for her prescription drugs. She will pay for laboratory testing out of pocket. She’s even considering having some procedures done that her insurance would never have covered, even if she met her deductible.

Many of those enrolled in Obamacare are gaming the system and cheating insurers in the exchanges.  Many enrollees remain uninsured despite the mandate — only signing up for coverage if they become sick or need expensive medical services. In theory the next opportunity to enroll is not until the next open enrollment period at the end of the year. But eager to grow exchange plans as much as possible, the Obama Administration foolishly created multiple special enrollment categories. This allows just about anyone to sign up during the year long after the open enrollment deadline has passed.

This is a problem because claims data shows that individuals signing up using special enrollments aren’t just slackers who lost track of time during open enrollment. Late enrollees use more medical care than those enrolling during open enrollment. They are also more likely to drop coverage soon after receiving expensive medical care. Health insurer Aetna reports one-quarter of its 2015 enrollees signed up through a special enrollment category. Aetna enrollees who sign up during open enrollment tend to maintain coverage for eight to nine months on average, whereas those signing up during a special enrollment drop out in only half that time. Anthem also reports members who took advantage of special enrollment are twice as likely to drop coverage only months after signing up.Other large insurers report similar problems. Anyone can legally drop coverage for two consecutive months, say November and December, and not owe a penalty. Individuals can also merely stop paying premiums and insurers cannot kick them off the rolls for 90 days (although insurers can stop paying medical claims after 60 days of missed payments).

It’s rather sad when you realize the Affordable Care Act made health care unaffordable for millions of middle-class families and left many formerly-insured better off with no coverage. Obamacare is hardly a legacy to celebrate. It’s time to go back to the drawing board and work together to find a solution that creates the appropriate incentives for all stakeholders.