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Obamacare Fact Check

Obamacare Fact Check

With the election just around the corner and Obamacare dominating the political news, Strategic Insights is attempting to demystify some of the political rhetoric surrounding the Affordable Care Act (ACA). Let us know if we made more of a mess of it?

Claim 1: The huge benefit of the ACA was dramatically lowering the rate of uninsured.

Absolutely. Today, about nine out of 10 Americans are now covered by some form of health insurance. This is due to the twin expansions of the ACA – the Medicaid expansion and the creation of an individual Marketplace and government subsidies for healthcare. The reality is the “Political Repealers” and the “Political Repeal and Replacers” would suddenly have to tell up to 20 million Americans they are no longer covered.

Claim 2: Premiums in the Exchange Marketplace are going up dramatically.

This is absolutely true. After somewhat modest increases back in the first few years of the ACA, premiums are rising dramatically. Some states saw this early on, but premium hikes now seem to be high in most states, although there is great variability. This is very much related to the type of state (rural vs. urban) and the number of insurers participating. The White House had to admit the premium increases averaged 25 percent for 2017 across the 39 states of the federal Exchange Marketplace (the states that do not operate their own Exchange). Across federal and state Marketplaces, the growth is about 22 percent.

The causes are numerous. Younger, healthier individuals are not enrolling in the Exchange, causing the high adversity of enrollees. The lack of full funding for the transitional risk corridor program has spooked plans as well. The funding was promised to plans who took the chance on participating.

Defenders of the program say the major 2017 hikes are one realignment of premiums due to initial underpricing in the Marketplace. But this is speculation at this point. Indeed, with the erosion of health plan participation and challenges in reducing adversity, premiums could continue to rise. Are we looking at what healthcare economists term a “rate death spiral”? Maybe or maybe not. It may depend on open enrollment and the assessment of healthier people as to the relative risk and reward of joining for the first time or staying in and paying higher premiums. At any rate, the premium hikes do show the system is not stable by any measure.

Claim 3: Obamacare is in trouble because so many plans have left the national healthcare experiment.

This is partially true today and time will tell how bad things really will be. According to the Kaiser Family Foundation, the number of Americans in the Exchanges that have access to three or more insurers will drop from 85 percent to 57 percent in 2017. The average number of insurers per state is dropping from 5.4 to 3.9, less than in year one. This is an erosion, but not devastating in most areas. However, the lack of financial stability has crippled Obamacare’s competitiveness in many markets just the same, both rural and urban. The number of Exchange enrollees in metropolitan areas that have a choice of three or more insurers is just 62 percent in 2017. And the number of counties with just one choice will increase from 7 percent to 32 percent next year. The erosion of health plan participation was caused by the pullout or retrenchment of a number of big national insurers and regional Blues plans as well as the bankruptcy or pullout of a number of small plans and co-ops due to the risk corridor underfunding.

Claim 4: Don’t worry! The premium increases don’t matter because people get subsidies and won’t see these increases.

This is partially true but absolutely misleading. It is true that most enrollees in the Marketplace will not bear the entire brunt of the rising premiums. Over 85 percent of enrollees get some form of premium subsidy. At the lowest end, participants are pretty much protected from these hikes as they are capped at paying no more than 2 percent of their family income (if income is between 100 and 133 percent of the federal poverty level (FPL)) toward premiums. At the highest end (300 to 400 percent of FPL), families must contribute up to 9.6 percent of income before subsidies kick in. Thus, federal coffers will cover most or all of the premium increases in the form of subsidies because many people are capped (or close to it) at the amount they pay. The increases could make more families eligible, as premiums will now exceed the applicable percentage of family income.

But for others not eligible for subsidies, the premium increases will be devastating and lead to an erosion of coverage in a group where the uninsured rate has remained high. These families simply will not be able to afford the increases. While not all of these individuals are newly insured, CMS’ own data suggests that as many as 8.4 million Americans getting unsubsidized coverage through the Exchanges or outside the Exchanges will be hit by these huge increases. It could also increase the adversity in the system because more healthy families will abandon the system while those that are less healthy will find ways to pay the premiums to maintain coverage.

Why do the increases overall matter? On one hand, the projected premiums for 2017 are roughly in line with original Congressional Budget Office (CBO) predictions. And so far, the cost of the healthcare experiment has run under budget. But the bottom line is that if premiums continue to increase, the cost to the overall system will rise dramatically – year by year! Indeed, the main reason the actual costs have been lower than predicted is because fewer enrolled due to the disastrous launch in 2013 and healthy people were not attracted into the system.
Whatever the actual costs, there also is the question of whether America can afford such an extravagant benefit and subsidies for premium and cost-sharing at the lowest incomes that dissuade personal responsibility and becoming an informed purchaser of healthcare. Government covers 100 percent of the actuarial value of healthcare for Medicaid participants, but these are among the poorest citizens. When it comes to Medicare Part A (hospital and related services), Uncle Sam is basically covering about 80 percent of the actuarial value of the benefit and the fund will not be able to sustain itself beyond 2028 (Medicare Parts B and D require 75 percent government support and 25 percent beneficiary support – in essence a built-in budgetary or personal contribution increase each year). Thereafter, a major infusion of revenue or a double-digit reduction in benefit expenditures would be needed to support the Part A program.

As we noted, over 85 percent of Exchange members get premium subsidies. As important, those under 250 percent of FPL (more than half of Marketplace enrollees) also get cost-sharing subsidies to limit their out-of-pocket costs. These members get a benefit pegged at between 73 and 94 percent of the actuarial value of the benefit, with most getting a benefit of 87 to 94 percent (this means members pay only 6 to 13 percent of their costs after premium). So it is easy to see how the Exchange benefit quickly becomes unaffordable, especially as both the state and federal government struggle with Medicaid costs. A recent Medicaid actuarial report shows the cost of the Medicaid expansion was demonstrably greater than though on a per-person basis. And Exchanges have a higher actuarial value than Medicare and are close to Medicaid for many enrollees.

The Medicaid, Medicare, and Social Security funding problems will challenge budgeting and the national debt long into the future. Because the Exchanges are also an entitlement, so will the ACA.

Claim 5: The ACA has been pivotal in reducing healthcare inflation across the board.

Well, maybe partially. The ACA did include numerous reductions to the Medicare program that certainly helped slow inflation and expenditures in the program over the past several years. How lasting those changes are has yet to be determined. The ACA can also be credited with moving some care from the most expensive forms (emergency room and hospitals) to less expensive preventive care (PCP and Specialist) because many more people are now covered in Medicaid and the individual markets.

How much the ACA accomplished versus other market forces is open to debate. At least some of the lower inflation can be attributed to the rather lackluster economic recovery we have had over the past decade. If Exchange premium growth is lower than the Congressional Budget Office (CBO) projected, so too is the growth in other areas of the healthcare Marketplace (e.g., employer coverage). Now the ACA did impact these lines, too, but many would argue only by adding more mandates and increasing costs.

Claim 6: The solution to the plan participation problem is to launch a public option.

Wrong! In whatever form (a government-run system or one run by health plans on behalf of the government), a public option is more of the same inefficiency we have seen in the health care system for the past half century now (aka, Medicare and Medicaid fee-for-service). This archaic approach promotes quantity over quality. Notwithstanding arguments about lower administrative costs and no need for margin attainment, these systems are inherently more expensive and wasteful, even with the ability for a government to price fix. The public option would also undermine the private insurance system and transfer costs as it does today in Medicare and Medicaid. In addition, price fixing has the ill effect of reducing access to providers, which runs counter to a prevention strategy. There are better solutions out there as we have argued many times before (you can read up at our blog site).

Claim 7: The ACA is all we need to transform our healthcare system.

Not by any means. The ACA can be credited with important consumer safeguards — providing coverage for Americans, launching some fundamental reforms of the system, focusing in on quality attainment in Medicare and Medicaid, and starting to migrate these programs from the transaction-based system. But the ACA alone will not do it.

Whatever the merits of these reforms, public policy-makers and lawmakers have to get together to create additional lasting and systemic reforms. The fact is America spends the most on healthcare in the developed world (by far more than any other prosperous nation), yet ranks near the bottom in all sorts of outcome measures. Even with the dampening of inflation recently, America is still on pace to spend one-fifth of its gross domestic product (GDP) on healthcare, thereby crowding out other critical investments needed to help our economy grow over time. It has little focus on prevention and care management. It has the most expensive hospitals in the world and an over-reliance on them due to the lack of care coordination and a major readmission problem. It spends very little on health literacy of the populous.

Marc Ryan

Marc S. Ryan serves as MedHOK’s Chief Strategy and Compliance Officer. During his career, Marc has served a number of health plans in executive-level regulatory, compliance, business development, and operations roles. He has launched and operated plans with Medicare, Medicaid, Commercial and Exchange lines of business. Marc was the Secretary of Policy and Management and State Budget Director of Connecticut, where he oversaw all aspects of state budgeting and management. In this role, Marc created the state’s Medicaid and SCHIP managed care programs and oversaw its state employee and retiree health plans. He also created the state’s long-term care continuum program. Marc was nominated by then HHS Secretary Tommy Thompson to serve on a panel of state program experts to advise CMS on aspects of Medicare Part D implementation. He also was nominated by Florida’s Medicaid Secretary to serve on the state’s Medicaid Reform advisory panel.

Marc graduated cum laude from the Edmund A. Walsh School of Foreign Service at Georgetown University with a Bachelor of Science in Foreign Service. He received a Master of Public Administration, specializing in local government management and managed healthcare, from the University of New Haven. He was inducted into Sigma Beta Delta, a national honor society for business, management, and administration.

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