Obamacare

I titled this blog post “Obamacare” ironically. I actually despise the name Obamacare. People who use the term seriously are showing right from the start that they literally do not know what they are talking about. The name of the law is “Patient Protection and Affordable Care Act”. It is reasonably shortened to “The Affordable Care Act” or even the acronym ACA. It doesn’t get much shorter than ACA; you can just say that. It looks like it is going to be around for at least a little longer, so it is a great time to review what the law actually does.

Much like the name of the law, in my experience people know very little about its substance. I’m not going to pretend like I’m an expert by any means. It is in fact a long and complex piece of legislation, but I am familiar with quite a few of its aspects. I work for a company defined as an applicable large employer, or ALE for short, by the Affordable Care Act. For this company I helped design and write the software that monitors our large number of employees for compliance with the law. I wrote the software that generates the tax forms called 1095C that, if you work, you probably have received along with your W2. And, I wrote the software that files our company data with the branch of the IRS responsible for Affordable Care Act information returns. So, I know a little bit about the topic, particularly on the employer regulatory side.

To understand the ACA you first have to understand insurance. For the insurance consumer, it is about the transfer of risk. You as a human being living in modern society have inherent risks. You may die unexpectedly and leave your family without a provider. You may crash your vehicle and cause a massive amount of damage to property, other people, or even yourself. You may suddenly develop a health condition that requires a great deal of medical care. For most of us, any one of these things could mark the end of the good life for ourselves and our family. That is where insurance comes in; you transfer some of the risk to a separate entity.

The role of the insurance company is to accept responsibility for these risks. They make it work because they accept the risks of a large number of people at the same time. They calculate the statistical chance of these calamities happening to individuals and set their premiums accordingly. The larger the pool of risk, the better insurance companies can predict and manage the risks they have accepted.

The next thing to know about the ACA is that many of the tenets of the law came from a conservative counter proposal to actual socialized healthcare. Way back in 1993, when President Clinton was in office, First Lady Hillary Clinton led a task force to fix our broken healthcare system. They were proposing a universal, socialized healthcare system. Obviously, that never came to fruition. At that time, the Heritage Foundation, a conservative think tank, forged a counter-proposal which many republicans supported. It included aspects of the ACA like the individual mandate, common markets, standardized benefits, coverage for preexisting conditions, and subsidies for low income individuals. The ACA does much more than that, but you can’t deny the similarities.

The most important thing to note is that the Affordable Care Act did not change the fundamental dynamics of the healthcare system that already existed. All the pieces remained in place. Private insurance companies, employer sponsored plans, and the selective socialized plans of Medicaid and Medicare continue to be the disparate healthcare system of the United States. What it did try to do was include more people in the system, and it tried to do that in several ways.

The first is called the individual shared responsibility provision which is commonly referred to as the individual mandate. Honestly, it’s not really much of a mandate. It is not criminal to be without health insurance; you pay a tax penalty. You can find the formula on healthcare.gov if you are interested in the details, but, basically, if you are doing pretty well, you could be looking at around $2,000 in additional tax liability. While that is not a trivial amount of money, I wouldn’t call it a mandate either. It is enough, however, to get people to think about joining the health insurance pool. Perhaps you are offered health insurance by your employer, but you are healthy and choose to be in the “Freeloader” group to save some money. Whatever your reason, the shared responsibility provision should be enough to at least reconsider.

Another way the ACA encourages people to join the health insurance pool is by subsidizing the cost. The exact formula depends on household income and family size, and you can review the details on healthcare.gov. To ballpark it, that same person who without coverage would be paying about $2,000 in additional taxes could be getting more than twice that amount to help buy health insurance on the exchange. That subsidy covers about half of the actual cost of the insurance, so you would still be spending more than you would be if you did nothing. However, you would have health insurance, so if you or a member of your family did have a medical problem you would avoid “Dying in the Streets”.

The ACA did not forget about employers. Employers are, after all, the largest source of health insurance coverage in the entire country, so there is also the employer shared responsibility provision. If a business qualifies as an ALE, Applicable Large Employer, then they are subject to the employer shared responsibility provision. An employer is classified as an ALE if they have an average of 50 full-time equivalent employees during the tax year. A full-time equivalent employee is an employee that averages over 30 hours per week.

Much like the individual mandate, it is not criminal to fail to provide health insurance to your employees. It is more akin to paying overtime, or break penalty pay. The details about the employer shared responsibility provision can be found on irs.gov. Basically, if an ALE does not offer health coverage that contains “essential” benefits at an “affordable” price to their full-time employees, then they are subject to about a $2,000 tax penalty for each full-time equivalent employee who is not offered coverage. While still not a mandate, it should be enough to reconsider not offering health coverage. There are many measurable benefits for employers to provide health insurance to their employees already, so this tax penalty is just a little extra encouragement.

One of our socialized programs was modified by the ACA as well. This is referred to as the Medicaid expansion. Medicaid is a joint federal and state funded program that provides healthcare for certain categories of low income people. Amongst others, Medicaid categories include: children, pregnant women, parents, and disabled. Prior to the ACA each state had its own requirements for eligibility. Typically, income would be at or below the federal poverty level, and only families with children were covered. The ACA sought to better standardize the requirements and include more people in the process. The ACA required Medicaid to be available for anyone whose income was less than 138% of the federal poverty level. In 2017, 138% of the federal poverty level is $16,400 for an individual or $33,600 for a family of 4 annually.

Originally, states were required to adopt the Medicaid expansion rules or lose their federal funding for their Medicaid program altogether. The federal government already pays for a majority of the cost of Medicaid in every state, and losing the funding would effectively eliminate the program. To assist the states with the expansion, the federal government would pay 100% of the cost of expanding the program for three years and 90% after that. However, the Supreme Court decision NFIB v. Sebelius ruled that requiring the states to implement the expansion was unconstitutional. That left it an optional part of the law.

Most states implemented the expansion even though it was optional. The last count was 32 states, including the District of Columbia, implemented the expansion and 19 states opted out of the expansion. By and large the states that opted out are the most conservative states. It appears to me, that these 19 states have chosen to opt out for purely political reasons. Participation in the Medicaid program has always been optional. Nonetheless, all of these 19 states choose to participate in the program. On average each of these states accepts over 5 billion dollars annually from the federal government to help pay for it. It does not appear to be the program or the federal funding they are against. These states have simply chosen to oppose anything President Obama supports even at the expense of the health of their own constituents.

The next piece of the puzzle is the private insurance company. First, they are required to cover ten essential health benefits. You can review the entire list and definitions on healthcare.gov. They include the basic health services you would expect like ambulance, maternity, prescription drugs, lab service, hospitalization and mental health. Additionally, insurance providers may not reject you, charge you more, or refuse to pay for essential health benefits for any preexisting condition.

Perhaps the most understood and widely accepted statute of the ACA is the one that requires insurance companies to allow adult children to remain on their parent’s family coverage until the age of 26. It’s easy to understand and makes a lot of sense. Young adults are far healthier on average than the older insured. Keeping them in the pool is a good way to spread risk across a less expensive demographic. It’s also a group that has more difficulty affording coverage. Perhaps college is taking longer. Perhaps they are having trouble finding full-time employment with benefits. Whatever the reason, they can stay on their parent’s family plan a little longer while they figure it out.

In order to encourage competition between health insurance companies the ACA also created the Health Insurance Marketplace. A state could set up their own health insurance exchange or opt to use the one set up by the federal government. Available plans were grouped into 5 categories based on the percentage of medical expenses covered. Typically, plans covering more expense had higher premiums. With the health coverage and rate categories standardized, insurance consumers could use the common market to easily compare rates among the providers.

All of these things together were designed to increase the quantity of people in the health coverage pool. Theoretically, a larger pool could be run more efficiently and per capita costs would go down. In order to ensure these savings were passed down to insurance consumers the ACA contained a provision known as the Medical Loss Ratio. Also known as the 80/20 rule, the Medical Loss Ratio requires that insurance companies use 80% of their revenue from insurance premiums on healthcare related expenses. That left 20% for administration, marketing and profits. The ratio varies a bit depending on the type of pool being covered, but in a nutshell that is the 80/20 rule. If an insurance company did not meet their required ratio, then they would have to issue rebates to their customers. Many providers already operated within this range, but some have had to pay these rebates. Each year the amount of rebates goes down as insurance companies adjust to the regulation.

So, did it work? The answer is, sort of. Certainly a much smaller portion of the population remains without health insurance. In 2010 about 16% of Americans were counted as uninsured. Now only about 9% remain uninsured. It was a bit of everything listed above that brought more people into the insured camp. Costs continue to rise. Sometimes less than they were rising before, but sometimes just as much or more. The insurance regulations and the marketplace make it easier for consumers to shop around for the most affordable coverage. However, some markets only have a single provider, so that isn’t really helping there. There is an incredible amount of hyperbole and misinformation from both supporters and opponents of the law. In my opinion the state of healthcare in the United States is marginally better now than it was before the ACA.

On a personal note, while I freely admit the Affordable Care Act is incredibly lacking, it probably saved my father’s life. He wasn’t quite old enough to qualify for Medicare, was not offered coverage by his employer, and was unable to afford insurance on the private, individual market. He appeared to be healthy, but, because of his age, the market wouldn’t touch him. When the Affordable Care Act went into effect he could no longer be denied coverage or be charged more because of his age. Then with the help of a marketplace subsidy he was able to afford health insurance for the first time in over a decade. He got a physical as part of the new insurance plan and the doctors discovered colon cancer. The cancer was caught early enough that the doctors were able to remove it without having to go through prolonged treatment. If the cancer remained undiscovered until he was eligible for Medicare chances are it would have been much worse; probably fatal.