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obamacare

Is Obamacare Working? Or Is It a “Train Wreck”?

We’re about to find out

January 1 is departure time, when the wheels of Obamacare’s principal provisions are set in motion, but its Republican detractors have settled upon “train wreck” as the metaphor to use in every mention of “Obamacare”. They are reaching for every tool they can devise to pry loose the ties and derail the express (see related story).


Mike Luckovich, Atlanta Journal-Constitution

They needn’t bother, one could argue. Implementation of the law has so many complexities that it could go off the rails on its own. Some of the problems the law could encounter:

medicaid flagged down

The fundamental objective of Obamacare is to see as many as possible of the over 50 million uninsured Americans obtain health care coverage. For those too poor to buy even the subsidized insurance that will be offered to higher income groups the states were required to expand Medicaid, offering it to anyone with incomes of up to 138% of the federal poverty level.

That’s what the Supreme Court shunted into a siding a year ago when it ruled that the government did not have the right to force states to do so, delivering a serious setback to that Obamacare objective.

Of course, if governors and legislatures were to opt voluntarily — after all, the federal government would pay 100% of the expense of added enrollees for the first three years and 90% thereafter — there would be no problem, but instead 21 mostly Republican-controlled states have refused the offer. In the state where the most people will be affected, Texas Governor Rick Perry said accepting the largesse of the government plan would “make Texas a mere appendage of the federal government when it comes to health care”. His rejection will leave 1.5 million Texans without health aid by 2017 says the state’s own health department.

insurance marts

The law also calls for the states to set up “exchanges” (better thought of as marketplaces) where those covered neither by Medicaid nor employers can buy the insurance that the Affordable Care Act (ACA) requires them to have beginning in 2014. The law requires the exchanges to be open for business just one month from now — October 1 — yet over half of the states have so far done nothing to set them up, which leaves the job to the federal government. That’s as prescribed in the Act, but it hands the government a burden of unexpected size and raises the question of whether the Obama administration will be ready in the few weeks remaining.

The exchanges are essentially websites where people can compare prices and plans, forcing insurers to compete on price and features to put an end to the unaffordable costs insurers have long charged to individuals, who have had none of the negotiating heft of corporations and groups. Four tiers of plans are to be offered, all with at least the mandated minimum standard of care, their primary difference being the percentage of health care expense they cover, ranging from around 60% for “bronze” to at least 90% for the “platinum” plan. People whose income falls within a prescribed range — $24,000 to $94,000 for a family of four — are eligible for a subsidy on a sliding scale to help them pay for insurance.

The exchanges are deceptively complex. The web portal must be able to connect in real time with insurance companies to display plans and book orders, and with the federal government where citizenship can be verified and where payroll and health insurance data supplied by corporations is supplied to the IRS for deciding whether someone is already covered or otherwise ineligible, or is instead entitled to buy on an exchange, and possibly qualify for a subsidy, which amount is to be reported to the IRS if the transaction goes through because the subsidy will be awarded as a tax credit. That long and thorny sentence is to make the point about complexity.

“There are going to be some glitches, no doubt about it”, says the President, using a minor word for what could be major dysfunction. Trouble delivering the system became obvious when the White House said it wants a year-long delay of verification of subsidy eligibility. It had to sign on with one of the commercial credit reporting companies as a stopgap to verify income.

weakest link

Essential to Obamacare and its central tenet that forbids insurance companies from turning away applicants with pre-existing conditions is that everyone enter the insurance pool, not just those who are older and more likely to experience health issues. Only by bringing in younger, healthier members of the populace can there be any chance of reducing the cost of insurance for all.

In its upcoming campaign to educate the public about the law, most of the Health and Human Services agency’s efforts will be beamed at the youngest age groups to persuade them to shop the exchanges and buy insurance. They will be charged a penalty if they don’t buy in, so they might. A Kaiser Foundation poll found that 87% of the young consider health insurance “personally important”.

But what if they don’t show up? The weakness of the law is that the penalty scale is so low. At the threshold above which a family is not eligible for Medicaid and must buy insurance, “an uninsured household … must pay a tax of only $95 or 1% of household income” calculates The Weekly Standard and only a $400 penalty for a household with $40,000 in income that elects to forego insurance because it costs perhaps $1,800 on an exchange. And if they opt out, nothing in the rules prevents them from opting in should they at some point in the future become ill.

business gets a bye

The ACA drafters foresaw the cost of the vast number of workers who would need government-paid subsidies to buy their insurance, so they handed off part of that expense to businesses, requiring all companies with 50 or more employees to provide insurance for their workers or pay a fine of at least $2,000 and as much as $3,000 per employee.

Nothing confirmed the “train wreck” belief that the wheels were coming off more than President Obama’s one-year postponement of the requirement. The intent was to give businesses more time to sort out complexities. Some 94% of firms of this size already offer health care so only 1% of the work force will be affected by this delay, but terms such as “imperial presidency” were aimed at Obama by Republicans for overriding a statute of a law as if the sobriquet “Obamacare” meant he owned it. In his early-August press conference he said, “This is a tweak that doesn’t go to the essence of the law”. He would have preferred to call the Speaker and say, “let’s make a technical change … that would be the normal thing … but we’re not in a normal atmosphere around here. He then added, “We did have the executive authority to do so”, a claim for which no one has come up with a basis in law. "To amend the statute, you're supposed to be required to get legislation, and they didn't do that", said Senator Mike Lee (R-Ut).

The rule further embeds employer-paid insurance in the social contract when it should have gone in the other direction. There is no sensible rationale for why businesses should buy health insurance for employees. Had there instead been an option for companies to drop insurance and instead raise wages commensurably, it would have fortified the exchanges and begun to chip away at a relic of the World War II era that companies used to attract workers in the years when there was a labor shortage. And in setting a sharp cutoff no mind was paid to the obvious: that corporations would lay off employees to duck under the 50 threshold — 1 in 5 companies have done so said a June Gallup poll — would shorten hours of others below the 30-hour a week threshold that the Act defines as full-time, or would cease hiring altogether.

death spiral

That large businesses without insurance plans were awarded a one-year reprieve forces employees to buy insurance in the exchanges for just the one year — and after that disruption they must drop that policy and accept whatever their employers come up with. Why shouldn’t their mandate be postponed as well?

It’s a fair and symmetrical argument, but it’s not innocently advanced. Behind the arras lurks an economists’ theoretical that conservatives know could bring down the entire healthcare law.

How would that work? Postponement of the individual mandate could set in motion an effect that the backers of the law most fear called “adverse selection”. The young and healthy would take advantage of the delay and not buy into the pool. Without their funds, insurers would need to raise rates to pay for the medical care of those who do buy insurance but who are older and have a greater incidence of illness. But the rate increases would then cause the healthier among that group to drop out, resulting once again in rate increases for those still in the pool that would produce a new group of dropouts. It is a cycle that could lead to a “death spiral” in which rates successively climb so high to cover the health care costs for only the sickest left in the pool that the system collapses. To see that happen is the Republican dream.

The Republican mantra has been “repeal and replace”. There has been only repeal, with no program whatever proposed for replacement, but any program would certainly not include the individual mandate. A fair question is, without it, how would a Republican plan solve the death spiral of adverse selection?

ripe for abuse

The year delay in businesses reporting employee pay data for determining subsidy eligibility leaves the exchanges wide open for fraud with applicants reporting their income on the honor system.

Additionally, naysayers say the design of the exchanges has paid scant attention to security; its lack of rigorous verification of the user leaves them open to identity theft”. Michael Astrue at The Weekly Standard says he “could change Donald Trump’s health insurance and he could change mine”, which doubly suggests that the system is lax enough to let Trump slip through and qualify for a subsidy.

it’s working, they say

Nevertheless, proponents of the law are heralding signs of success. Predictions that the cost of health insurance will drop are proving true, with insurers at the exchanges in ten states posting rates that are significantly lower, even 10% to 18% lower than the Congressional Budget Office expected. In his press conference, Obama reeled off a list of benefits people are already experiencing: youths up to age 26 covered on family health plans, 13 million receiving rebates from insurers who failed to pay at least 80% of their premium receipts as benefits as the law stipulates, elimination of lifetime benefit limits, free preventive care and so forth — “that’s happening now”.

Pundits are chortling that Obamacare’s success is what Republicans fear the most. They expect the public will look back and remember that the GOP did its utmost to undermine what proved a vast improvement over the pre-Obamacare “system” that leaves many uninsured and lets insurers cherry pick the healthy and discard the ill. But it is certainly premature for them to declare or even think about victory at this stage.

There’s that famous line in “All About Eve” when Bette Davis says, “Fasten your seat belts. It’s going to be a bumpy ride”.

2 Comments for “Is Obamacare Working? Or Is It a “Train Wreck”?”

  1. After more than 40 years in the private sector, I would never expect any private or public sector program as comprehensive as the Affordable Care Act to be perfect immediately. What I do expect is that our elected leaders in Washington should realize that we have serious and escalating healthcare problems in our country and to take responsible action to address those problems. Although the ACA may face a rough start, I applaud President Obama for having the determination and tenacity to address the healthcare dilemma which has been largely ignored by Congress and prior Democratic and Republican administrations. Rather than defund the ACA, I think we should “unelect” those senators and representatives that are attempting to repeal the ACA instead of acting responsibly to improve the ACA to make healthcare more accessible and affordable for all Americans. The longer we wait to address the healthcare dilemma, the worse it will get.

    • Martin Savage, NC

      Exactly correct and well said. Those who want to defund and repeal have no plan other than to send us back to the deplorable “system” of insurers denying coverage to those with pre-existing conditions and dropping coverage of those who become ill. How to explain such misanthropy?

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