So after all of the preliminaries we can start to look at how Obamacare works. We needed those preliminaries to really understand what is being done and why. As we saw from looking at Tradeoffs and Competing Interests, there is a lot of balancing going on here, and now we are in a position to understand that balancing. So what did Obamacare do?
The first question involved politics, as you might expect. Obamacare was designed to have as few enemies as possible. To get that result, they started with a blueprint that takes some features from a plan that was designed by a conservative think tank, the Heritage Foundation, in 1993. This 1993 plan morphed into a plan implemented under Mitt Romney when he was governor of Massachusetts. And that Romney plan became the the starting basis for Obamacare, though it is fair to note things change at each step, so it is more a question of general ideas than of exact specifics. The other way they reduced opposition was to carefully work out compromises that kept Doctors, Hospitals, and Insurers happy. To do that while also reducing costs and increasing coverage required very careful balancing. Here are some of the provisions:
- 85% of premium dollars need to go to actual health care services and health care improvement – In other words, insurers could not spend more than 15% of the premium dollars on things like advertising and executive salaries. So this is a negative feature to Insurers, and keeping them on board meant giving them something else later.
- Young adults can remain on their parents policy until age 26 – This is somewhat of a negative for Insurers, but realistically most people 26 and under don’t have a lot of medical needs. This is mostly peace-of-mind for families.
- No more pre-existing conditions – This had been a feature of private insurance for a very long time. Now Insurers could no longer refuse to cover these conditions. This was big change, and proved to be very popular. Most people thought it was very unfair to refuse coverage this way. But it also is another negative for Insurers.
- Ending maximum coverage limits – Previous private plans frequently put in a maximum amount of coverage you could have, either annually, over your lifetime, or both in some cases. Again, a negative for Insurers.
- Free preventive care – A number of preventive care measures were required to be offered in all policies without charging anything to the consumer. Another negative for insurers.
- Medicaid expansion – This would allow more people to qualify for government-provided Medicaid. This is good for the individuals involved, of course, but a big plus for providers. They would be able now to significantly reduce the amount of “uncompensated care” they provide since they could now bill that to the government.
- Penalties to hospitals for readmissions within 30 days – If a hospital had too many cases of patients being re-admitted within a 30-day window it would be taken as a sign of poor quality, and Medicare reimbursements would be reduced. Since Medicare covers nearly all older Americans, this could be a significant deterrent. This lead to measures like home healthcare follow-ups after discharge. To hospitals that successfully changed their practices to reduce 30-day readmissions, there would not really be much financial impact since the home care can be billed just like other care. But you had to take it seriously.
- Individual mandate to have health insurance – This would require everyone to purchase health insurance, thus increasing the pool of insured people. This is one of the more controversial aspects of the law because a lot of Americans don’t like to be told they have to do anything. But a big plus to the Insurers because that increases the flow of premiums to the insurance companies, thus offsetting the negatives already mentioned.
- Creation of Insurance Exchanges – In each state insurance exchanges would be set up where companies would offer health insurance policies with largely matching features, and these would be at three levels of coverage (Bronze, Silver, and Gold). Bronze would be the cheapest, but would have the highest patient’s charges (copays) levied for services, while Gold plans would cost more in monthly premiums but cover more of the cost of services. It was intended that each state would set up their own exchange, but the Supreme Court ruled that the Federal government did not have the authority to mandate that, so now if a state does not set up an exchange residents of that state can purchase insurance on a Federal exchange instead.
- To pay for increased government spending, certain taxes were levied. The largest of these is a tax on investment income received by wealthy families.
A number of other options were ruled out at various stages in an attempt to get support from Republicans, such as the ability to purchase coverage directly from the Federal government (called the “Federal option”). Nevertheless the Republicans decided to take a position of all-out opposition, and the measure finally passed without any Republican votes at all.
Obamacare (or formally the Affordable Care Act) passed in 2010, survived a number of court challenges (though with some changes, most significantly a Supreme Court ruling that states could not be required to expand Medicaid coverage). Providers got less uncompensated care (positive), but had to improve quality (negative financially). Insurers got increased premiums (positive) but had to accept mandates on what they had to cover (negative financially). Individuals got an end to pre-existing conditions and mandates to provide coverage with certain features (positive), but also a mandate to purchase insurance (negative financially). So this is definitely a case of give-and-take that balances interests. In the final analysis, providers and insurance companies supported the legislation, a significant difference from 1993 when insurers and many doctors were opposed and helped to sink that attempt. The only organized opposition at that point came from the Republican Party.
Of course the real test is how the legislation worked in practice. It did not all go smoothly. The government web site that people needed to go to and sign up crashed, and the government had to recruit a number of techies from Silicon Valley to straighten that out. And it did represent a massive change in the system and that never happens without some bumps in the road. But the number of people covered rose pretty significantly. In terms of policies purchased on the exchange. In 2016, the full year figures are about 12.8 million people covered by policies on the exchange. But Medicaid is more interesting. In a 2010 Actuarial report
it was noted that 50 million people were covered in 2009 for a total cost (State and Federal) of 510.3 billion dollars. It went on to note:
- “Over the next 10 years, expenditures are projected to increase at an average annual rate of 8.3 percent and to reach $840.4 billion by FY 2019.
- Average enrollment is projected to increase at an average annual rate of 4.5 percent over the next 10 years and to reach 78.0 million in FY 2019.
- Both averages reflect the significant increase in Medicaid enrollment that will occur in 2014 as a result of the expansion of Medicaid eligibility under the Affordable Care Act. “
In April 2017 the measurement was 74,531,002 people enrolled, for a net increase of 24 million, or about twice the increase in private insurance coverage.
But what about healthcare spending? While it is not falling, the rate of increase has gone down, sometimes referred to as “bending the curve”. This looks like it may have started before Obamacare was passed, so there is a legitimate question as to how much of the improvement is due to this law and how much to other factors.
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