The key word in the Affordable Care Act (ACA) is Affordable. What we now know after 3 years of the ACA is that affordable mainly refers to the subsidized insurance premium for lower income people and what the new Medicaid recipients receive. Using the insurance policy for other than the free services like preventive care, it is many times unaffordable. 40% of adults with deductibles of 5% or more of income reported that they did not go to a doctor when sick, they did not get lab tests, they did not get follow up lab tests, and they didn’t go to the specialist. (the average family income for those on the ACA exchange is $48,000 5% X $48,000 = $2,400). Average deductibles for ACA silver plans — which accounted for nearly 70 percent of the exchanges’ 9.3 million enrollees last year — now average $2,994. And, according to the 2015 CFHCA Index, 53% of lower income people continue to have unaffordable health care costs. Further evidence comes from the Consumer Financial Protection Bureau who reported that 50% of collections listed on credit reports are due to medical debt.
While it is debatable whether premiums for the middle class would have risen as much without the ACA, they have seen their premiums increase as well as their deductibles and coinsurance. The Kaiser Family Foundation reports that deductibles rose eight times faster than wages during the last 10 years. In addition, many employers increased the employee’s share of the premium and increased the deductibles and coinsurance so they could lower the per employee cost and cover more employees.
In addition, insurance companies are finding it difficult to carry the load. Carriers have had to accept customers with chronic preexisting conditions with no corresponding increase in healthy customers. It was expected that young, healthy people would balance the books, but according to IRS commissioner John Koskinen, approximately 7.5 million taxpayers reported paying a total of $1.5 billion in penalties … assessed by the Internal Revenue Service via people’s tax filings, for choosing the least cost alternative – the penalty. Accordingly, the amount and cost of claims per policyholder has increased.
On top of this, the ACA limits how an insurance company can charge for insurance. For example, premiums for older individuals may be no more than three times higher than those for younger individuals and premiums for tobacco users may be no more than 1.5 times higher than for non-tobacco users. In addition, the ACA increases what insurance companies must provide: no lifetime limits on coverage and free services for preventive care.
Further complicating the ability of insurance companies to cover their costs, the ACA limits how much of the insurance premiums can go to cover overhead costs, the building of reserves for bad claims years (claims can vary significantly from one year to the next), and profit. The largest U.S. health-insurance provider, UnitedHealth, recently announced losses of nearly $1 billion in 2015 and 2016 on plans sold via exchanges.
Finally is the cost to the taxpayer which is substantial. The federal government subsidizes health insurance for most Americans through a variety of federal programs and tax preferences which amounts to billions of dollars. Over 10 years, the total cost of ACA health subsidies is expected to rise to $1.1 trillion. A small amount of those subsidies are offset, about five percent, by taxes and penalties from health insurers, employers and people who choose to pay the penalty.
Congress will need to find a way to spend smarter and at the same time slow down the rising cost of healthcare.