We are less than a year from implementation of the linchpin of Obamacare; enrollment in the health care exchanges is to begin in October 2013. Nearly three years after passage the law is still controversial. As designed and presented Obamacare is to make health care affordable to all Americans, greatly expand coverage and improve benefits under health insurance and Medicare. The improve benefits part is well underway, the expanded coverage and the affordable parts are less certain.
Obamacare is paid for in several ways; (1) new taxes and fees on employers, insurance companies and health care related industries, (2) new taxes on higher income individuals, and (3) cuts in payments to Medicare Advantage plans and Medicare health care providers. In addition, there is the hope that scores of new delivery and payment models such as accountable care organizations and various bonus programs under Medicare will serve to control costs.
The concern many people have is that all these changes to the health care system coupled with the increased demand for care caused by millions more people with coverage will increase, not lower health care costs overall. What is saved by the federal government may only be shifted to the private sector. New mandated benefits and elimination of underwriting requirements will be reflected in higher premiums. New fees and taxes on the health care industry will eventually be reflected in the cost of their products and services.
Aside from the potential impact of all this on the average American, the greatest risk is the unknown impact on federal spending as a result of what amounts to a massive new entitlement program.
If all the changes related to Medicare don’t prove as effective as planned (and the Medicare Actuary and Trustees have reservations about their long-term practicality), Medicare costs may not be controlled or have actually been accelerated.
However, the real unknown is the ongoing cost of the open-ended liability created through subsidizing individuals enrolled in the health insurance exchanges. The Law provides refundable and advanceable tax credits and cost sharing subsidies to eligible individuals. Premium subsidies are available to families with incomes between 133-400% of the federal poverty level to purchase insurance through the Exchanges, while cost sharing subsidies are available to those with incomes up to 250% of the poverty level. Four times the federal poverty level is nearly $90,000 a year making most Americans eligible. Although many people currently have coverage through the workplace, an unanswered question is how many individuals with employer based coverage will move to a subsidized exchange in the future.
Equally important is whether health care costs are controlled significantly. If not, those costs will be reflected in premiums and thus the federal government’s cost to provide the subsides and tax credits within the exchanges will escalate beyond projections.
As with any massive government program intended to be permanent, there are easy to see benefits and not so easy to see long-term risks and liabilities. Millions of Americans are enjoying the benefits of Obamacare today; the long-term affordability of the Law as structured remains to be seen. Both Social Security and Medicare are of immense importance to nearly fifty million Americans today and millions more in the future, but the failure to manage such programs as they and the U. S. population evolved provides an example of the risks for Obamacare.
Related articles
- Health Insurers May See Profits Shrink With ObamaCare (seekingalpha.com)
- Obamacare: Good intentions won’t make health care affordable (bangordailynews.com)
- In Ohio, Obamacare to Increase Individual Insurance Premiums by 55-85% (forbes.com)
- Five Obamacare Promises to Remember (heritage.org)
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The biggest liability that is not easily seen is the level of system gaming that may happen once all provisions are implemented. The requirement to cover pre existing conditions makes it too easy for people to opt out, only to jump back in when coverage is needed.
The mechanism to balance out this expected behavior is a mandate to purchase coverage. The Supreme Court ruled this Summer that the enforcement mechanism could be a tax, but not a penalty. The language clarified that a tax (which the Constitution allows) was smaller than a penalty.
Will the tax be enough to change this choice? Once phased in the tax will reach 2.5% of income. There are tax credits designed to make policies more affordable which range from 2% to 9.5% of income – tiered by the relationship to national family poverty levels.
Healthy families with higher incomes can choose between paying a tax capped at 2.5% of income, and opting for insurance only when needed. Or they can pay a far higher portion of income on insurance premiums for coverage they may not need.
The tax needs more teeth to keep people from gaming the system. But if the tax becomes too big it becomes a penalty, and Congress can’t impose a penalty. This spells trouble to me.
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