Obamacare, or the Affordable Care Act (ACA), is a very complex and controversial topic. If you Google the word “Obamacare”, you will find 21.2 million links to articles and various websites. The law itself is more than 3,000 pages and is growing, particularly with the modifications Mr. Obama has made the past few months. How does someone begin to understand whether it’s working and it’s impact on American business and society in the years to come?
Years ago, an economist developed the “Iron Triangle” theory about health care, suggesting that 3 characteristics of health care are tightly interdependent – quality, access and cost. If you adjust one of these characteristics, you affect the other 2.
So let’s look at these 3 characteristics to see how Obamacare is really working and its potential impact on American business:
Accessibility: This was the key reason for creating Obamacare – 15% of the American population did not have health care insurance. Depending on the source, this meant that 40 to 45 million people were uninsured.
Obamacare was designed to reduce this number of uninsured by:
a)Removing previous medical conditions as a reason for denying insurance;
b)Creating health insurance exchanges throughout the U.S. to allow people to shop for low-cost health insurance policies, providing premium subsidies to people with low income; and
c)Use applications for the health care exchanges to identify lower income people eligible for
government health insurance via the Medicaid program
d)Providing government subsidies to help low-income people buy insurance;
e)Mandate that people with high incomes buy insurance or pay a penalty (to subsidize low-income premiums).
What has happened so far?
1)The introduction of the health care exchanges, where people could shop for insurance and compare prices, was a disaster – they were poorly designed and prone to failure or very long wait times. The government wasted hundreds of millions of dollars with this project and has hired experts from Google and other companies to help with fixing the problem.
2)Smaller health insurance companies jumped into the exchanges, hoping to generate new business- it’s not sure they will be able to collect enough premiums to pay the claims for their customers, particularly if these customers have serious medical needs;
3)An estimated 5 million people have signed up for health insurance by March 18, 2014 BUT the government target was 7 million people by the end of March, 2014.
In addition, 25% of these people haven’t paid their first premiums.
4)Only 27% of the people who have signed up were previously ‘uninsured’, which means 73% had insurance before Obamacare. In fact, many of these people were upset they had to give up previous insurance policies because they were ‘defective’ under the new Obamacare regulations.
5)The percentage of people uninsured has gone down, but much of that decrease was due to 4M people entered into the Medicaid program.
6)27% of the newly insured are young people (ages 18-35), critical to make the system financially viable. In order to keep premiums from rising significantly in 2015, the percentage of young people must be 40%. If premiums rise, it will discourage young people from enrolling in 2015 and beyond, making claims much more expensive for others.
Why are young people hesitating? There are 2 reasons -
1st, they think they are ‘invincible’ and don’t need health insurance and
2nd, the government set the premiums unusually low for older workers and higher for younger workers to make it more affordable for the older workers who tend to use insurance more.
So while access to health insurance has improved and the number of uninsured people have gone down, it has not decreased as much as forecasted and young people are still unsure about its benefits. If enough young people don’t obtain health insurance, or they fail to pay their premiums, premiums will go up, discouraging future customers.
The next 2 characteristics for evaluating Obamacare success, quality and cost, are more uncertain at this time.
“Quality of Care” is an unknown after Obamacare because these new insurance policies are untested and the small to medium insurance companies uncertain. Several major hospitals, like Memorial Sloan Kettering in New York, have announced that they will not accept certain low-cost insurance plans obtained through insurance exchanges. Other hospitals have announced they can’t afford to offer the discounts demanded by insurance companies consistent with the low premium policies and have announced plans to close.
Health care costs were increasing in the U.S. before Obamacare – cost per employee increased 4.9% in 2012 and 3.3% in 2013 but the introduction of Obamacare will increase cost per employee 6-7% in 2014. Most of that increase is linked to special Obamacare taxes. When you add premiums to other medical costs, the employer cost of health insurance increased 75% from 2004 to 2014 while employee costs have increased 150%, with much of that increase in the past 2 years. Employees now pay an average of $4,979 in health care costs vs. $2,011 in 2004.
So, the initial impact of Obamacare has been increased access to health insurance for the formerly uninsured (though not as high as the government hoped) but with high cost increases to the 85% of the population who had insurance before Obamacare. The quality of health care, particularly for the people who just bought Obamacare health insurance, is not the high quality promised by the government. Valued hospitals and doctors do not accept Obamacare insurance plans – so people may not be able to keep their doctors as promised.
What’s the future of Obamacare with business?
Obamacare was built on a mountain of assumptions – for example, many of the uninsured would now buy insurance, especially younger people. Unfortunately computer problems and the complexity of the new law have created unexpected problems with enrollment. No one knows with certainty whether
people will be satisfied with the doctors and hospitals they can use with Obamacare.
It is also clear now that workers who had quality insurance before Obamacare will need to pay much more for health insurance in the future or be directed by their employers into private health exchanges offering less-generous health care. They will also have to pay much more for their health care.
Employer-paid health insurance was born in the late 1940’s when manufacturing created a high demand for workers but had severe limitations from the government on wage increases. For decades, quality health care was provided by employers of all sizes at virtually to cost to employees. Under this system, 85% of the U.S. population had health insurance through their employer.
The political debate on Obamacare has put a lot of attention on the high cost of health care and major companies are now considering if they must provide such generous coverage to compete for talent. The average health care cost for employers is $11,176/year in 2014 and climbing – for employees with families, the employer cost can exceed $20,000/year. Since public and private exchanges provide people with options for buying lower cost health insurance, companies may see a clear advantage to decreasing health care spending and providing employees with more fixed and variable pay. This will lead to smaller benefit departments and more competition in the area of wages.
I believe that employers will play a smaller and smaller role in employee health care in the years to come. Employees will have more freedom to move from company to company without worrying about health care coverage thanks to Obamacare exchange so employers will have to provide greater cash incentives to attract the best talent.
The same revolution that took place in pensions will occur with health care. Defined benefit pensions are almost extinct, replaced with 401k savings plans. Similarly, employers in the future will be more likely to provide employees with a fixed amount of financial assistance for health care (like contributions made to a 401k account) and less likely to worry about full health care for employees and their families.