Obamacare Insurance—Ten Years On

By John C. Goodman.

"March 23rd will mark the 14th anniversary of the Affordable Care Act, and it is now ten years since the creation of the Obamacare exchanges.

There are three ways to look at Obamacare today: in terms of (1) what the Obama administration said it was about, (2) what policy wonks thought it was about, and (3) how it really works.

Initially, Obamacare was about insuring the uninsured. Yet the entire enterprise quickly ran into trouble, and Sen. Chuck Schumer publicly announced the reason why.

The uninsured don’t vote, Schumer told the nation and especially members of his own party. Roughly 95 percent of people who vote already have insurance. So, the congressional Democrats were on the verge of spending billions of dollars on people who were unlikely to ever vote for them.

How the Message Changed

It didn’t take long for the message to change. People who were currently insured at work were in danger of losing their coverage because of layoffs, retirement, etc. Without Obamacare, we were told, they would risk being denied coverage because of a preexisting condition.

In addition, President Obama assured everyone they would have access to better insurance than they would otherwise have. Just in case there was any doubt, he and his administration said many times, “If you like your health care plan, you can keep your health care plan.”

There was not the slightest hint at the time that the increase in the number insured would almost totally consist of an expansion of Medicaid, or that the private insurance sold to individuals would increasingly come to resemble Medicaid with a high deductible.

On the eve of Obamacare’s passage, virtually the entire argument for Obamacare—on TV, on radio, on social media, in the halls of Congress—was that people with pre-existing conditions should be able to buy insurance for the same premium healthy people pay. The bill had a solution to that problem that took effect almost immediately.

The Obamacare Risk Pools

In the first 3 ½ years of its existence, Obamacare made risk-pool coverage available to any uninsured person who had been denied coverage because of a pre-existing condition. Called pre-existing condition insurance plans, the coverage resembled a garden-variety Blue Cross plan. The premium was the same premium a healthy person would pay for such insurance. By the time these plans ended, only 135,000 people had enrolled.

Problem solved? For patients, yes. But for at least half a century the intellectual left in the U.S. had been consumed by a desire to completely reform our health care system. For every problem in health care that was being solved by markets, the policy wonks had a nonmarket solution.

Obamacare Complexity

It was no easy task. The individual market was to be completely replaced by a managed competition model—in which there would be no relationship between the premium an enrollee paid and the risk an insurer incurred.

To keep people from gaming the system (by waiting to insure until after they got sick), there was an individual mandate to be insured, with tax penalties for noncompliance. To keep insurers from gaming the system (by avoiding the sick), a host of new regulations applied.

To keep employers from gaming the system (by sending their employees into the individual market), an employer mandate was imposed. Also, employers were threatened with stiff fines if they were caught giving their employees pre-tax dollars to buy insurance on their own.

To keep states from gaming the system (by unloading the low-income population into the Obamacare exchanges), states were required to expand Medicaid.

To control health care costs (which had been rising at twice the rate of growth of national income), a global budget—analogous to similar devices in Britain and Canada—would be imposed on Medicare. A federal panel would make decisions about what medical services were worthwhile, and which ones were not.

Federal funds would be deployed to find out how to practice low-cost, high-quality medicine, and doctors and hospital administrators everywhere would apply the findings.

To keep enrollees in the exchange plans from over-consuming, subsidies would be in the form of a fixed-sum tax credit, with no additional subsidy for those who chose higher-cost health plans. To limit the incentive to over-consume health care under employer plans, a cap was placed on the tax subsidies for employer coverage.

To thwart the incentives of traditional Medicare patients and their doctors to overspend with other people’s money, Medicare doctors were encouraged to form Accountable Care Organizations (ACOs). These are poor cousins of Medicare Advantage plans (which presidential candidate Barack Obama had campaigned against), and their creation was literally a stealth privatization of Medicare. This development was so politically sensitive that doctors were forbidden to tell their patients they were in an ACO.

Even with all that, there were still opportunities for people to buy largely unregulated insurance. Short-term health insurance, for example, had traditionally been a way to provide coverage for people moving from home to school, school to work or job to job. It is not regulated by Obamacare, is lightly regulated by most state governments, and sells for about 60 percent of the cost of Obamacare exchange plans.

To discourage that development, Obama issued an executive order that restricted the duration of such plans to three months, with no renewals.

It is probably fair to say that almost no one in Congress fully understood the Affordable Care Act at the time they voted on it. It’s little wonder that Nancy Pelosi said, “We have to pass the bill so that you can find out what is in it.”

A great deal of what I described above has been dismantled by Congress, by the courts and by presidential executive order. Few mourned their passage.

Through time, the plans sold in the exchanges became less and less attractive, as competition in the face of perverse incentives created a “race to the bottom.” As we entered 2020, premiums had more than doubled and deductibles were up 60 percent—twice what you find in a typical employer plan. As a result, the unsubsidized part of the market was threatening to enter a “death spiral,” where the healthy leave and only the sick with high medical costs remain

To avoid that politically embarrassing outcome, congressional Democrats created a second tier of “enhanced subsidies”—designed to keep higher income people from leaving the exchanges.

How Obamacare Really Works

The pandemic and the accompanying changes in employment and Medicaid enrollment complicate our assessment. But leading up to the pandemic:

• There was no increase in the use of health care services over the previous decade, despite spending as much as $100 billion a year in taxpayer money. The number of doctor visits per capital actually went down.
• Virtually all of the increase in the number of people insured was in Medicaid.
• A small increase in private insurance sold in the exchanges was offset by a small decrease in employer coverage.
• Medicaid enrollment does not decrease the use of the emergency room—traffic to the ER increases by 40 percent.
• Federal funding formulas have encouraged states to sacrifice care for disabled children for the benefit of able-bodied adults.
• Enrollees value Medicaid as little as 20 cents on the dollar.
• The insurance sold in the exchanges increasingly looks like Medicaid with a high deductible—and is not accepted by many top-rated doctors and centers of medical excellence.
• Four in five people who buy insurance in the exchange pay $10 a month or less, and the insurance is basically free for average-income buyers.
• While such insurance may be a welcome freebie for the healthy, the sick face out-of-pocket exposure of $9,100 for an individual or $18,200 for a family —and that is every year!
• The Congressional Budget Office finds that billions of dollars spent on pilot programs have not saved any money.

So now we have come full circle. The only positive thing one can say about Obamacare is that it has increased the number of people with health insurance, and that is about the only aspect of Obamacare that the mainstream media focuses on. But for people with costly pre-existing conditions, the options are worse than ever."