Monday, January 4, 2016

Obamacare Healthcare Exchanges Two Years Later: Why the Affordable Care Act is Unaffordable

While Obamacare was signed into law back in 2010, the major provisions of Obamacare, including the healthcare exchanges, took into effect approximately two years ago. Proponents of Obamacare thought the law was a step in the right direction, while the critics believed that Obamacare was the beginning of the end of the healthcare system in America as we know it. Obamacare had a rough start, and not just because of a malfunctioning website or having difficulties signing people up for the exchanges. From the beginning, it was evident that Obamacare was going to be unable to live up to its promises, including the expectations of being able to keep your current plan, your doctor, or how it was not going to add a dime to the deficit. Even so, it has been two years, and perhaps the government has worked out the kinks.....or perhaps not. Let's take a look and see how well the healthcare exchanges have performed since their 2014 debut.

Medical Loss Ratios and Profitability
Even the Left-leaning Urban Institute and Robert Woods Johnson Foundation found that medical loss ratios, which represent the proportion of premiums collected by the insurer that are paid out in benefits, are threatening the longevity of the healthcare exchanges. If the MLRs exceed 100 percent, that means that the insurance companies are paying out more money than they are receiving. If an insurance company pays more than it receives, it cannot very well stay in business for long. But the Urban Institute found that 10 states plus D.C. have reached an MLR of 100 percent or higher. Given that averse selection disincentivizes younger and/or healthier people to enroll, this should hardly be a surprise. Top that off with tax exemptions that make it even easier to opt out, and it provides greater incentives for health insurance companies to leave the exchanges, which is something that UnitedHealth very well might do within the next year.

Obamacare Enrollment
The Obama administration has admitted that enrollment is going to flatline to 10 million enrollees for 2016. The enrollment rates for Obamacare are lower than initially predicted in 2010 by the Congressional Budget Office, and are lower than estimated only a few months ago. Health consultant firm Avalere found that aside from very low-income individuals, Obamacare is having difficulties enrolling people. Since premiums are independent of one's health status, once again, this is hardly surprising.

Healthcare Premiums and Other Healthcare Costs
The healthcare mandates, which are the underpinning of the healthcare exchange system, have driven up premiums more substantially than if Obamacare had not become law. The Brookings Institution found that for 2014, premiums went up 24.4 percent beyond what they would have had Obamacare not been law (p. 301). The Right-leaning American Action Forum found that premiums in the Silver and Bronze plans are expected to increase by an average of 10 percent in 2016, while the CMS estimates the increase to average at 7.5 percent. (CMS also provides those breakdowns state-by-state if you're interested). Premiums aren't the only cost to consider. Deductibles are so high that the New York Times and the Boston Globe, as well as a November 2015 study from the Mercatus Center, found that many are paying out-of-pocket as a result. There is also the $695 per person mandate [as of 2016] if you don't have health insurance. Most interestingly, the Urban Institute found that subsidies don't help with keeping costs down because even with the subsidies, those in the healthcare exchanges who are between 200 and 500 percent of the federal poverty level pay more than 10 percent of their income for healthcare. A Penn University study (Pauly et al., 2015) shows similar results by concluding that anybody over 138 percent of the federal poverty line has a greater financial burden.

Other Adverse Effects
  • For the year 2014, which was the first full year that the exchanges were in effect, the Centers for Medicare and Medicaid Services (CMS) found that the primary culprit of healthcare costs increasing by 5.4 percent was Obamacare. 
  • The New York Times is reporting people not being able to keep their current doctors as a result of Obamacare. 
  • Healthcare deductibles are rising much faster than premiums, wages, and inflation.
  • Gallup polls show that the rating of U.S. healthcare quality hasn't improved since 2014.
  • As a result of Obamacare, the CBO is expecting a decrease of 2 million full-time equivalent (FTE) within the next decade. 
  • About half of Obamacare co-ops have failed.
  • The employer mandate is going to be a nightmare, particularly for smaller businesses.

Obamacare is a litany of politically-induced inefficiencies in the healthcare market. We need a consumer-driven healthcare system with focus on patients' needs because if Obamacare is an example of success, I would hate to see what failure looks like.

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