Monday, August 7, 2017

15 Reasons to Dislike Obamacare

A few days ago, I came across a rarity that we see in today's polarized world. I saw Democrats praising a Republican. Why? Because Senator John McCain (R-AZ) was the vote that stopped the "skinny" Obamacare repeal bill from passing. I saw some friends on social media rejoice over this vote being turned down because they were under the impression that Obamacare saves lives (I covered this a month ago: repealing Obamacare wouldn't particularly save lives). I can agree with my friends on the Left that the Republican attempts to replace Obamacare are bad, but we disagree on the reason.

In public policy, the optimal goal is to pass legislation that is an improvement over the status quo. The Republican "repeal and replace" attempts are not an improvement over the status quo because they tweak some of the financing aspects while ignoring and maintaining the insurance regulations that make Obamacare insolvent in the first place. The Republican plans have essentially been "Obamacare-lite," which believe it or not, are actually worse than Obamacare. What we cannot forget in the midst of this political upheaval is that while the Republican plans are worse, Obamacare is still bad policy. It is not something we should admire or advocate. It is far from perfect, and it has caused considerable damage to the healthcare market in the United States. This blog entry needs to serve as a reminder as to why that is the case, which is why I will provide a condensed list of reasons.

But before beginning, I would like to add one caveat at the beginning. I am looking to pull the most recent information, but I will deemphasize information released in 2017 for two reasons. One, the election of Trump and Republican attempts to repeal (both in terms of the failure of passing a bill and the lack of clarity on direction) have caused uncertainty in the healthcare market, which in turn has caused adverse reactions that are not due to Obamacare. This makes it more difficult to isolate the effects of Obamacare. The second reason is that Obamacare is the single most important defining aspect of President Obama's legacy. The fact that data coming from his administration is anything but flattering further illustrates how much Obamacare has failed. With that caveat out of the way, let's begin, shall we?

1. Increased premiums. Obama said that he would pass a healthcare bill that would cut the typical family premium by $2,500. Politifact deemed that claim as a broken promise. In October 2016, which was right before Trump was elected, healthcare consulting firm HealthPocket projected considerable increases in premiums for 2017. The years 2015 and 2016 saw similar spikes in premiums. eHealth found that the average premium on the individual market increased 99 percent from 2013 to 2016 (and 140 percent for families), and the Kaiser Family Foundation found that the average premium for families increased 32 percent from 2010 to 2016. The centrist Brookings Institution had an interesting finding (Kowalski, 2014, p. 301). From right before the law was enacted to mid-2014, premiums increased 24 percent more than they would have if Obamacare had not become law.

Proponents of Obamacare want to put the blame on a weak individual mandate penalty. That could be part of the equation, but as I explain later in Point #11, that causes another problem. There are two other factors causing increased premiums, one of which is the "essential health benefits" provision. Under Obamacare, coverage is quite extensive, ranging from free preventative care and contraceptives to mandatory mental health and substance abuse coverage. When you cover more goods and services, prices go up. Making it legal to purchase less comprehensive insurance does not do any favors for premiums. Another factor driving up premiums is mandated coverage of pre-existing conditions. I covered this topic three years ago, but Obamacare allows for anyone to enroll during the enrollment periods, which means that people don't have incentive to pay into the system until they get sick. Not only does it create a lack of incentive for younger people to join, but it unsurprisingly drives up prices. The way that Obamacare was created undoubtedly raises premiums, much like Obamacare critics predicted it would.

2. Skyrocketing deductibles. A deductible is the specified amount of out-of-pocket money that the insured individual has to pay before the insurance company will pay any claim and cover any costs. On top of the thousands that families pay for premiums, they have to pay even more money in deductibles before being able to take advantage of the insurance for procedures beyond an annual check-up. You know it has to be bad when the New York Times and CNN, supporters of Obamacare, come to the realization that high deductibles make Obamacare all but useless. Since the Obamacare deductibles are not pegged to income, their regressivity disproportionately affects the poor. Another issue with the high deductibles we see with Obamacare is that they make it more likely for one to avoid or delay care, according to the Left-leaning Commonwealth Fund. The Commonwealth Fund study found that 51 percent of those under 200 percent of the federal poverty line, the demographic that Obamacare is trying to help, said it was difficult or impossible to afford their deductible, as well as their co-payments. Those who have less affordable deductibles made it nearly twice as likely that they would afford going to the doctor (see below). Even when the deductibles were less than 5 percent of income, over 10 percent of insured people decided to delay or not purchase medical services.


Why are skyrocketing premiums and deductibles important? The official name of Obamacare is the Affordable Care Act (ACA). It's the reason I don't like calling it the ACA: the legislation has made healthcare less affordable for millions. Since healthcare is less affordable for many under the ACA, they are less likely to use their newly-found insurance, which makes me further question the effectiveness of Obamacare (see Points #7, 13). It should make even proponents ask an important question: "What good is health insurance under Obamacare when so many cannot afford healthcare under Obamacare?"

3. Low Obamacare exchange enrollment. For the year 2015, the IRS had 12.7 million taxpayers file an exemption to purchase Obamacare coverage, while 6.5 million paid the penalty instead of signing up for coverage. In 2016, the Congressional Budget Office (CBO) had the enrollment figures at 12 million in the Obamacare exchanges and 13 million enrolled in Medicaid vis-à-vis Obamacare. For a plan that was a) supposed to be a comprehensive, affordable plan, and b) there is an individual mandate penalty, the enrollment numbers are disappointingly low, certainly lower than initially projected.

4. Relatively high number of uninsured people. Obama made a solemn pledge that he would sign a universal healthcare bill into law. The problem is that Obamacare is not a universal health care bill. The CBO projected in March 2016 that by 2026, there will still be 28 million uninsured under Obamacare (CBO, 2016, Table 4). Leaving about eight percent uninsured is not the same as universal healthcare The figures of "insured vs. uninsured" should make us question how much we are paying (see Points #1-2, 5) versus how many we are covering with all the money spent.

5. Less choice in insurance. Obama promised more choice and more competition, and we have the exact opposite of that, according to the Obama administration's Health and Human Services (HHS). The HHS found that marketplace issuers are to drop from 232 insurers to 167 (HHS, p. 27). The number of marketplace insurers in 2017 is now lower than it was in 2014, which is when Obamacare's major provisions kicked in (187 insurers down to 167). The percent of customers with three or more insurance providers dropped from 88 to 56 percent in just one year (HHS, p. 38). The Right-leaning Heritage Foundation details this phenomenon, finding that the individual health insurance market is 45 percent less competitive than it was pre-Obamacare. Even better, 77 percent of counties will either have two providers or less in 2017The health insurance market had a 3.3 percent profit margin in 2016, and is expecting close to break-even profit margins for 2017. A profit margin below 5 percent is not particularly high when compared to other industries. Shouldn't it say something about the quality of the exchanges if major insurance companies are leaving it? Insurance companies leaving the exchanges makes for more instability, a phenomenon that was taking place before Trump took office.

6. Less choice of doctors within network. Not only are there less insurance providers, but there are also less doctors in each network, according to the Employee Benefit Research InstituteMcKinsey also found that 48 percent of networks have been narrowed, meaning that less doctors are in the network in attempts to contain costs, which is droll considering that it's already expensive to begin with.

7. Medicaid expansion under Obamacare. It'll be a difficult attempt to cover Medicaid in the span of a couple of paragraphs, but here it goes. Obamacare was meant to help give access to private-sector insurance, but instead, it turned into a major Medicaid expansion. Three reasons this is problematic. One is that Medicaid is expensive. According to the CBO, Medicaid is supposed to cost $5.19T in the next decade (CBO, 2017). Medicaid is the fourth most expensive government program, after Social Security, Medicare, and military spending.

Two, a doctor is less likely to see a patient if they are on Medicaid. In 2014, only 45 percent of doctors were accepting Medicaid, a figure that was 55 percent just five years earlier. The problem predated Obamacare, and shows no sign of abating. Three, there is evidence that Medicaid is almost like having no insurance at all. Now, you can show me a study like this (Sommers et al., 2012) trying to prove the contrary, except that a) it is an observational study, and b) it has mixed results when looking at the state-by-state breakdowns. An observational study is less reliable because you cannot control for the variables, which is why I would prefer a randomized experiment. As a matter of fact, such a study exists: the Oregon Medicaid experiment (Baicker et al., 2013). Randomized experiments are a rare treat in the public policy world, so it's nice to see them when they come along. Its conclusion? There were no significant differences between those on Medicaid versus those who had nothing. As of May 2017, we had 68.8 million on Medicaid (around a fifth of the nation), about 13 million of which are due to Obamacare. Obamacare has been, in large part, a Medicaid expansion, so let me ask this: How does it help anybody, especially those who need insurance, to be put on expensive, subpar health coverage? 

8. Loss in coverage. In 2009, Obama made that infamous plan of "if you like your plan, you can keep it." This promise was infamous enough where it became Politifact's 2013 Lie of the Year. This shouldn't bewilder us. After all, part of Obamacare was to mandate more comprehensive coverage. Certain plans would not be comprehensive enough under Obamacare, and out they went. In its March 2016 projections, the CBO estimated that a total of 13 million will lose their insurance by 2026 because of Obamacare: 9 million from employer-sponsored insurance and 4 million from non-group coverage (CBO, Table 4).

9. Increased federal budget costs and debt. Obama promised that Obamacare would not add one dime to the deficit. The projections from the CBO show otherwise. According to their March 2016 projections, Obamacare is going to add $1.403T of debt over the next decade (see below). The idea that Obamacare could lower costs by providing more and subsiding more people was unrealistic from the onset. Even in 2010 and working under generous assumptions,  the Centers for Medicare and Medicaid Services (CMS) found that Obamacare would increase national healthcare spending by $310 billion more than if the law would not be enacted (CMS, p. 4).



10. More taxes. Obama promised that his healthcare plan would not raise taxes for anyone making less than $250,000. Obamacare came with a slew of about 20 taxes, fees, and penalties, and they affect more than just the "one percenters." A look at a few of the taxes: The individual mandate penalty falls on lower-income and lower-middle-income families, costing a total of about $4 billion a year. The flexible spending account (FSA) tax will hit 30 million people, most of whom are middle-class. The Cadillac tax is estimated by the Kaiser Family Foundation to affect 1 in 4 Americans. There is the chronic care tax. Before Obamacare, there was an income tax deduction for medical expenses that exceeded 7.5 percent of adjusted gross income. Now, 10 million people who are looking to pay for chronic care will have more problems.

11. Disproportionately affecting younger people. One of the major ways that Obamacare affects young adults is through the age-rating provision. The provision limits age variation of premiums for adults with a ratio of 3 to 1, which means that an insurer can only charge a 64-year old three times the rate it charges a 21-year old. The natural age variation (and what it was before Obamacare) was a ratio of 5 to 1.

The shift with the age-rating provision made insurance cheaper for older individuals while making insurance more expensive for younger individuals. Both the Left-leaning Urban Institute and the Right-leaning American Action Forum show that removing the 3:1 ratio would lower premiums for younger people. This is not bad for young people simply because the wealth gap between the young and old is widening.

The young people targeted by Obamacare's regulations are not on employer-sponsored insurance. This is important since employer-sponsored insurance exacerbates income inequality, meaning that young people on employer-sponsored insurance tend to fare better than those not on it. The young people targeted by Obamacare have two options: pay for insurance or pay the fine. If I were making well under $20/hour and were mandated to pay thousands for insurance or pay a relatively modest fine, which would I do? It should be no wonder that young people are not entering the Obamacare exchanges at the rate initially predicted: the young would otherwise be subsidizing the old. It is a problem that even the Urban Institute admits (Urban, pp. iv).

And would increasing the mandate penalty increase enrollment? Perhaps, depending on the increase. But it would come at the cost of screwing over a demographic who is already having troubles either entering the job marketplace or making sure they don't go broke. 

12. Less economic growth. The tax increases, subsidies, Medicaid expansion, and employer mandate cause less employment. Obamacare resulted in a 1.7 percent decline in full time equivalent (FTE) hours worked (CBO, p. 18). This is important because the number of people working and their productivity has a direct impact on economic growth. As I have pointed out before, burdensome taxes and high government spending, much like we see with Obamacare, hamper economic growth. Read more from Manhattan Institute to see how Obamacare affects macroeconomic growth, including an Obmacare-induced GDP loss of $175 billion in 2015.

13. Obamacare Is Not Particularly Saving Lives. I wrote a blog entry on this a few weeks ago, so I don't need to go into much detail. However, I wanted to add one other bit of research from Richard Kronick. Kronick is not some right-winged hack. Not only was he ranked one of the most influential people in healthcare in 2014, but he also served under Clinton as an advisor and under Obama as the Director of the Agency for Healthcare Research and Quality (AHRQ). What did he find about health insurance? When accounting for demographics, health status, and health behaviors, there is little effect (Kronick, 2009), which makes sense since insurance is first and foremost a financial product offering financial protection. Kronick's conclusion was that "there is little evidence to suggest that extending insurance coverage to all adults would have a large effect on the number of deaths in the United States."

14. Obamacare co-ops. When the Democrats were trying to pass Obamacare back in 2010, they were trying to go for the "public option," a federal-run government program. The Democrats were unable to get enough votes to pass Obamacare with the "public option," so they created a compromise: the Consumer Oriented and Operated Plan, or "co-op" for short. These 24 state-based co-ops are essentially the government alternative to private-sector insurers. We were told by the CMS not to worry because the co-op applicants were screened and demonstrated "a high probability of financial viability." After spending $2.4 billion on the cop-ops, how did that turn out? By mid-2016, 16 out of 23 of the co-ops failed due to solvency issues. If the United States government could not handle provide competitive healthcare that meets consumers' needs or centrally plan health insurance, why should I trust the government with something like a "public option" or single-payer healthcare?

15. Healthcare.gov website. If the government wasting money on its failed experiment at providing its own version of insurance isn't enough to make your blood boil about government waste, how about the Healthcare.gov website? There has not been a straight answer to that question, which should say something about transparency. The Government Accountability Office estimated in June 2013 that it cost $394 million, which did not include CMS salaries or other administrative costs. It would be reasonable to believe that it ended up costing the taxpayers more than $500 million since then (the costs could be upward of $1 billion or even $2 billion as of 2014). By the website's release, less than ten people enrolled initially. Based on latest enrollment figures, the website is doing better than it started, but it should not have had this many glitches and it should not have cost that much.

The website should have arguably cost less than $10 million, and that is when we compare it to other websites. Facebook didn't even spend $500 million on its website until it was in operation for six years. Twitter cost $55 million to develop, LinkedIn cost $200 million, and Spotify cost $288 million. An even better comparison is the Apple iPhone. Apple's iPhone only cost $150 million to develop, which is a mini-computer that is more complicated than a portal that connects people to insurance companies. The problem with looking at this example is that it could come off as nitpicking when looking at an American economy of about $19 trillion. The real problem is looking at the wasted government spending in isolation. When we add up the costs not just of all the money wasted or misspent due to Obamacare, but indeed all of government spending, such as the $144 billion in improper payments made for Social Security, Medicare, Medicaid, and other programs last year. It should make our blood boil not simply because of the amount of waste, but also realize that the wasted money could have been spent on helping the people the government claims it is helping.  

A Brief Word on Tradeoffs
The first rule of public policy is that there are always tradeoffs. As the passage below from this Mises Institute article illustrates, every policy has winners and losers, and Obamacare is no exception. I'm sure we can all come across a story of someone who benefitted from Obamacare. Nevertheless, that is not what this national debate is about.....


Conclusion
Today's blog entry is not about what could be done to reform healthcare, although you can see here, here, and here for some reforms. [Aside from healthcare being such a huge topic, I have commented on healthcare reform options more than once (e.g., here, here, here), and I intend to do so again in the future.] I'm not here today to reflect on what Obamacare could have been in theory or what Obamacare was intended to accomplish. Today's analysis is about what Obamacare has actually done, and what it has done is screw over American healthcare in more ways than one. As two health policy professors who are prominent supporters of the ACA put it, what was meant to be major healthcare reform "turned out to be ineffective, poorly targeted, or not ambitious enough to address deeply rooted problems." If you need a list of why I am in favor of "repeal and replace," now you have a detailed one. Even if you are still in favor of Obamacare or the idea of it, I hope this helps you realize that Obamacare is far from perfect and in dire need of reform. Wherever you stand on the state of American healthcare issues facing us, we should all be able to agree that the status quo is unacceptable. 

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