Obamacare: What is it, Why was it Unpopular, and What’s going to Happen Next

The Affordable Care Act (a.k.a. Obamacare), much like the future of America’s healthcare system, now lies in a vacuum of uncertainty with the possibility of repeal. The lack of consensus on a clear replacement plan, as well as 15-20 million Americans expected to lose coverage only magnifies this problem. This begs the question, was Obamacare really a bad piece of legislation? What were all of its implications, and why have the Republican party vowed to dismantle it from the moment it was signed into law? These are a few key questions to keep in mind as I try and deliver a non-partisan perspective on the ACA, including its successes, failures, and future outcomes.

Part I: What is Obamacare, and why did we need it?

 

Most Americans get health insurance through their employers, but there have always been a subset of individuals who live without it, thus putting both their health and finances at risk. Before 2009, this number was roughly 50 million, with cost and pre-existing conditions cited as the major deterrents. One attributing factor was that insurance companies could deny individuals coverage based on their previous medical conditions. This manifested into sick patients who were in urgent need of care to be denied coverage, or given such exorbitant prices that insurance was simply unaffordable. Concurrently, the cost of healthcare was skyrocketing. The total spending on healthcare as a share of US GDP jumped from 6% in 1965 to 17.3% in 2008.  

The Affordable Care Act, signed into law by President Obama in March 2009, had high hopes to expand health coverage for uninsured Americans, while also lowering the country’s overall healthcare spending. Many agree that the law has succeeded in the former, but has been been struggling with the latter. For instance, the implementation of the ACA has since provided health insurance to almost 20 million previously uninsured Americans, either through the exchange marketplaces or through medicaid expansion (Percentage of uninsured Americans dropped from 16% in 2010 to 8.9% in the first half of 2016, according to the CDC). However, what started out as fixing one of America’s greatest social challenges soon also materialized into a rigid political battle centered around partisanship, backroom deals, and ideologies pertaining to the US healthcare system.

 

The Affordable Care Act Specifics

The underlying structure of Obamacare was modeled after the Massachusetts health plan that was implemented by Mitt Romney in 2006, who was the state’s governor at the time. Considered as a wide successful throughout the state, it brought the Massachusetts’ coverage rate to just over 96.7%. The structure of this plan would become known as the “Three-Legged Stool”, which was then adopted by Obamacare and based on the following concepts:

  1. Insurance companies are prohibited by law to deny individuals coverage based on their pre-existing medical conditions. Therefore, people with chronic conditions such as cancer, diabetes, and heart problems (who got denied before) are now able to buy insurance without being discriminated against based on their previous medical problems.
  2. There would be an Individual Mandate, meaning that every individual is required by law to purchase health insurance. This serves as the financial backbone of the policy because without a mandate, individuals can “game” the system by opting to buy insurance only when they get sick. This is unsustainable and would quickly put all insurance companies out of business. Therefore this mandate provided an adequate risk pool from which insurance companies can collect enough premiums to pay out medical claims. (This will be explained in more detail later)
  3. Government subsidies would be provided for low income individuals so that they can afford to buy health insurance. Namely, individuals whose incomes are between 100-400% of the federal poverty level would receive a certain discount based on their income. There would also be a cap on the amount of out-of-pocket spending, so that you would not paying more than a certain percentage of your income on health related expenses.

Aside from the Three-Legged Stool, other components of the bill include:

  • Children under the age of 26 could stay on their parent’s insurance plans
  • States that expand their Medicaid program (optional) will receive funding from the federal government
  • Free access to preventative care, as well as contraceptives
  • Prevents gender cost discrimination, so women don’t pay more than men
  • Introduction of bundled payments & Accountable Care Organizations (ACOs) to incentivize the quality of care as opposed to quantity (as opposed to the traditional “fee for service” model)
  • Setting the age band at 3:1: Older, higher risk adults can only be charged 3 times more for insurance than young, healthy adults
  • Employer mandate: Companies with more than 50 employees are now required by law to provide workers insurance benefits

 

Part II: How was the ACA implemented?

 

Marketplaces

The Marketplace, also known as healthcare.gov, is an online exchange that is operated by the Federal Government where individuals can shop for health insurance sold by private companies. Since the ACA lacked a public insurance option (which would have competed with private companies), regulations were set by the government that capped the insurance company’s profit margins. They also created regulations and criterias for individual plans that prevented them from being overly meager or “skimpy”. In return, the insurance companies would receive millions of new customers that were now going to purchase their products.

Individual states had the option to either design and implement their own exchanges, or defer to the federal marketplace which would cover all the states that did not create their own. The goal of the marketplace was to increase competition between insurance companies; however, more and more rural counties across America have seen the competition dwindle this past year as insurance companies began pulling out of the exchange due to a lack of profitability.

 

Individual Mandate

Obamacare states that all individuals are required by law to purchase health insurance. This was the most controversial piece of the legislation, and one whose legality was challenged but then upheld in the Supreme Court. Republicans claimed that the federal government had overstepped their bounds by forcing individuals to purchase private insurance products, while the Democrats argued that this mandate was essential to the economic stability of insurance markets. Again, it’s important to reiterate that without the mandate, individuals can game the system by purchasing insurance only when they’re sick. This would then force insurance companies to raise premiums until they were unaffordable or until the company goes into bankruptcy. Therefore, the unpopular mandate acted like a quid pro quo for the favorable aspect of the pre-existing conditions clause. Failure to comply with the mandate resulted in a tax penalty through the IRS.

Medicaid Expansion:

Medicaid is a government program that provides insurance for low income individuals; however, different states have different qualifying factors when it comes to enrolling. The ACA’s Medicaid Expansion provision sought to change this by constructing a single qualifying factor, that is, an income threshold of 133% or below the poverty line, regardless of your state. As opposed to the  individual mandate, the Supreme Court declared that states would not be required to expand their Medicaid programs under the law. 32 states subsequently expanded Medicaid under the ACA, whereas 19 states did not. States that expanded saw substantial drops in their uninsured rate. Within the states that did not expand; however, this left pockets of individuals whose incomes were too high for their state’s Medicaid program, but were too low to receive government subsidies.

 

Part III: Why was it so unpopular?

 

Partisan politics

The Affordable Care Act had passed in congress without a single Republican vote. Ironically, the concept of Obamacare’s “three-legged stool” first originated as a conservative idea that was championed by Mitt Romney through his Massachusetts’ Romneycare. Somewhere along the way, this negotiation became a strictly partisan debate as the Republicans began challenging the legality of the law and vowed to repeal it. In fact, the loud press coverage about the political battle of Obamacare had drowned out some of the less visible, arguably more impactful pieces of the legislation, which brings us to this next point.

Lack of Public Understanding

There were many legislative components of Obamacare that the majority of the public were not aware of, such as the access to free preventative care, bundled payment structure, and age bands, but the main example I’ll use is the government subsidies. As mentioned above, individuals earning between 100-400% of the federal poverty level are entitled to subsidies that helps them pay, and their total out-of-pocket costs are capped at a certain percentage of their income. Amid the premium price spikes in 2016, many began criticizing the law’s affordability without realizing the scalable nature of the subsidies (as premiums go up, so will subsidies, and out-of-pocket costs will remain the same). On the flip side; however, not everyone will receive subsidies. For individuals making 400% or more above the poverty level, and even for those who got insurance through employers, the cost of insurance did go up, and they had to foot the bill. So this then begs the next obvious question: why did the premiums spike?

 

Higher Premiums and coverage gaps

The success of the ACA largely depended on getting enough young, healthy adults to buy insurance in order to offset the medical risk of the older, sicker individuals. The Obama Administration fell short in this measure. Some have claimed that the penalty for the individual mandate was not strong enough, as it was financially cheaper to just pay the penalty than it was to buy unneeded insurance.

Another major problem was that many rural areas in America saw an exodus of insurance companies from the marketplace. The demographics of these areas were older and sicker than what the insurance companies had projected. Rural healthcare costs were also higher due to a lower supply of hospitals and providers. This ultimately resulted in the premium spikes that you see over the news, as many insurance companies began pulling out. This debate now surrounds whether or not this spike was a one-time correction, or an ongoing phenomenon. (According to the Kaiser Foundation, 32% of all counties in 2017 will only have 1 insurer, compared to 7% in 2016)

 

Backroom deals and Special Interests

In order to pass the ACA, Obama needed the cooperation of special interest groups. Key players such as the insurance industry, Big Pharma and the American Hospital Association all met behind closed doors with the Obama Administration in order to strike up deals. Each industry was expected to contribute through new taxes in return for the new business (patients) they would receive, along with additional benefits. Big Pharma, for example, lobbied against and successfully blocked Medicare from being able to negotiate drug prices, nor to allow the importation of cheaper drugs from overseas. In addition to special interests, the Obama Administration also had to satisfy the legislators whose cooperation he needed in order to get his bill passed through congress. This proliferated into public scandals such as the “Cornhusker Kickback” and other incidents where legislators received special favors in exchange for their support. Such instances stood in stark contrast to Obama’s campaigning platform where he vowed to put an end to Washington’s game playing.

 

Poor implementation

Toping it all off, the incompetence of government bureaucracies became clear through the botched implementation of the federal exchange website. During its launch day in 2014, healthcare.gov crashed almost immediately, and it wasn’t fully functional until several weeks later. The reason included a combination of technical difficulties, the lack of adequate stress testing, and poor overhead management and communication between the different agencies. All of this resulted in delays, uncertainty, and most of all, an unprofessional public image of a piece of legislation that was supposedly going to revolutionize the healthcare industry.  

In addition, the white house had long delays in drafting the specific requirements that health insurance products must meet. When the information was released, an estimated 50-75% of the 14 million consumers who already had individual insurance were expected to receive a cancellation letter because their plan did not meet said requirements. This was especially unpopular, not only because they had to purchase new plans could potentially cost more, but also because they were not guaranteed the same doctor networks as they had before.

 

Part IV: My Opinion on Obamacare –Final Thoughts

 

I applaud you for your interest and for making it down this far. This last section will cover my personal opinions on the topic. However, keep in mind that the development of such is based solely on literature and personal research, as I am neither a practicing physician (yet), nor am I a patient who has been in a difficult situation without access to healthcare.   

The undeniable truth when it comes to healthcare reform is that there will always be winners and losers.The winners in this case are the 20 million Americans who now have access to healthcare,  which I consider a success regardless of political standings. The losers; however, are also abundant, and include people who fall into the Medicaid gap (too rich for medicaid, too poor for exchange subsidies), people who had their insurance plans canceled, and many rural counties who are now seeing the possibility of a marketplace collapse.

Additionally, the US healthcare system is built on the backs of many different special interest groups that any sort of reform will have similar polarizing effects. The beneficiaries by far are the pharmaceutical companies. Besides the clear lack of price control demonstrated by cases such as Martin Shkreli and the Epipen, pharma have still managed to retain control of certain market monopolies through patents. Proponents say that drug prices are high due to research and development, but in reality pharma has spent more money on commercial marketing/advertising than they have on R&D, not to mention that Medicare is still unable to negotiate the price of drugs.

On the other spectrum, there are the insurance companies and healthcare providers. Many insurance companies have been hemorrhaging, and due to a lack of restrictions set in place, and weak enforcement of the individual mandate, nothing is stopping them from exiting the exchange marketplace.  

Meanwhile, the doctor’s compensation rates have been rising at a much lower rate than inflation, and when you combine that with the additional bureaucracy and regulations, the outcome has not been pleasant for many of the physician practices. In addition, large scale tort reform (malpractice overuse) was not addressed at all by the ACA. This has put an unnecessary amount of strain on an already wary population of doctors that are seeing their level of patient contact diminish under growing administrative burdens.

Despite the current spending crisis and all the arising problems; however, I still believe that the ACA has been a good first step towards comprehensive reform. One prominent reason is the coverage expansion, and another is the shift towards value based care. Recent passage of  the bipartisan MACRA bill means that this shift will be permanent regardless of Obamacare’s future.

That’s not to say; however, that the other industries should be exempt. I believe that further health reform needs to tackle the profit margins of drug companies and medical device makers, to hear from the front-line health providers rather than pursuing a “one size fits all” system, and to address the overuse of malpractice based litigation in America.   

Looking forward, I don’t think repeal will be possible without a viable solution for the 20 million ACA insured Americans. In fact, the threat of possible repeal has resulted in an uprising of realization that certain aspects of Obamacare are indeed extremely beneficial. Though it may be unfortunate that the topic of healthcare has transcended into such a rigid and partisan battle, I can only hope that Tom Price and the Trump Administration will develop a balanced approach in consider the well-being of our nation as a whole rather than pursuing a purely political agenda.