The Affordable Care Act was a landmark piece of legislation for the United States. While most other G-20 countries already have some form of universal healthcare (either through a single payer system, or mandatory insurance coverage), the US was one of the few countries that did not have one. Arguably, however, it didn’t go far enough, and therein lies its biggest problem.
One of the key provisions in Obamacare was that insurers could not deny coverage based on pre-existing conditions. This was a hugely important for those with serious or chronic illnesses, who would normally be denied coverage. For example, diabetes can cost someone approximately $7900 a year in direct medical expenses, which is a hefty sum if you don’t have insurance coverage. Obamacare mandating that these individuals, and others with similar conditions, have to be able to purchase coverage, is an excellent step forward. However, the business of insurance relies on those who enrol but do not require services subsidising those who enrol and do. In terms of healthcare, this would be low risk people paying and not using services, ensuring high-risk individuals are able to access services. As you can imagine, there is very little incentive for low risk individuals to enrol; a phenomena known as “adverse selection.”
To encourage participation, there is a penalty in place for those who do not purchase coverage. The penalty was set at $695 per individual, or 2.5% of income. This was set as an incentive to encourage people to purchase insurance, but is still less than the cost of insurance. As a result, a lot of healthy people opted to pay the penalty and keep the remainder of the money; a financial prudent decision. Unfortunately, this has the unintended consequence of increased rates for those who enrol, as now the demand for services is higher than the revenue generated by people enrolling in the insurance plan. Without enrolling healthy people in the plan, the plan fails. This is the Achilles’ heel of the Affordable Care Act – without it being truly universal, it can’t accomplish what it is set out to do.
The question now becomes how to “fix” Obamacare. Views on the ACA are starkly divided along party lines, with a recent survey by Kaiser Family Foundation found that 79% of Clinton voters hold a favourable view, contrasted with a similar percentage of Trump voters who hold an unfavourable view (81%).
The question now becomes what to do next. Without more healthy people enrolled, the system as it stands right now cannot remain solvent, and premiums will continue to increase. President-elect Trump has promised to repeal Obamacare in his first 100 days, and so decisions have to be made about next steps. The most extreme option would be to repeal it with no replacement, but that seems like something neither side wants. In fact, half of Trump voters want the entire law to be repealed. Interestingly, however, this is down from 70% back in October, which suggests that voters may want the ACA changed, rather than completely scrapped. The time frame between the vote to repeal and it taking effect could be as long as three years. “We’re talking about a three-year transition now that we actually have a president who’s likely to sign the repeal into the law. People are being, understandably cautious, to make sure nobody’s dropped through the cracks,” Senate Majority Whip John Cornyn (R-TX) told Politico.
This is a positive sign, as it allows for three years of discussion and consultation on what the best solution would be. However, as Sarah Kliff discusses on Vox, this can also result in problems. While up until this point we have discussed the importance of ensuring people sign up, the other half of this equation is that providers also need to sign up, and, as Kliff points out, “a repeal vote would give health insurers good reason to quit the marketplaces — and that could leave 10.4 million Obamacare marketplace enrollees in the lurch.” This is further backed up by the stat that 960 counties will only have one insurer in 2017, compared to 182 in 2016. From her piece:
Even before Donald Trump’s election, when Obamacare’s future seemed secure, the Obama administration sometimes struggled to get insurers on board. There have been multiple instances where no insurers wanted to sell in certain rural, low-population counties. The Obama administration had to swoop in at the last minute and convince at least one plan to sell.
Again, that was before Trump’s election. So think about what an undesirable business the marketplaces become when you’re given notice that the whole thing will shut down in two years. (from Vox)
And therein lies the challenge. How do you improve a program in a way that doesn’t result in a self-fulfilling prophecy? Suggesting it could be completely changed disincentivizes providers, which makes it more expensive and more difficult for people to sign up, reducing competition, which makes it more expensive, and so on. If the future of healthcare in America is one with an evolved version of the Affordable Care Act, then careful steps have to be taken to ensure it is successful.
