The Pros and Cons of the Affordable Care Act (Obamacare)

Taxes, fees, exemptions

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ObamaCare Pros: New Cost Assistance for the Middle Class and Small Business

Those earning under 400% of the federal poverty level (roughly 88k for a family of four) could save up to 60% on their premiums via tax credits and subsidies on the health insurance exchanges. Small businesses with less than 25 full-time employees have this advantage as well.

ObamaCare Cons: Big Business Taxes

Medical device taxes and “drug innovator” taxes dig into the profits of some of the powerhouses in their respective industries. These taxes are a reaction to the large profit margins these companies benefit from and the often-monopolistic hold they have on their industries. These companies drive up the cost of health care, so they are taxed to help finance health care reform. However, taxes on large businesses may have unintended consequences on the job market and some aspects of the healthcare industry. At present, we’ve yet to see conclusive evidence on the effects of said taxes.

Additional coverage

There may be additional benefits of health insurance through the Marketplace, like plans that offer dental and vision coverage, and coverage for chiropractic or acupuncture services. You’ll see exactly what each plan offers when you compare them side-by-side in the Marketplace.

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Benefits of the Affordable Care Act

The Affordable Care Act has both increased the number of insured Americans and improved the coverage offered by health insurance companies. Millions of previously uninsured Americans have been able to obtain health insurance because of the ACA.

Better Coverage 

Prior to Obamacare, there were few standards for what a health insurance company could and could not cover. As a result of Obamacare, health insurance now generally covers more procedures, including mental health and maternity care.

One of the most well-known and popular features of the ACA is its rule preventing health insurance companies from denying coverage for people with preexisting conditions, including heart disease, diabetes, and others. Prior to the ACA, anyone looking for insurance who already had a health issue could be denied coverage or face exorbitant rates. It can be unprofitable for insurers to take on patients with preexisting conditions. It’s estimated that one in four Americans have a preexisting health condition.

Expanded Medicare and Medicaid

The ACA has also expanded Medicare coverage. For example, the ACA closed the so-called Medicare “donut hole." Prior to the ACA, people on Medicare Part D could lose coverage after spending a certain amount on medication. The ACA gradually reduced the donut hole and, as of 2020, it has been eliminated. Medicare now continues to help pay for medication regardless of the amount already spent. It does not pay the full cost of medication, however (as of this writing it covers 75% of the cost of generic drugs).

Thirty-seven states also expanded Medicaid programs, meaning that many Americans living below the federal poverty line can still obtain health insurance.

Improved Health Outcomes

There are also signs of improved health outcomes because of the ACA. For example, the ACA prevents hospitals from charging for infections that come from a hospital stay. Hospital infections are one of the leading causes of death in the U.S. Perhaps in part because hospitals now lose money from patients that become infected at hospitals, infection rates have lowered dramatically in recent years. Proponents of the law also argue that it has improved the early detection of cancer and improved preventative care, leading to lower healthcare costs and better patient outcomes for cancer and other medical conditions.

In the last several years, it should be noted, insurance premiums under Obamacare have also improved.

Did the ACA improve healthcare in the U.S.?

The ACA has primarily functioned as designed. At its simplest, the issue is that more and better coverage costs more money. If you believe that the federal government should help Americans get decent health insurance plans, then you likely approve of the ACA.

However, if you believe that the federal government should not play a role, then you may think that the ACA is meddling with the free market and raising taxes and premiums for people who could otherwise find health insurance on their own.

Many of the issues discussed in this article are extensively debated. For example, those in favor of keeping the ACA or instituting a single-payer healthcare system argue that it lowers the overall cost of healthcare and ultimately saves taxpayers money. Others who are opposed, argue that it increases costs and is an unaffordable venture. The U.S. healthcare system is extremely complicated and this article does not take a stance on either side.

Cons of the ACA

1. Higher premiums for many

As insurance companies now provide a wider range of benefits and cover people with preexisting conditions, this has caused premiums to rise for a lot of people, especially those who already had health insurance.

2. Uninsured to be fined

The ACA aims for people to be insured year-round. Initially, if you’re uninsured and didn’t obtain an exemption, you were bound to be fined. Recent events have changed this fine

Some people find it intrusive for the government to require health insurance. ACA supporters maintain that not having insurance passes your healthcare costs on to everyone else.

3. Taxes are being raised due to the ACA

Several new taxes including taxes on medical devices and pharmaceutical sales were passed into law to help pay for the ACA. Taxes were also increased for people with high incomes. Funding also comes from savings in Medicare payments.

The wealthy are helping to subsidize insurance for the poor.

On the other hand, some economists predict that in the long term, the ACA will help reduce the deficit and may eventually have a positive impact on the budget.

4. Enrollment day is still a pain

When the ACA website was first launched, technical issues made it difficult for people to enroll and led to delays and lower-than-expected signups.

Though fixed eventually, many consumers have found signing up for the right family or business coverage to be tricky. Also, in recent years, the enrollment period has also been shortened to between November 1 and December 15.

Many hospitals and public health agencies have set up programs to help guide consumers and business owners through the setup process. The ACA website also has sections explaining the procedures and available options.

5. Businesses are cutting employee hours to avoid covering employees

Businesses with 50 or more full-time employees are required to offer insurance or make payments to cover healthcare expenses for employees. By reducing hours, many businesses have been able to get by the 30-hour-per-week definition of a full-time employee.

Opponents of Obamacare opposed the ACA, saying that the legislation would destroy jobs. While the number of full-time jobs has gone up in recent years, there are reports of businesses cutting hours from employee schedules.

6. Tax penalties

While the federal penalty for the uninsured doesn’t exist now, some states are now enacting health insurance mandates of their own.

7. Shrinking networks

Many insurance companies made their provider networks smaller to cut costs while implementing ACA requirements. This left customers with fewer providers that are “in network.”

8. Shopping for coverage can be complicated

Shopping for coverage can be complicated with limited enrollment periods, difficulties with the websites, and more coverage options.

7. It Doesnt Provide Health Insurance to Illegal Immigrants

Immigrants in the United States illegally cannot receive Obamacare. But the ACA does expand community health clinics to serve them. Why? So they will get preventive care for chronic illnesses. As a result, they will use expensive emergency rooms less, lowering healthcare costs for everyone.

Medicaid Expansion

Medicaid covers approximately 74 million Americans today. As a result of Medicaid expansion under the ACA, including waiver-based expansions, the crowd-out effect, the streamlined eligibility and enrollment mandated by the ACA, and the normal growth of the program, Medicaid could conceivably reach between 95 million and 100 million enrollees by the year 2020. Although it is early, state data already indicate a surge in Medicaid enrollment.

Considering all the unknowns related to Medicaid expansion, including current and future economic conditions, it is safe to assume that the role of Medicaid in the US healthcare system, and the impact of Medicaid on federal and state budgets, will continue to grow.

A Giant Social Experiment

The ACA is a giant social experiment with few precedents. It is impossible to predict precisely what will happen next with the implementation of the law, or how consumers and employers will respond in the post-ACA world.

It is easier to predict the behavior of health insurers and providers, as well as the overall impact on them, but this is still complex. Americans and the US media have a short attention span. Change happens rapidly, and the law is so complex, that few people or organizations have the patience to understand even parts of the ACA. The enrollment numbers in the first 3 weeks of December will be critical to assessing how well the federal exchange is working, as well as the response of the public to the repaired website.

The number of new Medicaid enrollees will likely remain higher than new enrollees in the subsidized exchange plans in the first 2 years. We know that this is the case of states that have state-run exchanges, and Medicaid enrollment increases will be especially high in the states with Medicaid expansion; but nationwide, there is every reason to believe that Medicaid enrollment will outpace the subsidized exchange enrollment. In addition to a massive jump in enrollment through expansion eligibility to millions of low-income adults in half of the states, Medicaid rolls will increase in every state from a streamlined eligibility and enrollment process mandated nationwide by the ACA.

Furthermore, Medicaid enrollment is year-round, not tied to an open enrollment period, and an easier, no-cost decision-making process for consumers, unlike the enrollment process in the exchanges. The enrollment in subsidized exchange plans could outpace the rise in Medicaid rolls if and when more small and midsize employers drop their current healthcare coverage. Sign-ups during January through March 2014, the second half of the initial open enrollment period, will be important to watch, when outreach and marketing efforts are expected to restart.

Under the special enrollment rules, many consumers will be able to sign up for exchange coverage after the open enrollment period, which ends on March 31, 2014, if they have a significant change in family or financial circumstances. However, that volume will not be nearly as large or as important as the exchange sign-up during the open enrollment period or the continuous, always-open Medicaid enrollment.

But volume by itself is not enough information to assess the ACA’s success. For that we will need to know, for example, the impact on the uninsured rate, the age and the health risk characteristics of those enrolled, the benefit design choices, the number of people losing individual or employer-sponsored coverage, and the effect of Medicaid expansion and streamlined Medicaid eligibility.

The law is also a moving target as a result of a series of Obama Administration decisions to delay enforcement of key ACA provisions, for a mixture of practical and political reasons. Major provisions of the ACA, including the employer mandate and small employer exchanges in most states, are delayed until 2015, the start of the open enrollment period for 2015 has been shifted until after the November 2014 elections, states are encouraged to temporarily allow short-term renewal of insurance policies outlawed by the ACA, and CMS is proposing changes to how exchange plans are paid.

Overall, most people have not yet experienced the effects, positive and negative, of the ACA. In terms of coverage and costs, the ACA creates a giant game of musical chairs, which has just begun. Every American will be affected by the ACA in some way.

The biggest winners are the uninsured, who are or will be newly covered through Medicaid or through federally subsidized exchange coverage. Some of the losers, including people facing higher premiums, are starting to feel the pain, but the main disadvantages of the ACA are yet to be experienced. The law is all about improving equity through the use of a maze of redistributive mechanisms. It will take time before this plays out.

The short experience with the ACA can only shed light on issues that should have been addressed a long time ago, but for which there was not an interested audience.

Payers’ Perspective

The majority of health insurance companies know that the original strategic reasons for entering the insurance exchange market are still valid, assuming that CMS is able to get the website and the data transfers working soon. Companies that have Medicaid plans are also anxious to see how Medicaid enrollment evolves, and how soon will enrollment problems be resolved. The initial disaster with rollout of the federal exchange complicates payers’ strategy, business planning, and forecasts.

Payers know that they may need to adjust their expectations and future plans to some extent, but they have little information from the federal government, which makes their job difficult. This situation is further exacerbated by the larger unknowns, such as how consumers will react to the new exchange plans, including their costs and choices. While their business dynamics are inherently complex and vary by state, health insurers specializing in the Medicaid market are naturally in a better position under the ACA, given the substantial increase in enrollees.

Facing a double-edged sword of an uncertain payer marketplace and deep payment cuts—to help pay for the cost of ACA—hospitals and health systems are worried. A decrease in the number of uninsured Americans will help trim uncompensated care costs, but it will generally not offset lower reimbursement from Medicare, Medicaid, and the new exchange plans and a shift of patients from higher-paying private plans to lower-paying taxpayer-financed health plans. Insurance companies know that they may need to reconfigure their 2014–2015 budgets to cover more Medicaid patients and fewer members with commercial plan coverage or with exchange-based coverage than was expected.

Hospitals in states that are seeking Medicaid reform waivers—notably, Wisconsin, Iowa, and Pennsylvania—are generally eager to see those get approved and implemented soon, because the waivers would expand access to coverage.

Manufacturers’ Perspective

Pharmaceutical, biotechnology, and medical device companies vary considerably in their understanding of the implications of the ACA. Some companies are fairly well-versed, but others have limited understanding of what it all means. It is harder for drug or device companies than, say, for insurance companies or for large healthcare providers, to understand the potential implications of the ACA on them, because the effects of the ACA, although significant, are indirect and nonlinear. Indirect, because the ACA and changes in the marketplace are fundamentally transforming the economics, incentives, and decision-making of coverage, payment, and care delivery. Nonlinear, because, in this time of unprecedented, polygonal change, the new policy and market spheres appear chaotic, unpredictable, or counterintuitive, and therefore defy traditional assessment. We have a tough environment for these companies to make strategic, operational, or tactical decisions.

Impact on Individual Insurance

It was never in doubt that the ACA would require cancellation of most policies in the individual health insurance market. It was also known that consumers would face a very different health insurance world under the ACA, with some people seeing their premiums go down and some seeing them go up, and the majority of Americans seeing higher deductibles, higher copays, and a smaller pool of providers. We also knew that the exchanges and the ACA market rules would negate the need for state high-risk pools, meaning that most of these chronically ill consumers would see their policies ending in December 2013 or early in 2014.

It is puzzling why it took more than 3 years, the failed launch of the federal exchange, and the news media to start questioning the Obama Administration’s core approach to regulating existing health coverage. Whether you like or dislike the ACA policies, the 19.4 million Americans in various parts of the individual market deserved a heads-up.

The Individual Mandate

Another key (and controversial) aspect of the ACA as originally passed was the individual mandate. Under the ACA, Americans who did not purchase insurance had to pay a penalty on their taxes. Even after it was first passed, however, the penalty could be less than the cost of paying for insurance, so some taxpayers chose to just pay the penalty. In 2017, the Tax Cuts and Jobs Act removed the penalty, so Americans who choose to go without health insurance do not face any consequences.

While the ACA has so far continued to function without the individual mandate, there are concerns about whether insurers can continue to provide coverage if enough Americans choose to not get healthcare. In 2019, for example, 400,000 fewer people signed up for health insurance on a marketplace than the year before.

The individual mandate has also faced numerous legal challenges. The Supreme Court upheld the individual mandate as Constitutional in 2012. However, legal challenges continue, and the Supreme Court will again decide this issue in 2020.

9. The ACA Has 10 Sections in All, and Most Do More Than Provide Insurance

Did you know the ACA legislation has also implemented the following programs?

  • It created the National Prevention Council that coordinates all federal health efforts to promote active, drug-free lifestyles. 
  • It funds scholarships and loans to double the number of healthcare providers in five years. 
  • It cuts down on fraudulent doctor/supplier relationships.
  • It requires background checks of all nursing home staff to prevent abuse of seniors.

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