Throughout our nation’s history, Americans have had to spend large percentages of their income on essential goods and services. Essential food takes thousands out of one’s income. Rent or a mortgage takes even more. Education has become only more expensive over the decades. Health care costs have skyrocketed over time to levels far more than our European counterparts. The United States spends around twice as much as the United Kingdom, Canada, and Germany on health care per capita. We are clearly doing something vastly incorrect to be spending so disproportionately much on health care. No wonder many Americans over time have opted to forego being insured in order to save money for food, housing, and education while leaving themselves vulnerable to even bigger hospital bills.
We do not want a sick citizenry or a broke citizenry. It is not right that someone should have to go bankrupt in order to afford a life-saving surgery. No one should have to tell their children that they can no longer afford college due to an expensive medical treatment. No one should have to give up an annual preventative check-up risking the lack of detection of a life-threatening disease or illness.
This graph from the Kaiser Family Foundation shows that health insurance costs have gotten vastly out of hand in the past decade and a half, especially in comparison to the far lower gain in workers’ earnings. Normal inflation over time cannot be to blame for this.
Clearly capitalism has run amok with the unfettered ability to exploit Americans for profit. Since health care is a necessity, many pharmaceutical companies and medical device manufacturers can exploit that inelasticity of demand and charge what they wish while still getting purchasers. Many drop their insurance entirely and end up paying mountains of debt for care which raises costs for everyone, but others who think it is just too critical to drop end up paying those enormous premiums. The government had to step in to ensure that the American people are not going to be exploited anymore for such a basic necessity.
In the 1990’s, government tried to work together to reform health care. Then-First Lady Hillary Clinton led up a task force under her husband’s administration to reform the health care system by mandating that all employers insure their workers. The plan also included minimum coverage requirements and maximum caps on premiums. Republicans criticized the plan, and some actually proposed an individual mandate rather than an employer mandate for coverage so that individuals would be responsible for buying their plans if not provided by an employer. In the end, the negotiations failed, and reform remained dead for another 17 years.
Jump ahead to 2009, then-Senator Barack Obama was elected to the Presidency. He ushered in a new era of Democratic rule with full House and Senate control. Therefore, his second priority after passing a stimulus package to reverse the worst economic recession since the Great Depression was to finally successfully reform the health care system. The town hall meetings and debates that followed were heated to say the least.
The House of Representatives first passed a version of Obamacare–formally known as The Patient Protection and Affordable Care Act (ACA for short)–which included what’s known as a Public Option. This one stipulation would allow the government to compete against the private health insurance companies and in theory provide lower-cost health insurance to Americans. However, many health insurance companies and health industry lobbyists strongly opposed the proposition, and as we already know how powerful money is in politics, the Public Option was killed in the future Senate bill.
The Public Option was thought of as sort of a middle ground between simply regulating the private insurance industry and creating a single-payer health system, where government is the sole provider of insurance. The single-payer option is what Senator Bernie Sanders currently supports. In theory, having one single payer that would bundle every American citizen together would act as enormous leveraging power in the industry and vastly bring down costs. This same theory is why employers typically provide insurance as they can obtain lower prices because of the large employee pool compared to an individual trying to purchase health insurance alone. This singly-payer plan does indeed work in places like Canada and the United Kingdom, which as we already know have far lower health insurance costs than the United States. Not only that, those single-payer countries obtain better health results as well–truly a better bang for their buck.
But this was not the path President Obama took in 2009 and 2010. If the support did not materialize for the Public Option, then it definitely was not there for single payer. Therefore, the president was left to reform the existing private insurance industry. The bill adopted the idea put forth by the Republicans in the 1990’s requiring that individuals buy their own health insurance or else pay a fine. This became known as the Individual Mandate.
The theory goes that if we require virtually all citizens to buy health insurance, this will broaden the risk pool of the insured and in turn bring down costs. If there are more healthy people paying for insurance, then it would not be as fiscally stressing to insure sick people. Therefore, the goal of the ACA was to have many young, health people sign up for health insurance, which would then cover the cost of insuring the sick. This is what then enabled the ability to prohibit the insurance industry from denying Americans with pre-existing health conditions, from dropping someone’s coverage when he or she got sick, and from capping a sick person’s care at an annual cost limit. Without the Individual Mandate, there simply would be no way to cover these costs.
Additionally, the long-term goal of insuring everyone is that Americans will then attend yearly physical examinations and receive preventative screenings often (many being now covered for free), which would eventually create a healthier nation all around–in turn lowering costs for future generations. If we catch diseases and health problems early and often, we will not have to spend as much on fixing those problems in the future. Therefore, the stipulations of the bill aim for a long-term reduction in health care costs.
There were other provisions also added to the bill. For example, children used to have to obtain their own health insurance separate from their parents at age 23, which then was changed to 26 years old due to the ACA. This allows for young adults to save their money for longer in order to afford college and invest their money into the economy on goods like a house eventually.
Another important provision that obtained much attention was the regulations put on employers. Historically employers do provide insurance to their workers. The ACA added the requirement that health insurance must be provided to all employees who work over 30 hours per week for a company that has over 50 employees. The fear by some was that this would cause employers to try to cut back workers’ hours so that they did not have to meet the requirement of providing health insurance. However, in theory if workers have more money saved from not spending it on health insurance, they then have more money to spend on goods boosting the economy and benefitting employers in the end. That is exactly what the data are showing. The Kaiser Family Foundation reports that “relatively small percentages of employers with 50 or more full-time equivalent employees reported switching full-time employees to part time status (4%).”
So how does the ACA ensure that Americans will be able to afford health insurance?
On the bottom end of the economic scale, the poorest Americans typically participate in Medicaid–a government health insurance plan in place since the 1960’s. This program allows for the poorest Americans to spend their money on getting ahead in the economy rather than on health care. In order to guarantee that more Americans could be insured, the ACA declared that Medicaid, which is run by each individual state, be expanded to now offer eligibility to any American making up to 138% of the Federal Poverty Line. Therefore, more people could join the program and no longer have to put so much of their income toward health insurance.
A setback to this provision came in 2012 when the Supreme Court in National Federation of Independent Businesses v. Sebelius declared that since Medicaid is a state-by-state program, the federal government could not mandate an expansion of every state’s program. Regardless of the requirement, the federal government in the ACA guarantees to a state that it would pay for the expansion for the first few years and never less than 90% of the cost. Some states saw the deal and took it by setting up what are known as health exchanges, which allows citizens to compare insurance plans beside one another. Others refused to have anything to do with the ACA. As a result, some states–like Ohio under John Kasich’s governance–have seen their uninsured rate fall further than others.
So what about people who are not that poor but also not that rich? How will they afford health insurance? The ACA created a bracket of income levels above the Federal Poverty Line that would be eligible for government subsidies to help offset the cost of insurance. The theory is that by freeing up these Americans’ money from health insurance costs, they will then be able to spend that money boosting the economy and in turn rising their own wages in the future and allowing them to not need a subsidy anymore. Also, as we discussed previously, as more healthy people buy insurance, the costs should rise slower in the long run, which will in turn create more savings for Americans. Therefore, these are all stipulations put in place to give American families a hand up now so that the economy improves and then in the long-run, those American families can afford less expensive insurance on their own.
The ACA also includes provisions to protect Americans from enormous rate hikes. The law mandates that “insurance companies have to justify rate hikes of over 10% to the State” and “insurance companies have to spend at least 80% of premium dollars on claims and activities to improve health care quality.” This encourages insurance company accountability so that the American people are not exploited.
Through this model, more Americans are able to afford health insurance either through Medicaid, government subsidies, and the slowdown in rising insurance costs. This law has caused a massive decrease in the uninsured rate.
The last piece of the puzzle that determines whether this law has been effective or not is the growth rate of health insurance costs. Since the ACA took full effect in 2014, premium growth just has not had much time to be measured as of yet. Some measurements have seen a slowdown in premium growth, though, which may have been caused by a combination of the Great Recession and the ACA. The New York Times reports that “total premiums are increasing modestly. The cost of a plan for both a single person and a family rose an average of 4 percent [in 2015], according to Kaiser, well below the double-digit increases that were the norm a decade ago.” Politifact finds that “on average, premiums have risen by about 5.8 percent a year since Obama took office, compared to 13.2 percent in the nine years before Obama.” For example, look at the difference in premium increases for family coverage over the past fifteen years.
However, it is important to note that some states have indeed seen higher premium and deductible rate hikes. These deductible increases, though, have increased consistently for over a decade–before the ACA was even passed.
Therefore, the ACA cannot really be to blame for the deductible increases, but it’s eventual effects may help counteract the increases. This may be due to the fact that young, healthy people are just not signing up for health insurance yet. However, they eventually should as the fine for avoiding insurance will increase over time. We are already seeing good signs in this area as the amount of young people signing up for insurance doubled this year over last. Additionally, the lack of expansion of Medicaid in some states could also be preventing lower-income Americans from obtaining insurance since their only option would be through the private market; they may be preferring to pay the fine instead right now. If the Medicaid rolls were expanded, this could increase the program’s leveraging power and further reduce costs. Furthermore, as I argued previously, since the full force of the ACA went into effect not too long ago, health insurance companies will need a few years to be able to properly forecast who will be in their risk pools and, therefore, how much to increase costs.
Even in those states with higher-than-average premium and deductible hikes, CNBS reports that “more than 8 out of every 10 customers on Obamacare exchanges qualify for subsidies, which reduce their monthly premium bill. And more than half of them also qualify for additional assistance that reduces how much they pay in deductibles…’Consumers will continue to have affordable choices in 2016,’ said Richard Frank, HHS’ assistant secretary for planning and evaluation. ‘While every market is different, and the reasons for rate changes vary, what’s important for consumers to understand is that about 8 out of 10 returning consumers will be able to buy a plan with premiums less than $100 a month after tax credits; and about 7 out of 10 will have a plan available for less than $75 a month.'” After tax credits, premiums on middle-tier plans have decreased in 2016 compared to 2015. One may argue that the government is merely taking the brunt of the cost increases in order to not impact consumers. This may be true, yet some states saw premium decreases even before tax credits. Additionally, the government taking the brunt of the increases in some states will protect consumers while the insurance industry adjusts to the new health care law. Eventually, increases should level out when enough young, healthy people are enrolled and health results improve. The addition of a Public Option could increase competition in states where there a few insurers present. Such competition could help drive down prices.
The past three years have actually seen the slowest increase in health care spending in the past fifty years, which helps the government reduce its deficits. As more Americans begin to enroll in health insurance and hopefully more states expand Medicaid, premiums and deductibles should continue to grow more slowly as there are simply more people to share the cost.
As we have seen through this analysis of the data, the Affordable Care Act has not killed jobs and has not ruined the health insurance industry. More people have insurance than ever before in history all while the economy has grown. This law is not perfect; it does not solve every problem. America even long before the ACA has faced what many see as a shortage of doctors. Many medical students see that they could make far more money by becoming a specialist rather than a primary physician. The ACA does include some provisions to incentivize students to become general physicians, and still some argue that there is no shortage at all. Even while Canada has barely fewer doctors than the U.S., Canadians are able to attend the doctor more often than Americans.
This may be due to the fact the Americans have to ration care. This is contrary to some voiced opinions that argue that a single-payer system would lead to rationing of health care since the government would be in charge of choosing which procedures are necessary or not. However, the U.S. is already subject to rationing via the fact that 33% of Americans forego care due to the high cost. This rationing should decrease as health costs increase at slower rates.
The other main problem continuing to plague insurance premiums is the exorbitant prices on pharmaceutical drugs compared to other countries.
The ability of drug companies to advertise and also lobby doctors to prescribe may be the reason why drug prices are so high and why Americans are the most over-prescribed citizens.
Additionally, Congress has barred the government from using its leverage power within its health entitlement programs to bargain for lower drug prices. Because of these still-existing inefficiencies in the U.S. health system, there are still reforms to be made in order to decrease costs further. There is more work to be done.
However, because of this law the insurance industry can no longer deny Americans with pre-existing health conditions. Because workers can now obtain coverage even with pre-existing conditions, this encourages easier job switching, which prevents Americans from having to be stuck at a job they do not prefer. Additionally, previous to the law’s passing, the denial of pre-existing conditions encouraged Americans to choose to work at big businesses over small businesses since coverage of such conditions would be more likely covered within the large employee pool of a big company. The law also prevents companies from dropping someone’s coverage when he or she gets sick or from capping a sick person’s care at an annual cost limit. Young adults can now save more money for their future by staying on their parents’ plans. Insurance companies are now held accountable when they raise insurance premiums. Without the core of Obamacare, there simply would be little to no way to cover these costs. That is why critics have offered no substantive alternative to mandating health insurance while still guaranteeing all these crucial benefits. Furthermore, repealing the law could actually add up to $353 billion to our deficits and strip 19 million Americans of their health insurance (20). The long-term goal of providing millions of more Americans with insurance is that this will spread out the costs, which will lower everyone’s individual health care costs. The more people that sign up in the coming years should have a downward effect on the rate of increase in costs. Additionally, with millions more Americans receiving regular physical examinations and proper care, we will hopefully have a healthier country overall in the future, which will have an even greater effect on keeping costs down for everyone. Overall, I argue that the Affordable Care Act has taken great strides in reshaping our health industry to better serve the American people and free them up to spend money on growing this economy even further.