On his campaign website, Donald Trump promised to ask Congress to immediately and fully repeal Obamacare on his first day in office.
The ACA covers 20 million Americans and has reduced the uninsured rate to the lowest levels in history. But many Americans deeply dislike the ACA. Approval ratings have never cracked 50%. Obamacare had a much bigger impact on flipping undecided voters to Trump than anyone anticipated.
The vast majority of Trump voters think Obamacare “went too far.” Versus the half of Clinton voters who think “it didn’t go far enough.” Among voters who think Obamacare went too far, NBC reported 80% planned to vote for Trump.
The young, healthy, and employed hate it because they’re being forced to pay hundreds of dollars per month for much more insurance than they need. Older people hate it because it’s led to huge premium increases. Insurers hate it because it’s dumped a ton of extremely expensive patients onto their rolls without the promised young, healthy patients to subsidize them.
Here’s how and why the ACA had such a big impact on this election.
Why did we need Obamacare?
Beginning in the 1940s, government began subsidizing employer-provided health insurance. This was the beginning of the norm of employer-provided health insurance. Today, more than 90% of people who have health insurance get it through their employer.
The problem with linking employment and insurance is threefold.
1.It jacks up healthcare costs
Linking employment and insurance encouraged insurance companies to become cost-pools instead of actual health insurance companies.
Insurance is when a group of people pay in a small amount of money today so that they can take money out later if they are hit with catastrophic, unforeseen costs. Cost-pooling is when a large group of people subsidizes a smaller group of people’s spending.
“Life is risky,” writes San Jose State University Economics instructor Warren C. Gibson. “When we pool our risks with others through insurance policies, we reduce the financial impact of unforeseen accidents or illness or premature death in return for a premium we willingly pay. I don’t regret the money I’ve spent on auto insurance during my first 55 years of driving, even though I’ve yet to file a claim.
Do you know how much an oil change for your car costs? I know that maintaining a car costs money. When I owned a car, I put aside money that I’d know I’d need to spend to replace belts and fix parts. I didn’t know how much it would be exactly, or when I’d need it. But I knew generally that maintaining cars costs money and I’m on the hook for it.
Do you know how much an annual health checkup costs? I know that maintaining a body costs money. But I don’t aside money for it. When I was having persistent nosebleeds earlier this year, my doctor suggested that he cauterize it. I said yes without asking about the cost because I knew my insurance would cover it. It turns out that it didn’t work. In fact, cauterization often doesn’t work.
That’s what happens when you pay for something with other people’s money. “What currently passes for health insurance in America is really just prepaid health care — on a kind of all-you-can-consume buffet card,” Gibson wrote. “There is no price transparency. The resulting overconsumption makes premiums skyrocket, and health resources get misallocated relative to genuine wants and needs.”
Insurance is only a good deal for all participants when it actually works like insurance. Using insurance to pay for routine care and predictable healthcare needs makes it no longer insurance, but cost pooling.
Insurance works. Cost-pooling doesn’t. Cost-pooling doesn’t work because it creates perverse incentives. Because you’re spending other people’s money, you have every reason to spend as much as possible and no reason to be wise or thrifty.
2.It leaves millions behind
Having most people get health insurance through their employer puts the people who don’t at a distinct disadvantage. People who didn’t qualify for Medicare or Medicaid often found that they couldn’t buy insurance on the individual market because they had a medical condition that meant insurance companies either wouldn’t cover them at all or would, but for exorbitant rates.
3.It creates job lock
Tying employment to insurance creates “job lock.” People stay in jobs they’d rather leave because they’re terrified of the individual health insurance market. That means less happy, less productive workers and fewer businesses started.
How was Obamacare supposed to fix this?
The Affordable Care Act was supposed to cover the people left behind by requiring insurers to allow everyone in. That provision is called “guaranteed issue.” It means insurers must sell you insurance no matter how sick you are.
As David R. Henderson explains for FEE, guaranteed issue is not a bad thing, and you could have a functional insurance market if not for another popular aspect of the ACA: “community rating.” It forces insurers to sell to everyone in a given age group at the same price.
“With guaranteed issue alone, the part of Obamacare that Trump says he wants to keep, health insurance could still function as insurance,” Henderson wrote. “Insurers could say, ‘Sure, we’ll insure you even though you have cancer. That will be $50,000 a year.’”
By forcing insurers to insure everyone, and at the same price, the ACA greatly increased demand for health insurance.
Unfortunately, it’s simultaneously limited supply.
The ACA didn’t make insuring poor, sick Americans profitable for insurance companies. When you add a bunch of people who cost more than they bring into cost pools, the cost pools become unprofitable. The vast majority of the people who are buying insurance from Aetna, UnitedHealth Group Inc., and Humana Inc. on the exchanges are very sick. Very sick people cost a lot more to insure.
But, thanks to community rating, they don’t bring in any more revenue.
The individual mandate was supposed to make the ACA’s cost pools profitable. It was supposed to force Americans who will pay in more than they take out to participate in the cost pools. But at the same time, the ACA forced insurers to cover more medications and procedures, effectively outlawing all low-cost plans.
Why didn’t Obamacare work?
The people who were supposed to make the system work, the young and healthy, have refused to pay for insurance they can’t afford and don’t need. Employer-sponsored “health insurance” obscures the real price of the cost pool. But as soon as people on the individual market realize they can’t possibly spend as much on healthcare as they’re putting in, they leave the cost pool.
The death spiral
In August, health insurance company Aetna announced it was pulling out of the Obamacare exchanges in most states in light of its $300 million loss. Participating in Obamacare exchanges also cost UnitedHealth Group and Humana hundreds of millions of dollars. Anthem and Cigna have also complained about losses from participation.
Insurance companies only stay in business as long as there’s more money coming in than money going out.
That leaves health insurance companies with two choices. They cannot continue to insure these people until they bleed the company dry and then declare bankruptcy even if they wanted to. They’re obligated to turn a profit for their shareholders. Their only options are to raise premiums significantly or dump most of their 850,000 exchange customers.
Nearly a million people will have to buy a new plan next year because their insurer left the market. Likely more the year after next. But they’re not going to have many options to choose from. In many areas, buyers have only two insurers to choose between. In 2017, the insurer in 664 counties will have a monopoly, according to a Kaiser Family Foundation report, which is up from 225 counties in 2016. And that’s before Aetna dropping out. Arizona’s Pinal County has no insurers.
Raising demand while lowering supply always has one of two outcomes: Higher prices or shortages. Most of the companies staying in the exchanges are asking for permission to raise prices. In eight states, rates are rising by 30% or more. One state approved average increases of 76%. The average individual plan purchased through Obamacare will be about 25% more expensive next year.
Deductibles and copayments are also up. Want to reduce your premiums by purchasing a cheaper Bronze plan? Watch your family’s deductible rise to an average of $12,393. A family with a Silver plan must now pay more than $7,400 before their insurance kicks in. Even after paying the deductible, they can expect to pay $13,000 per year out-of-pocket. This may have motivated many voters across the US to head to the polls early this month in hopes for some relief.
Sure, most people on the exchanges receive subsidies to offset the rising premiums, with 77% of people enrolled through the exchanges paying less than $100 per month after the advance premium tax credits. But most Americans don’t qualify for this level of subsidization, yet are having to foot the bill for others’ plans.
The ACA doesn’t have a greedy insurers or stingy states problem. It has a math problem. Neither states nor insurance companies can afford to make up the difference between what everyone newly covered under Obamacare earns and what it costs to insure them. And the gap is only widening.
Next week, I’ll write about what is likely to happen next, and what’s needed to really fix American health insurance. What are your thoughts on what beset the ACA? Let me know in the comments!
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