Today, 1 October 2013, marks a significant milestone for the Affordable Care Act (ACA). On this day, the individual exchanges open and consumers can compare plans and register for coverage effective on 1 January 2014.
The purpose of this post is to sort out some of the information out there, on both sides of the ideological fence, and help you determine what is fact and what is rhetoric.
Pros:
There have been tangible benefits of this law and I don’t think that can be logically disputed. Additionally, to combat rate shock, the law allows for subsidies for up to 400% of the Federal Poverty Level (FPL). Below are some other significant benefits of this law:
- More coverage. This law means Americans will have greater access to coverage and there will be no exclusions, due to preexisting conditions. This law also eliminated lifetime caps on medical costs.
- In some states, there will be lower overall premiums. Refer to chart for rate declines in NY. However, keep in mind, this is the overall premium and not the net portion that was paid by those who had employer provided insurance. This also depends on the state.
- Children can stay on their parents insurance until the age of 26. This is helpful, especially as young college graduates struggle to find meaningful work.
- Children under 19 can no longer have their benefits limited or denied because of preexisting conditions.
- Ease of shopping and comparing coverage.
- Insurance companies will be forced to spend 85% of premiums on paying claims. Anything in excess of this amount will be refunded to their customers.
- More focus on preventative care. This can be a large benefit over time of this legislation.
Cons:
- This law will impact the middle class. On average, the ACA will increase individual market premiums by 99% for men and 62% for women. Thus, it will negatively impact men more than women. For many people, especially those who are accustomed to employer provided insurance, the subsidies will be partial and not counteract rate shock (the net of what they will pay). Less available discretionary income by households will mean less money spent in other areas of the economy.
- Younger individuals will pay more in premiums than what was previously the case (unless they get a significant or complete subsidy). The ACA exchange model is based on utilizing the younger population to offset the costs of the older and less healthy individuals and this means insurance companies can no longer price policies based on demographics and risk.
- Medical Device Tax. As someone who has was employed by the medical device industry, I can say with certainty that this tax has resulted in companies engaging in principal based tax strategies, as a method of tax avoidance. This will continue to and already has impacted United States based employment for these companies. Additionally, any costs they do experience will be passed down to the consumer.
- No new incentives for primary care physicians (PCPs). There is a shortage of PCPs coming out of med school and this law has done nothing to address this. This can mean longer wait times and more barriers to seeing your PCP.
- To expound upon the point above, it seems physicians as a stakeholder group were left out in the design of this law. There are no new incentives, tort reform, or financial relief in exchange for performance of health care services.
- Low penalty if someone refuses to get coverage. Additionally, a way around paying this penalty is to adjust your W4 so you get no refund and owe no payment. This, as an internal control, is ineffective because of this.
Summary:
In summary, the ACA marks a significant reform of the insurance system in America. This legislation has many pros and many cons and one has to look at it holistically to get the full picture.
It is clear that the medical per capita costs in the United States were growing at an exponential rate, year over year, and we had to do something in order to either change the trend or slow it down. It remains to be seen whether the ACA will ultimately be effective at reducing overall costs and we will have to wait years to find that out.
A disappointment I had in this reform is that some of the major cost drivers in the overall medical industry were not addressed when crafting this law. We only addressed the middleman, the insurance coverage. Medical device and pharmaceutical costs play a significant downstream role in what the per capita medical costs ultimately are. Please refer to my analysis of the pharmaceutical industry here for further details. If we are ultimately going to bend the cost curve, we have to address major impacts other than insurance and point of care.
