Obamacare: Cost vs. Access
BY ARYEH MELLMAN
After five years, the Affordable Care Act (ACA) is staggering toward the end of its gauntlet of political, legal, and implementation challenges. To paraphrase Nancy Pelosi, it’s time to find out not just what is i n the law, but the ultimate effects of the law. From the time the ACA was announced, its goals were twofold: reducing the uninsurance rate (the rate of Americans without health insurance) and controlling healthcare costs. Analyzing the pre-ACA status quo of health insurance (employer-sponsored insurance ((ESI)), and Mitt Romney’s Massachusetts Health Plan (MHP)—the basis for the ACA—can project future effects of the ACA.
Just before the ACA was put into effect, about 150 million Americans had ESI, 50 million had Medicare, 57 million had Medicaid, 15 million purchased insurance privately, and 50 million were uninsured. On average, those with ESI contributed just more than $1,000 monthly for their insurance (their employers paid the rest), while those purchasing insurance privately paid over $2,500.
While ESI is the cheaper option, it is only available, under certain circumstances, to those who are employed. Fines for failing to offer insurance only apply to firms with more than 50 full-time workers. As a result, just 57% of firms with fewer than 50 employees offer ESI, compared to over 90% of firms with more than 50 full-timers.
Thus, ESI does not proportionally benefit part-time workers and those working at small firms. Workers in these categories are more likely to face high monthly insurance fees. Uninsurance rates are highest among racial minorities. Just 11% of whites are uninsured, while 20% of African-Americans and 39% of Hispanics don’t have health insurance. The most alarming category of those unlikely to have insurance is the sick; those in fair or poor health are less likely to have insurance than those in good, very good, or excellent health. Those who most need a discount on insurance are the least likely to have it.
ESI benefits those who are able to receive it, but the plan leaves those ineligible for the policy either without insurance or stuck paying exorbitant prices. To cut costs for those not under the protective umbrella of ESI, President Obama introduced the ACA, modeled after the MHP, which provides subsidies for purchasers of private insurance, and increases the number of people eligible for Medicaid, in turn increasing the total number of the insured. The first eight years of the MHP help us project how the ACA will impact insurance rates and healthcare costs in the US over the next few years.
In terms of access to healthcare, the MHP was extremely successful, and the ACA is following suit. In its first four years, the MHP dropped the uninsurance rate in Massachusetts from 6% to 2%, while the rate nationwide increased from 13% to 16.4% over that same period. This development has been mirrored by the ACA, with uninsurance rates down from 18% when the exchanges opened, to 13.4 % in April. Uninsurance rates have decreased across the racial and socioeconomic spectrum to 9% for whites, 14% for African-Americans, 33% for Hispanics, and 25% for low-income earners.
These subsidy plans take a toll on state and national finances. In Massachusetts, the percentage of the state budget spent on healthcare costs jumped from 29% in 2005 to 41% in 2013, and the state now spends more money on healthcare per capita than any other. When he unveiled the ACA, President Obama touted his plan as a revenue-neutral proposal, but the Congressional Budget Office projected it to cost a net $1.5 trillion from 2014-2024, making the plan a net loss.
The plan’s high cost is due to two of its major components: subsidies for private insurance and the Medicaid expansion. In order to induce the 50 million uninsured to purchase insurance, the government had to offer large subsidies, which comprise the majority of ACA spending ($1.2 trillion over the decade). The second major component was the Medicaid expansion, which aimed to increase the number of people eligible for government insurance. The expansion, though only approved by 26 states, is projected to cost $800 billion through 2024.
The current course of policy reflects a choice: the government can reduce the rate of uninsurance while spending money, or keep costs down, but uninsurance rates high. With the country in heavy debt and a slowly thawing economy, there is no clear best option. Universal coverage is an important goal, but comes at a high financial cost. It is up to lawmakers to decide if they will continue paying for it.