What Was the Theory Behind the Affordable Care Act?

We are being saturated with information and propaganda these days about the Affordable Care Act, i.e., ObamaCare. But I, for one was not clear on exactly what was the thinking and the theoretical provisions of this recent piece of legislation that is planned to take over one sixth of our economy. For this reason, I am electing to review its essential features for my readers.

We are aware of the fact that about 47 million Americans are without health insurance. Many of those are young and healthy adults who do not want insurance. They do not seem to realize a need in that area. Nevertheless, this group does need health care from time to time; and the cost of treating them falls on hospitals and on those of us who buy insurance. Additionally, health care costs have been increasing more rapidly than the rate of inflation for many years. Everyone, both conservatives and liberals, understand this problem and seek a remedy.

The Affordable Care Act, (ACA) was designed to bring these 47 million Americans under insurance protection and to distribute health care costs throughout the population. But…how to pay for their protection—that is the question. Democrats devised a system they thought would pay the bill for health care coverage. It ran as follows:

1)      Money would be taken from Medicare and put into the funding for the ACA. $716 billion is to be taken from Medicare spending over the coming 10 years and used to fund the ACA. Concurrently with spending Medicare money on the ACA, spending reductions in Medicare reimbursement schedule for procedures will be legislatively decreased. This will mean that doctors and hospitals will receive less money for their work and for procedures that they do, which were formerly covered by Medicare.

2)      Increased money is to be raised from higher taxes charged to medical devise manufacture and to pharmaceutical and health insurance companies.

3)      Penalty money will be collected from young persons who refuse to buy insurance through ObamaCare exchanges.

4)      Increased income taxes will be levied on the wealthy, i.e., those with annual income >$200,000.

5)      Monthly premium payments from young and healthy persons will more than pay for their own care; and the overage will be used to pay for more expensive, older, and sicker people.

Democrats believe that this increasing money stream will more than pay the cost of insuring the 47 million people.  They even believe that there will be a surplus of money which can be used to decrease federal budget deficits. They believe that our country will be better off financially with ObamaCare in full operation.

Republicans do not believe that there will be nearly enough money in the kitty to pay for this program. I, personally, think that one major defect in the program will be decreasing participation in Medicare by physicians and hospitals caused by the government’s reduction of payment. I have seen doctors for decades declining Medicare payment schedules because of low payment levels. These lower ObamaCare fee schedules will aggravate that tendency.

 

 

 

 

 

 

What Success Obamacare?

President Obama and the  Democratic proponents of the Affordable Care Act emphasized three promises when promoting the health-care law.

1)      It will provide “universal coverage.”

2)      It will reduce costs, both to the consumer and to the nation, as a whole by decreasing the total costs of health care in America.
3)      It will not take away your current health-care plan if you want to continue with it.

Let us look at these three promises in order:

The primary promise was universal coverage. In the year that preceded the law’s passage, President Obama emphasized over and over again the number of Americans who were uninsured, which ranges from 30 million to 47 million, and explained that the nation had a moral imperative to cover those who could not find coverage on their own. One complicating factor in calculating the number of uninsured persons in America was that the recession increased the number of the uninsured by 6 million. The Congressional Budget Office in 2013, before the law was implemented, estimated that there would be 31 million uncovered Americans in 2019; that estimate does not bode well for the effectiveness of the Act in decreasing the number of uninsured people in America.

The second promise was to reduce the cost of health care, specifically the cost of premiums. Universal health care would provide greater economies of scale for insurance companies, while new regulations would keep insurance companies and doctors from getting too greedy. On numerous occasions, President Obama promised that his reforms would reduce the cost of premiums by $2,500 for a family of four.

This is not going to be the case. Using the same methodology that Obama used to come up with the $2,500 figure, health-care expert Avik Roy found that costs per family of four would increase by $7,450 by 2022. Furthermore, the cost hikes in certain states are going to be far worse, including a 41 percent increase in average premiums for Ohioans in 2014, and a 72 percent increase for Indianans. A recent Manhattan Institute analysis shows an overall average increase of 41 percent over the nation, as a whole. Whatever amount of increase there is, it’s not a $2,500 decrease.

Obamacare proponents note that higher premiums will not be felt because the law will provide subsidies to offset the increases. That’s nice, but premiums will still be higher under the new law. The subsidies only mask the impact of the premium increases for certain individuals. Others, not eligible for the subsidies, will get the double hit of paying more for insurance (which they are now required by law to purchase) and of paying higher taxes, now and in the future, to cover the costs of the subsidies to others. Those subsidies have to come from somewhere; and the obvious source of money for the subsidies is from the taxpayers.

In evaluating the money needed for implementing the ACA, we must remember that President Obama has repeatedly said the this program will be “budget neutral.” It will be nothing of the sort. The original 10-year cost of the bill was said to be around $940 billion, offset by tax hikes and spending reductions—most notably a $716 billion cut in Medicare. In 2013, the Congregational Budget Office (CBO) estimated the cost at $1.8 trillion; it is likely to be closer to $2.5 trillion by 2015. The gross costs of the Obamacare insurance subsidies alone will be $1.8 trillion over the first 10 years; in other words, the costs will be lowered for those who get the subsidies at a cost of $180 billion a year to everyone else. Meanwhile, a Government Accounting Office estimate suggests Obamacare’s guarantees could increase our long-term costs by $6.2 trillion over 75 years.

 In examining this second goal of the ACA, the Obamacare supporters have claimed loudly and clearly that the Affordable Care Act will save money in the federal budget. Their most vociferous and widely heard pundit, Paul Krugman of the New York Times editorial board has defended it primarily on this ground, i.e., it will and already has saved great amounts of money. Let us look at some of his reasoning.

Mr. Krugman says that the “affordable” part of the Affordable Care Act  was not just about subsidizing premiums. It was also supposed to be about slowing the seemingly inexorable rise in health costs. He recently indicated in his newspaper column that the law’s opponents believe that serious savings are supposed to come from things like raising the Medicare age. However, he points out that the Congressional Budget Office recently concluded that such this measure would hardly save any money. Krugman has also pointed out that opponents of the bill have suggested that one way of saving money would be to take many Medicaid recipients off the program. He points out that a 2011 letter signed by hundreds of health and labor economists pointed out that “the Affordable Care Act contains essentially every cost-containment provision policy analysts have considered effective in reducing the rate of medical spending.”http://www.americanprogressaction.org/wp-content/uploads/issues/2011/01/pdf/budgetcommitteefinal.pdf And he claims that the opinions of these many economists and health care experts have been ignored. However, a simple reading of the letter from these experts reveals that they did not address the idea of limiting Medicaid. I think we all know that the ACA certainly does not provide for taking people off the Medicaid roles. Medicaid in the days of the ACA will greatly expand. It is also an obvious feature of the ACA that the law did not even say one word about tort reform, which is needed because so much of health-care money is funneled into the pockets of lawyers.

It is true that in recent years, the rate of increase in federal spending has declined somewhat, which is a most welcome development. ObamaCare partisans tout this reduction in the rate of increased spending as evidence that ObamaCare is working. However, the actual AMOUNT of federal spending is not decreased—only the rate of increase in spending has decreased.

There is little to no evidence that ObamaCare has caused the reduction in the rate of spending increase, especially since ObamaCare has not yet been fully implemented. The administration’s own Medicare actuary attributes the recent reductions in the growth rate to the recent recession. Furthermore, when ObamaCare is actually implemented, evidence suggests that inflation will increase again. In 2014 the implementation of provisions of the Affordable Care Act is expected to accelerate health spending growth to 6.1 percent (considerably above the annual rate of inflation).

So, in summary of this second goal of the ACA, I think we can dispose of the idea of cost savings, to the individual consumer and to the government and the taxpayer.

Let’s look at the third promise of the promoters of the ACA; The third promise was that if you like your health-care plan, you can keep it. During his year of salesmanship, President Obama mentioned it nearly every time he spoke about the act, often stating it more than once in the same setting. The exact wording of the comment varied over time, but the political strategy behind the statement was clear: If you were among the 85 percent or so of Americans who already had insurance, ObamaCare would have its impact on other people, not on you.

The early indicators are not encouraging. One CBO analysis has estimated that ObamaCare will cause approximately 7 million people currently covered to lose employer-sponsored coverage. On top of that, millions of Americans who purchase insurance via the individual market are already receiving letters notifying them that their coverage is being terminated.
In summary, this law is not good for the American people. We do, indeed, need a modification of our health-care provisions. But…the ACA, as it stands, is NOT the answer.