The Affordable Care Act (Obamacare) is Far From Affordable
Pop quiz! Which section of the Affordable Care Act (ACA aka Obamacare) is more likely to raise health care costs over the next decade or so? Here are the two most likely candidates: Section 1502 requires that citizens without health insurance coverage purchase private insurance or pay an income tax penalty. Section 2001 expands the coverage of Medicaid to individuals who’s income is below 133% of the Federal poverty line.
The answer is the Medicaid expansion. This is the biggest and most significant expansion of government health care in the last several decades. Traditional Medicaid covers children, pregnant women, and people under the age of 65 with significantly disabling chronic illnesses such as multiple sclerosis. However, under the ACA, up to 20-30 million additional Americans will be able to get government health care coverage without the need for a disability. They only need to be poor. This is a far more significant development than the individual mandate even though the mandate gets all the legal attention. It’s significant as a potential for a funding disaster and there is recent precedent to support this.
In 1994 Tennessee decided to dramatically expand its Medicaid coverage (called TennCare) to include 500,000 people who were previously uninsured either due to poverty or preexisting illnesses. Ultimately up to 1.6 million became enrolled in TennCare and subsequently the total annual budget for this expansion went from $2.64 billion in 1994 to more than $8.5 billion in 2005 which far exceeds national health care cost inflation over this same time period. With fiscal predictions that TennCare would eventually take up 90% of the state of Tennessee’s entire budget, massive cuts in enrollment and funding were undertaken amid a storm of protests and lawsuits.
The reason TennCare failed was because it provided generous benefits without much in the way of controls or limits on excessive utilization. The original TennCare program was all inclusive. It paid for everything from dental care to mental health and substance abuse treatment, to all prescription medications, to basic outpatient, and preventive care. Ironically, managed care mechanisms built into the original program soon collapsed due to TennCare’s low reimbursement rates. ERs stopped bothering to get authorization from doctors to see patients during office hours and managed care companies dropped out after losing money.
To be even more specific, the reason TennCare failed was that, like Medicare and traditional Medicaid, TennCare is not an insurance program. It’s a entitlement spending program by virtue of its generous benefits. It provides financial resources to spend on health care needs both big and small. It’s not as if hundreds of thousands of Tennesseans suddenly became seriously ill. But many were provided funding for every health milady. Instead of taking over-the-counter medications for minor conditions such as chronic arthritis or seasonal colds and influenza infections, TennCare beneficiaries could now visit a medical doctor and receive prescriptions whether it made any difference or not. TennCare became the equivalent of a government subsidized auto insurance policy that paid 90% of the costs of gas, oil, regular maintenance, cleaning, and minor repairs.
The sad but “convenient” truth is that the uninsured are relatively inexpensive. As I have stated before, contrary to popular belief the uninsured do NOT flood emergency rooms because they can’t get medical care elsewhere. They are their own best managed care system by avoiding expensive health care except for serious conditions. They have what is effectively an unlimited deductible. The biggest problem with an uninsured population is cost shifting. Uninsured people who do get seriously ill and need health care will get it. Federal law prevents hospitals from turning away patients with unstable medical conditions regardless of their ability to pay. Many of these will become eligible for Medicaid otherwise the costs of their care are “shifted” to the rest of us in the form of higher costs and taxes. Even with cost-shifting however, the overall health care costs of the total uninsured population remain relatively low. For example, in 2008, the uninsured spent $30 Billion in out-of-pocket care and $56 Billion in uncompensated care (usually due to serious injury or illness) of which various government programs eventually covered 75%.
Most cost shifting occurs because of serious illnesses; accidents, heart disease, malignancy, or chronic neuromuscular diseases that lead to hospitalization and/or the need for expensive long term care. If the Medicaid expansion were an actual government subsidized and supported insurance program then it would only provide coverage for serious illness and expensive unanticipated health care needs in much the same way that low cost, high deductible private catastrophic health care insurance does. However, like TennCare the ACA has decided to opt for health care egalitarianism and move towards all inclusive care no matter the need . . or the eventual cost. Using the numbers from TennCare as a guide, the Medicaid expansion may cost $105 to almost $160 BILLION per year to fund an additional 20-30 million Medicaid beneficiaries and this is on top of the current annual budget of almost 300 Billion. And keep in mind, this is BILLIONS to pay for the health care costs of people who are relatively healthy. They’re just poor.
What about the individual mandate? The Department of Health and Human Services (HHS) has stated that private insurance plans offered to individuals or through health exchanges must provide coverage of up to ten general categories including prescription medications, mental health and substance use disorder services, wellness care, etc. Once again, this sounds more like forced health care egalitarianism than a realistic insurance package. Though there is nothing in the HHS rules that specifically forbids the offering of high deductible health care plans (aka, catastrophic health care plans), these types of low premium plans may not qualify due to the fact that much of the initial costs will be out of pocket. But if high deductible plans do qualify to meet the individual mandate requirements then it is plausible that most relatively healthy individuals will rationally choose to purchase these lower cost plans. Regardless, many who would otherwise be able to afford a low cost high deductible plan will be eligible for government subsidies to purchase a more expensive all inclusive plan.
The benefit of mandated egalitarianism is that the relatively healthy population is forced to purchase a high cost health care plan that they don’t need in order to offset the health care of the small minority who are responsible for the majority of the costs. This already happens in the private insurance market where healthy individuals and families purchase expensive all inclusive plans when an HSA plan or high deductible plan would suffice. These high cost plans are expensive in part to cover the costs of the sicker and more expensive members of these plans. The claim that the costs of the uninsured are directly responsible for increased private insurance premiums is dubious at best since – as mentioned above – the vast majority of the health care costs of the uninsured either come out of pocket or are paid by the government. And now that insurers can no longer deny coverage to those with preexisting illnesses, the premiums of all inclusive plans are unlikely to go down any time soon.
Lastly, there is the basic economic effect of inflation whenever large amounts of money are infused into the system. Fundamentally, the ACA is a massive spending law with a few insurance reforms thrown in for good measure and it will infuse hundreds of Billions of dollars per year in additional government spending into the health care and insurance industries. Since our Federal government already spends far more than it takes in, this additional funding will be in the form of deficit spending. Essentially the government will be printing new money backed by foreign loans it has no intention of paying off anytime soon. Whenever there is an artificial infusion of money into a system the prices of affected goods and services goes up dramatically. This effect is commonly seen in gold rushes or other proliferation of natural resources on local economies. Without any logical or effective mechanisms to control costs or utilization of health care resources, the ACA is setting us up for an even bigger spike in health care costs.
Expanding affordable health care access to all Americans is a very laudable goal. There are logical and rational ways to go about this . . . . and then there is the Affordable Care Act. It assumes that one health care plan fits all. It infuses Billions in funding on relatively healthy populations with the goal of getting as close to universal coverage as possible without stopping to ponder the actual needs of the very people it covers. It has very little in the way of mechanisms to control costs and prevent excessive utilization because it assumes that 100% of all health care needs are legitimate and that beneficiaries are idealistic liberals who will not abuse any entitlement program as important as health care.
Like Voltare’s famous paradoxical affirmation that the Holy Roman Empire was neither holy, nor Roman, nor an empire, the Affordable Care Act is likely to prove itself to be anything but affordable.