Is Obamacare Doomed?
Since before it was passed in 2010, the Patient Protection and Affordable Care Act, commonly known as Obamacare, has been a popular target for political opponents. Although the Republican Party has long opposed the ACA on the grounds that it cost too much, provided insufficient coverage and reduced consumer freedoms, these attacks were bolstered during the 2016 presidential election. Then candidate Donald Trump made it one of his core campaign issues to repeal and replace the Affordable Care Act with a far superior health insurance program.
Following his election, President Trump has repeatedly attempted to fulfill his promise, but his fractured party was incapable of repealing the ACA. Throughout 2017, the U.S. House of Representatives and Senate attempted to scrap the law and replace it with new programs, but the Republican-controlled Congress was never able to complete the task.
Obamacare is Going Piece by Piece
Republicans across the country have criticized the Affordable Care Act since it was first proposed by President Barack Obama. However, more Americans have embraced the law which offers tax-subsidized, low-cost plans on health insurance exchanges as well as loosened eligibility requirement for Medicaid, the government insurance program for low-income families. A poll taken in late 2017 by the Kaiser Family Foundation found that 52 percent of Americans now support the health care law. More importantly, almost six out of 10 Americans were happy that Congress was unable to repeal it.
This growing support for the ACA has not, however deterred President Donald Trump and Congress from whittling pieces from the law. One of the most unpopular components of the Affordable Care Act has been the Individual Mandate which penalized people who went without health coverage for all or part of the year. That may explain why Republicans have made it the primary target of their repeal efforts.
Shortly after arriving in office, President Trump ordered the Internal Revenue Service to stop enforcement of the Individual Mandate. Although the IRS cited legal responsibility and continues to penalize taxpayers for forgoing health coverage, this move did signal to the country that the President and his political allies were committed to doing away with the Individual Mandate.
Late in 2017, Congress did pass a tax reform bill that included a repeal of the Individual Mandate. Although prior attempts to do away with the entire Affordable Care Act had proven impossible, the President had insisted on including a repeal of the Individual Mandate. When the law goes into effect in 2019, the IRS will no longer be able to financially penalize taxpayers for not having health coverage.
This seemingly minor change to the ACA could spell doom for Obamacare because the Individual Mandate played a key role in bringing younger, healthier people into the insurance market. These healthier enrollees paid premiums that helped offset the higher costs of insuring older and sicker enrollees.
Without the participation of healthier Americans, insurers must pay for covering sicker enrollees almost completely by themselves. This will inevitably lead to higher premiums (as insurers transfer costs to policyholders) and subsequently fewer enrollees. This could lead to a “death spiral” in which the pool of enrollees shrinks as the coverage costs rise, until eventually the entire system becomes untenable.
Another move that the Trump administration made last year would also speed up the collapse of the Affordable Care Act was the discontinuation of cost-sharing payments that the federal government had been making to insurers. These payments covered the costs of offering discounted premiums and other out-of-pocket fees on low-cost policies. Almost 6 million Americans enjoy lower premiums on their ACA-sponsored policies because of these payments.
Once again, this move would undermine the long-term feasibility of the Affordable Care Act. The stoppage in payments would raise costs on policies, forcing insurers to raise premiums. This, along with the elimination of the Individual Mandate, could cause the collapse of the Obamacare system.
The Trump administration has also made some changes that have inhibited access to Obamacare enrollment. In his first year in office, Trump shortened the Open Enrollment period (when anyone may sign up for a policy) to just 45 days, while in years past it had been 6 weeks or longer. He also cut funding to the Navigator programs that helped prospective enrollees sign for health plans and tax subsidies, as well as marketing for the program.
Future of Obamacare Looks Bleak
Considering the actions taken by the government last year and the critical rhetoric by Republican leaders, it appears unlikely that Obamacare will survive the Trump administration—and if it does, it may look considerably different than it does now.
You should, however, keep in mind that there is a considerable appetite for subsidized health plans. In the latest open enrollment period, 8.8 million people signed up despite limited promotion and community outreach. This falls short of the prior year’s total by only 400,000.
These enrollment figures remain relatively high in spite of significantly higher premiums on many ACA-sponsored health plans. The premiums on these plans for 2018 rose, on average, from 28 to 40 percent over the prior year. Some estimates indicate that the higher prices forced out 29 percent of individual policyholders and 54 percent of family policyholders.
Many members of Congress are in favor of restoring the cost-sharing subsidies, even some Republicans who are bowing to pressure from voters. While this might restore some long-term sustainability for Obamacare, it may not be enough to prevent the continuing rise in health plan premiums. It is estimated that a restoration of the cost-sharing payments would lower premiums by 25 to 30 percent for 2019 (prices for 2018 are already locked in).
Almost 80 percent of Obamacare enrollees get tax subsidies to pay for some or all of their premiums. The Affordable Care Act is designed to shield enrollees from some of those premium hikes; as premiums rise on certain policies, the amount in tax subsidies also rises. However, these higher costs are transferred to the government and ultimately, to taxpayers who may not be willing to shoulder the financial burden.
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