ACA Questions and Answers

Nobody has signed up so the Affordable Care Act is a big failure, right?

The website is nice feature (or will be when and if it ever becomes fully functional): one stop for determining eligibility for tax subsidies, shopping for plans, and enrolling. However,  the most important part of the Affordable Care Act is not the website, it’s the change in the operation of the individual health insurance market.

The principals underlying the ACA were developed before there was an Internet. The original depictions of the marketplace for health insurance used as examples a farmer’s market, or a shopping mall, or the Sears catalog: a method that allowed consumers to compare plans and prices when shopping for health insurance. But consumers would be unable to shop for health insurance in that way until the individual health insurance market was reformed.

The proposal then and the law now prevents insurers from denying coverage or increasing premiums based on an individual’s health status. In order to protect insurers from attracting only people currently needing health care the proposal then and the law assess a tax on people who do not purchase coverage, creates a risk adjustment mechanism to distribute the risks across insurers, sets up a reinsurance mechanism, and limits the exposure of insurance companies within a risk corridor.

What that all means is that the entire individual health insurance market is changed, not just coverage sold through the website Healthcare.gov. That is happening regardless of the technical issues with the website. That change is purpose of the act.

So the President lied when he said if you like your health plan you can keep it?

The President’s statement was not true for about 3 percent of the American people. Importantly it would not have been true if he had said it in 2003, or 1993. The difference is that most of the individuals losing coverage in 2003 were losing it because their own health had declined, or they were in a risk pool whose overall health was declining. Some of the individuals losing coverage in 2013 will end up paying more for the same coverage, but most will either see their premiums decrease, their benefits increase, or both. All individuals purchasing new coverage for 2014 will join a common risk pool. That means that their premiums will not increase or their policies canceled because they have a health issue.

Then why are people complaining?

Some individuals and families are required by the ACA to purchase more insurance then they desire. Putting everyone into a common risk pool lowers the average costs of insurance, but increases it for some. But the choice isn’t as simple as that. This is not a case of making some pay more to benefit others. Without reform the health care financing system was on an unsustainable trajectory. The market for health insurance would eventually fail so no one could purchase private health insurance.

There is a similar rational for why 50 year old men have to have maternity coverage in their plans. If the risk pool becomes segmented it becomes less sustainable. In this case, if only women of childbearing ages purchase maternity coverage the cost of that coverage becomes prohibitive and the insurance market for that segment of health care unsustainable. In that case you have fewer expectant mothers with coverage, more high risk pregnancies, and more low birth weight babies. The relationship between troubled pregnancies and higher health care and social costs has been well documented.*

Some states are not expanding Medicaid. Does that mean in those states the ACA is not working?

Those states not expanding Medicaid still have a reformed individual private insurance market, but the lack of expansion does reduce the benefits of the Affordable Care Act. The law envisioned a continuum of coverage as a family’s income increased. Lower income families would have coverage under the expanded Medicaid program. As their income grew they would transition into subsidized private coverage.

Without Medicaid coverage there are significant gaps in coverage. Families whose income is just below the Federal poverty line are eligible for nothing. Those just above poverty are eligible for significant subsidies for coverage purchased in the exchange. Those who would have been eligible for expanded Medicaid but who now enroll in the Exchange are more likely to have health issues than those who chose not to enroll. As a result the Rand Corporation has estimated that premiums in the individual market in states that chose not to expand Medicaid are 8 to 10% higher than they would be if the state had expanded**

Some have estimated that Medicaid pays hospitals much less than the cost of care. Why are estimates of the job impacts of Medicaid expansion so high if no providers want more Medicaid patients?

The basic answer is Medicaid expansion brings new money into a state, not new people. Providers are now faced with large amounts of uncompensated care. New resources to provide that same care allow hospitals and health systems to increase capacity resulting in increased access for all patients, not just Medicaid.

*See for example Almond, Douglas, Kenneth Y. Chay, and David S. Lee, “The Costs of Low Birth Weight,” Quarterly Journal of Economics, CXX (2005), 1031–1083.

**Access the report here: http://www.rand.org/pubs/research_reports/RR189.html

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