By Brian Blase
The Affordable Care Act (ACA), or Obamacare, was principally intended to improve health insurance markets for individuals and small businesses, lower health costs, and increase the number of people with insurance. It largely failed. Health insurance markets are only afloat because of massive federal subsidies and premiums and out-of-pocket obligations significantly increased for families. While the ACA has led to about 13 million more people with Medicaid, many more have been harmed. Middle-income families without employer-provided coverage and small businesses and their workers have largely fared worse from higher health care costs as did the nation’s taxpayers who are responsible for funding all of the law’s new spending. (For an in-depth review of the ACA’s performance ten years after its enactment, see this Galen Institute analysis.)
The ACA Damaged the Individual Market for Health Insurance and Harmed Middle-Income Families and Small Businesses
Prior to the ACA, the individual health insurance market—the place where self-employed people and those without employer-provided coverage shop for coverage—had around 12 million enrollees. The ACA’s authors expected they were creating a market in which more insurers offered plans and coverage would be affordable. Unfortunately, the reality has been the opposite. Choices plummeted. Premiums and deductibles spiked for plans that covered fewer providers and hospitals. Enrollees complain of a “two-tiered system” given that many doctors refuse to take ACA plans because of their low payment rates. As a result of the ACA, for example, a self-employed father could not find a plan to cover his daughter’s treatments for cancer.
The Congressional Budget Office (CBO) expected that insurers selling plans in the exchanges—the ACA’s main health insurance hubs—would enroll 25 million enrollees by now. Yet, average enrollment has been stuck at only 10 million people since 2015—60 percent below expectations.
Giant subsidies are available for lower-income exchange enrollees, and they are unsurprisingly, the only ones primarily enrolling. More than 70 percent of exchange enrollees have incomes below 250 percent of the federal poverty level ($31,900 for a single individual and $65,500 for a family-of-four). As premiums have skyrocketed, more than 4 million individuals who don’t qualify for subsidies dropped out of the market between 2015 and 2018.
Roughly four million people have coverage in the individual market outside the exchanges, meaning that the total size of the individual market is around 14 million people—or only about 2 million more people than pre-ACA levels. The budgetary cost of the ACA subsidies amounts to about $50 billion annually. Thus, the federal government is spending a staggering $25,000 for each new individual market enrollee. Overall, individual market enrollment is roughly 18 million people below what the CBO expected.
The ACA increased Medicaid enrollment by about 13 million people, increased individual market enrollment by 2 million people, and decreased enrollment in employer coverage by 2 million people from where it would have been without the ACA. Thus, to date, the ACA has increased the number of people without coverage who would not have otherwise had coverage by around 13 million people, well below expectations.
‘The Medicaid Expansion Act’
In 2016, Brookings Institution scholar Stuart Butler referred to the ACA as “The Medicaid Expansion Act,” primarily because “premiums and out-of-pocket exposure make exchange plans unattractive to many US residents.” This is despite the Supreme Court decision making Medicaid expansion optional and about a quarter of states refusing to expand. Calling the law “The Medicaid Expansion Act” seems more appropriate than ever since 100 percent of the net reduction in the uninsured has occurred because of Medicaid. A massive expansion of Medicaid—a welfare program that traditionally served low-income children, pregnant women, seniors, and individuals with disabilities—is not what the ACA’s proponents talked about when selling the law to the American people.
Medicaid expansion crowds out services for more vulnerable populations on the program and has generally had disappointing health results. The expansion increased the number of services provided to recipients and generally boosted financial protection, but also led to an increase in unnecessary emergency department use. The impact on the health of enrollees is less clear. One study found that expanding the population of Medicaid enrollees has led to longer waiting times for care. Another study found that states that expanded Medicaid had a significant slowdown in ambulance response time. For some people with pressing medical conditions, this slowdown could be life-threatening.
Trump Reforms Have Helped
In the aftermath of Congress’s failure to provide Americans relief from the ACA, President Trump took actions to expand coverage options and improve the individual insurance market. The Trump Administration shored up the exchanges with a market stabilization rule that limited peoples’ ability to wait until they were sick to buy policies and approved state waivers for state reinsurance programs that lowered premiums and provided better access to care for those with chronic and expensive medical conditions. (For a full discussion of President Trump’s health policy actions to address problems with the ACA, see a September 2019 Galen Institute piece, Health Reform Progress Beyond Repeal and Replace.)
The Trump Administration increased coverage options through both expanded Association Health Plans (AHP) and short-term, limited-duration plans—opening up more affordable alternatives to middle-income families and small businesses and their workers. The White House Council of Economic Advisers found that the expanded coverage options combined with the elimination of the ACA’s individual mandate penalty are a major win for the American people—with around $45 billion of net economic benefit from more affordable choices and lower taxes.
The Trump Administration’s most profound regulatory actions to improve the American health care system are its health reimbursement arrangement (HRA) and price transparency rules. Through the HRA rule, employers can now offer workers tax-free payments that workers can use to purchase individual market coverage that works best for them. This rule enhances worker choice and control over their coverage and is expected to significantly improve the individual insurance market—by adding 8 million people to the market. This rule is projected to boost individual market by four times more than the ACA did, with no new federal spending since employer contributions, not taxpayer subsidies, fund this coverage.
The Trump Administration has also pursued bold price transparency rules so that American patients and employers have access to prices before they purchase health care services. These rules will help patients be better shoppers of care and will help employers get better deals for their employee health plan.
We Can Spend $1.8 Trillion Better
The ACA is an extremely expensive program. In 2019, the cost of the ACA’s Medicaid coverage provisions amounted to roughly $130 billion—$50 billion on exchange subsidies and $80 billion on Medicaid expansion. This spending has been a boon to health insurance companies, whose stock prices soared. In March 2018, the White House Council of Economic Advisers released a report on health insurer profitability since the ACA took effect, finding that “health insurance stocks outperformed the S&P 500 by 106 percent.” According to CBO’s baseline, the ACA will cost American taxpayers $1.8 trillion over the next decade.
If the Supreme Court invalidates parts of the ACA, policymakers may have an opportunity to utilize $1.8 trillion in ways that will provide greater help to those who need it, improving access to higher quality health care. The ACA’s inefficient spending largely emanates from sending health insurance companies large checks on behalf of relatively healthy enrollees who need massive subsidies to afford the coverage that the ACA made much more expensive. A better approach would be freeing people to purchase coverage that best meets their needs and budgets, allowing states to establish safety net programs to ensure people with pressing health care needs receive the care they need, and transitioning as much government assistance as possible directly to consumers rather than funneled to health insurers.