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Seemingly, the Affordable Care Act (“ACA”) has somewhat righted the ship after a horrendous autumn. In addition to computer glitches and numerous complexities facing providers, the President’s pledge that one could keep their coverage was often proven false. What the Obama administration did not visualize was the response by a number of carriers to eliminate certain product lines or limit their activities in certain states.
One other facet of the ACA is becoming much clearer than was apparent in the legislative donnybrook leading up to its 2010 passage. For the cost estimates to have any chance of coming to fruition, significant amounts of the under age 35 population will have to sign up for coverage. This demographic group represents actuarial heaven due to their lower costs. Some estimates indicate that one third of the new sign ups will need to be in this choice group for the initial cost estimates to be in the ballpark.
When the Department of Treasury issued regulations on February 10, the business lobby was instrumental in successfully delaying the implementation of any tax on employers, with 50–99 employees, who do not provide minimum levels of “bronze” coverage. The regulations pushed back the effective date from 2015 to 2016. However, despite cries from some Republicans, the 2014 tax for any uninsured individual, as of March 31, remains. The Department of Health and Human Services has an advertising budget of $52 million for the first quarter of 2014 to encourage sign ups. Accelerated sign ups in the past month have finally provided the Obama Administration with some good news.
The 2014 tax may not provide enough incentive for the uninsured to immediately obtain coverage. The 2014 tax is the greater of $95 per individual ($285 per family) or 1% of modified adjusted gross income. While this tax may not have much bite in 2014, the same cannot be said for future years as the uninsured tax keeps increasing. For example, the 2016 uninsured tax is the greater of $695 per individual ($2,085 per family) or 2.5% of modified adjusted gross income. However, in no case will the tax exceed the cost for bronze coverage.
Cynics will note that one element of the ACA has not been deferred to 2014: increased taxes! For those with significant out–of–pocket medical expenses in 2013, the deductibility of such expenses has been reduced. Before ACA, the income threshold that had to be exceeded, before the first dollar deducted, was 7.5% of adjusted gross income. Effective with the ACA, 7.5% has been increased to 10%.
I can share some stories about some of the potential glitches that will need to be fixed. In my opinion, the most problematic part of Obamacare was the disincentive for carriers and individuals to have high deductible policies, with or without a Health Savings Account to help out in the years the deductible needs to be paid. I was in one such plan with Anthem Blue Cross. In 2014, the plan was discontinued and the alternative plan they suggested was more than double my former monthly premium. Part of my sticker shock related to new, mandated coverages under the ACA running the gamut from annual physical exams to contraception coverage. One aspect of any meaningful cost control is for the consumer to have “enough skin in the game” to become a wise shopper. Obamacare failed in this key regard. In response to the public outrage at not being able to stay in their plans, the Administration recently relented and has allowed pre–ACA plans to continue to be provided through October 2016. While this sounds flexible, the reality is that the insurance industry has already gone through “communication hell” in modifying policies and explaining changes to policy holders. How this “relief” will be embraced by insurers remains to be seen.
The insurance exchanges will bring about some inefficiencies resulting from any large bureaucracy. For example, the potentially large subsidies available to lower income people in Covered California are not means tested. The subsidy directly relates to your current income level. I know of somebody, whose net worth is millions, but has had recent low income years. Such somebody will qualify for a healthy subsidy.
Other day–to–day elements are becoming clearer. Even if one can keep their current plan, they may not be able to keep their current doctor if they sign up with exchanges such as Covered California. A number of doctors have opted not to accept Covered California. For the public, the same plan means the ability to have the same doctor. This disappointing reality is hard for some to stomach.
Whatever the warts of Obamacare, I root for the bill to have overall positive impact. Nobody should lose their life savings due to an unforeseen illness and it is hard to argue against the expansion of coverage to the previously deemed “uninsurables.” Despite the Republicans’ repeated efforts to repeal ACA, some Republicans have acknowledged that the expansion of dependent coverage to those under age 26 is attractive.
I await with utter fascination as to the actual health costs in the next three years. If the costs come in higher than projected, what next? Will we accept any higher costs as a way of life? Will the law become too cumbersome and/or omnipresent to raise more cries of repeal, either in part or in entirety? Will any perceived defects of Obamacare attempt to be righted by a single payor system? Stay tuned.
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