ObamaCare Update

How is the Affordable Care Act Doing?

ObamaCare Update
June 20, 2014

Now that first-year signups are over, how is the Affordable Care Act (ACA) doing? If you take the polls into account, ObamaCare is not perceived to be doing well at all. More importantly, from the standpoint of insuring more Americans, more fairly, we can only draw preliminary conclusions, which seem to be mixed so far.

The recent AP poll has ObamaCare support at 28%, with only 17% strongly supporting the law. Compare this to 32% who strongly oppose the law – a higher number than when the exchanges opened. Kaiser Family Foundation polls show similar trends.

On the positive side, the enrollment process recovered from the abysmal rollout to sign up over 8 million people on the combined exchanges. Assuming some loss through unpaid premiums, the 6-7 million goal for total signups is in play.

Around 28% of the signups are between 18-34 years old, which is below the target but arguably not catastrophic. Arguable is the key word, as you can find a plethora of opinions on how much this demographic mix really will cause premiums to increase.

Keep in mind that the ACA has short-term compensation mechanisms for the insurance companies that should keep prices from spiking, so the real issue probably has less to do with spiking premiums than it does tallying the real cost (without governmental accounting chicanery). Guess where that compensation money is ultimately coming from?

On the negative side, the failure of some states to expand Medicaid has really undercut the argument of improved coverage. While blame goes back and forth, low-income people in these states that make too much to qualify for current Medicaid benefits are really stuck.

Jed Graham of Investor's Business Daily refers to the "Bronze Trap" – where lower income homeowners are selecting cheaper bronze plans with higher deductibles that leave them heavily underinsured – potentially spending up to 40% of their income on medical costs (more than 10% is considered to be uninsured, 5% for those earning less than 200% of the poverty level).

Silver plans with lower deductibles can surpass that point with premiums alone, even with cost-sharing subsidies. Still, that's better than having no insurance at all, which was the main point of ObamaCare in the first place.

From the perspective of health insurers, results are mixed. In early May, Cigna (NYSE: CI) reported higher than expected usage of medical services among the early enrollees, resulting in a loss – but not enough to offset gains in employer-based services and Medicare services. Wellpoint (NYSE: WLP) and Aetna (NYSE: AET) reported lighter visits and fewer concerns.

It remains to be seen if there are enough doctors and choices to handle the expected influx of care; realistically, this will not be known until next year.

Now comes the fun part – the employer mandate for the coming year. Over half of Americans get their insurance through employer-based plans, and assuming no more delays, 2015 will paint the real picture of ObamaCare's likely success or failure.

Unions are waking up to the fact that they really are going to be held to these standards, and are fighting for exclusions. Businesses are threatening to dump coverage due to affordability issues. It seems likely that even more people will be thrown into the individual state or federal exchanges –probably unable to receive coverage on the level they had with their companies or pay increases to make up the difference.

In short, despite breathless pundits on both sides, it is way too early to gauge the success of ObamaCare. The real things to watch for as the year progresses are

  • How is the Medicaid Gap dealt with in non-expansion states, and what is the total number left uninsured?
  • How much do insurance premiums adjust for the next year (and how much was blunted by government subsidies)?
  • What are the assessments on the true first-year cost of ObamaCare? (Expect about a dozen widely varying numbers.)
  • What are the total numbers on medical usage for the first year of coverage, do they fit the demographic assumptions, and is America's health measurably improved?

Meanwhile, hunker down and prepare for a hurricane of statistics on all sides as the midterm elections draw closer, and let's see what early 2015 tells us about the likely fate of ObamaCare.

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