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September 26, 2013 at 10:25 AMComments: 4 Faves: 0

The Affordable Care Act: Brought to You by Big Insurance

By Kyle McCarthy from SLN More Blogs by This Author

The time for speculation is nearing an end; the more controversial and significant aspects of the Affordable Care Act will officially be enacted within just two short months. Our first glance at the Health Insurance Marketplace, a public insurance exchange where Americans can compare plans and make purchases, comes October 1st. Two months later, with the arrival of the New Year, those who purchased insurance plans via the Marketplace will see their policies go into effect.

Although there have been rumblings that partisan politics will lead to Republicans refusing to pass a spending bill to fund the law (a decision that could potentially lead to a government shutdown), huge portions of the ACA, along with Social Security and Medicaid, are subsidized by mandatory funds that, short of the law being repealed, cannot be withheld. No, this does not mean that the Federal Reserve will simply print more money to cover the costs. It means that the bulk of these funds are provided for in the language of the law and any money that isn’t will be supplied by re-purposing the surpluses of other accounts.

Government continues to expand in an unprecedented fashion, but Obamacare hints at more hope than despair. Strap in folks! Some of our leaders in Washington may not know it, but the time for debate is over.

Capital

Regardless of your opinions regarding the new healthcare model, you will almost assuredly be affected in some way or another. That said, it’s important to know what spawned the Affordable Care Act, as well as what the coming changes mean in order to make informed decisions for you and your family.

Employer Healthcare

So, how’d we get here, anyway? When did this system get so muddied up in bureaucracy and politics? Why haven’t we bothered cleaning up the sewage and filth? Like most questions regarding our water treatment plant, err… government, the answers remain largely elusive, but there has been a definitive progression over the past century or so that brought us to this point.

Employee health benefits have been part of the American career model for more than 70 years. During the Second World War, a wage freeze was enacted (for reasons too numerous to expound upon, but use your imagination). Without the ability to offer increased income, it became more difficult for companies to attract top-level talent. They got around this inconvenience by offering health insurance separate from an employee’s salary, thereby rendering these benefits immune from being taxed as income. Conversely, individuals who bought their coverage independent of their employers, did not receive this special tax exemption. As a result, attractive healthcare benefits became one of the principle determining factors in seeking the best possible employment.

This system remains largely in place today, which means that the Affordable Care Act will have less of an impact on the millions of individuals who are satisfied with the health insurance that they are already receiving through their employers. According to renowned health policy analyst Greg Scandlen, “Today, approximately 160 million Americans get their health insurance through their employers. This is in contrast to a mere 10 million who buy their own coverage.” This leaves about 150 million citizens without insurance – until January 1st, that is.

Defined Contributions

After witnessing the emergence of 401ks as replacements for static and defined retirement programs during the 1980s and ‘90s, many businesses began following suit with a similar healthcare paradigm. In the original WWII setup, an employee was stuck with whatever coverage their employer had chosen for the company. However, the defined contribution model (occupationally portable, untaxed salary deferment) upon which 401ks are built altered the perception of how health insurance plans should be determined, as well as how those dollars should be spent.

Caduceus

The new school of thought was that employers should make an annual, non-taxed contribution to the health benefits program of their employee’s choosing in the form of an untaxed salary reduction. This led to the creation of Health Reimbursement Arrangements (HRAs), which are financial allocations for employees to spend only in the event of an actual health care transaction – it’s a form of a use-only insurance agreement between employer and employee. In order to get around HIPAA’s mandate that makes a clear distinction between “group” and “individual” coverage preventing employer contributions to individual policies, the idea of health care exchanges, a sort of circumventive hybrid of the group/individual dichotomy, came into the fold.

Navigating the Exchange

The Obamacare exchanges, collectively known as the Health Insurance Marketplace, are modeled after the “Connector” system established in Massachusetts by former Governor Mitt Romney. In essence, the ACA exchanges specify ten essential benefits (maternity care, emergency services, vision and dental coverage for children, etc.), distribute income-based subsidies to individuals and families in poverty, and refer individuals to the expanded Medicaid program. Individual states reserve the right to set up their own exchanges, but only seventeen have chosen that option.

According to Scandlen, “The primary point of having an exchange is to eliminate the costs associated with commissioned sales.” The odd thing about this statement is that it was somehow meant as a condemnation of the Marketplace, which has eliminated commissions by employing unbiased third-party assistants to help those purchasing plans on the exchange. These individuals will be referred to as “navigators” and have been put in place in order to ensure the viability of the new health insurance landscape. Any questions or concerns a purchaser may have will be handled by a navigator.

These government employees are distinguishable from insurance brokers in that they will be paid a higher base rate, but are disallowed from receiving commission for their work. Their salaries will be paid by the government as opposed to the insurance companies whose policies they are explaining to the public. This should help these navigators remain unbiased as impartial navigators of this new system. Of course, if you choose not to purchase a plan through the Marketplace, you can still do so directly from the private licensed broker of your choice. 

Accountability

Naturally, insurance companies aren’t thrilled with the changes looming on the horizon, but they really have no one to blame but themselves. Their greed necessitated this change, and now they'll have to adapt accordingly. The days of arbitrarily increasing rates are over. The competition for an expansive customer base will become increasingly fierce because it will be played out on a public platform in which the average citizen can easily compare rates and benefits packages. In addition, insurance companies will no longer be allowed to deny someone based on a preexisting condition or drop them when they get sick. Not only that, but 80% of the profits from premiums are now required to be spent directly on health care as opposed to overhead. In short, insurance companies will now be forced to do what they were originally intended to without exception.

Franklin

And now for the most controversial aspect of the Affordable Care Act: the mandate.

All Americans who aren’t fundamentally opposed to insurance as part of their religious faith or eligible for Medicaid are required to purchase health coverage. Those who choose not to are required to pay $95 per adult or 1% of the total household income annually. The reason this provision exists and is such a vital aspect of Obamacare is that in order for affordable health care to exist, insurance companies must have access to a broad customer base.

According to Topher Spiro, the mandate is an essential aspect of Obamacare because “if you don’t have incentives for everyone to sign up for coverage, then only the sick people will enroll, which will drive up premiums.” Under the Affordable Care Act, competition will lead insurance companies to charge significantly less for their premiums, ensuring relatively cheap healthcare for most Americans, while inevitably continuing to enjoy large profits because of the substantial increase in business.

Obviously, forced taxation is always going to be controversial in this country, as the governmental infrastructure continues to expand. When challenged in the Supreme Court, however, the mandate portion of the bill was upheld by a close 5-4 vote. According to Chief Justice Roberts, the decision was reached in accordance with the Congress’s “Taxing and Spending Clause,” which is listed in Article I of the U.S. Constitution. This presents an interesting paradox, as the individuals arguing against this decision are simultaneously arguing against a portion of the very document that they so staunchly defend and revere.

Services Rendered

Keep in mind that there are about 320 million people living in the United States. So if only slightly more than half of Americans have health insurance, who foots the bill when the uncovered need medical assistance? Far too often, the answer is nobody. After care, an invoice is quickly mailed to the patient or the patient’s family and is just as quickly thrown in the trash. It is perhaps this fact alone more than any other variable that explains the exorbitant costs of health insurance. Those who can pay, pay; those who can’t, don’t. The destruction of this system is the central, yet largely ignored, tenet upon which Obamacare has been constructed. When everyone has insurance, everyone gets paid because everyone pays in.

References:

Condon, Stephanie. “Major Obamacare Milestone One Week Away: What to Expect.” CBS Politics. 24 Sept. 2013. Web. 24 Sept. 2013.

Drum, Kevin. "Let's Compromise Over Healthcare!" MotherJones. 25 Sept. 2013. Web. 25 Sept. 2013.

Scandlen, Greg. "Private Health Insurance Exchanges: The Emerging Marketplace." Policy Insights. Nov. 2012. Print.

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4 Comments

  • Currently, though my boyfriend and I both make more money than most of our friends do, a child, a home in a good school district, healthy food for a family, and a car to transport us has left us with so little wiggle room, even if we could eek by making insurance payments, we couldn't afford the copays that would make them useful. So we brush, floss and rinse every morning and night, take supplements, hope that nothing bad happens, and fantasize about the day when we can get professional care for our ailments without worrying how we'll live.

    Though we still, in all likelihood, will only be able to afford the fine for not having health insurance this year, I am eager to see what the rates look one year out from Obamacare. Will the rates truly continue to lower as predicted? Further, how will history regard the policy and its maker? I guess we'll find out...

  • I'm right there with you, unfortunately. The anxiety of the uninsured is likely single-handedly keeping Prozac in the black. I cross my fingers every single day that I don't slip on the ice or get cut-off on the freeway. But that's the risk you take when insurance is so exorbitantly high. These companies have had a noose tied around the necks of hospital administrators for decades, which has resulted in half the country being uninsured. Sometimes as much as 90% of a procedure will be pure profit.

    Medicare is such a vast program that they are able to negotiate for DRASTICALLY cheaper costs for everything from medications to surgeries. These health care institutions absolutely need to work with them in order to survive. It's kind of like Wal-Mart, but instead of slaves in third-world countries being exploited, the insurance companies profits are cut in half. Hopefully, Obamacare can have this kind of impact through the exchanges. The Marketplace is about increasing transparency to raise competition and lower prices. Insurance will probably never be cheap, but hopefully it won't be quite as predatory.

  • "insurance companies will no longer be allowed to deny someone based on a preexisting condition or drop them when they get sick. Not only that, but 80% of the profits from premiums are now required to be spent directly on health care as opposed to overhead."

    I'm all for this. Insurance has always been a necessary evil. They prey on your need to have insane amounts of money to cover accidents. Insurance should give your reassurance that you're covered, not a headache trying to get your coverage. Further more I've always felt that there should be a contribution limit to your insurance. If you pay say $20,000 to this company without making a claim your payments should decrease to 10% of what they were. You get the reduced monthly till you make a claim.

  • I think State Farm does that with their car insurance premiums. At least that's what Pedro Cerrano from Major League told me.

    http://www.youtube.com/watch?v=gndH9mhHPk0

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