On the eve of the what is likely one of the most momentous Presidential elections in our nation’s history, we will indulge ourselves one last time with an analytical and editorial look back at “ObamaCare”, or as it correctly named, the Affordable Care Act of 2010 (ACA). In our recently blogs, we opined on the relative impact on healthcare going forward with the election of Secretary Hillary Clinton or Mr. Donald Trump. We took for granted that the ACA will pass into history. In summary, we believe that if Clinton wins, the overhaul of the ACA will be so big that it will be effectively gutted and replaced; however, if Trump wins, he won’t be able to actually “repeal and replace” as he notes, as that would take years to do. By 2018, the financial impact of the current ACA will make it worse than obsolete, it will make it a financial catastrophe. In both cases, the ACA will effectively be dead.
Let us begin with a clear perspective…I should disclose that before I entered healthcare, I had entered insurance, and maybe it was that it served as both my primer for healthcare, as well as the driving desire to make healthcare more efficient. After leaving real estate development and construction, I thought I was going to go into a career in financial services. I have always been fascinated by finance and markets. One of the requirements to enter that industry included a lot of class work, and eventually pass the federal and state examinations. One of those I passed was for my Florida Life, Health, and Variable Annuities license.
The very cool part of that entire experience is that it taught me about mortality, morbidity, actuarial statistics, and lastly, the Law of Large Numbers for a number people – this was like a spiritual experience. With this preamble, I can now tell you that our experience with ObamaCare comes from the aggregation of our knowledge of insurance, and more importantly, the operation of medical centers, medical groups, and claims administration.
Over the last few weeks, we’ve heard not only about headlines dealing with the Presidential election, but also a great deal of what’s going on with the premiums for ObamaCare for 2017. The headlines noted that the premiums paid by Obamacare beneficiaries will increase an average 22% nationwide. This has the potential to cause a significant fraction of those that found insurance through Obamacare, or were forced into other higher cost plans to cancel their health insurance for the sake of cost. Imagine the impact of a 22% reduction in your disposal income. A 22% increase in the cost of health insurance is unprecedented when over the last decade premiums have increased from 6 to 15% each year. In some extreme cases, the premiums are going to go up 100% between 2016 and 2017. All this at the time when beneficiary deductibles are also increasing substantially. I can quote former President Bill Clinton, who famously said,” people are paying twice as much and getting half the coverage.”
The problem is that there is nothing new, nothing that has materially or substantively changed, nor anyone who understands the actuarial foundations of health insurance and behavioral economics can foresee. The issues are actually worse than the most pessimistic predictions going back to 2010.
The ACA was a compromise of strange bedfellows. The progressive promises of President Obama, the unholy alliance of commercial insurance companies, hospitals, big Pharma, and medical equipment device manufacturers. Though supported by the American Medical Association as I recall, I believe that the actual medical providers were shortchanged.
We are on record, via these blogs, announcing the few values that are embodied in the ACA that we hope will survive the “remodeling” of Obamacare. However, we also note that we do not expect the current ACA will survive or be recognized as it is, because it must be highly modified over the next 24 months.
The idea was noble, to expand healthcare to most Americans, by providing subsidies to those that could not afford health premiums, and penalize those that could afford health premiums but chose not to participate. The die was cast, and many realized that the worse of the ACA by design was going to be in 2017, effectively post President Obama’s term. That is when we would see the escalation of premiums, due to losses incurred by the insurance companies. Those predictions turned out to be prophetic as literally a horde of insurance companies announced throughout this year their plans to exit ACA markets. The facts are that the insurance companies have received approximately $5 billion USD in reinsurance payments based on risk corridors that were assumed. The facts are that even with those reinsurance, most commercial for-profit insurers lost money through the ACA.
The original expectations established by the Congressional Budget Office in 2010/2011 was that 24 million Americans would be part of the ACA in 2017. The current projections are that between 12 and 13 million will be served by the ACA in 2017, a substantial revision downward in revenue.
The ACA, in our opinion, correctly forbade insurance companies to both deny coverage and charge people more for being sick. That was the right thing to do – more sick people than healthy people would join. The equalizer was to be that those who chose not to be covered, would pay a penalty or as a Supreme Court called it, in their landmark decision “a tax” for not having healthcare.
We have always pointed to the fact that the ACA did nothing to control cost, or even use technology to advance care of consumers, by placing more information in their hands.
The Mayor Alliance created in 2010 (noted above) helped hospitals, for sure they were Pharma, not so much insurers who understand Actuary better than anyone, and for sure not physician providers.
For a student of healthcare, the next decade will be fascinating as we expect tectonic events will move the entire industry. Many of those events are already set into laws and regulations, such as MACRA that we will talk more about in the near future; however, we also want to address what the Affordable Care Act may look like in 2017/2018, and what could be done to fix, repair, or overhaul the ACA in the next blog.
Noel J. Guillama, Chairman
Mortality Rate – is the rate a large group of people die.
Morbidity Rate – is the rate a large group of people get sick or injured.
Law of large numbers. A statistical axiom that states that the larger the number of exposure units independently exposed to loss, the greater the probability that actual loss experience will equal expected loss experience.
Actuary- a person that uses statistical modeling to calculates insurance and annuity premiums, reserves, etc.