• Market Commentary

Obamacare: The Good, The Bad, And The Ugly

April 3, 2014 | Holly Johnson

On March 23, 2010, the Patient Protection and Affordable Care Act, also known as Obamacare, established a new set of rules and mandates that would change the way the American health insurance market works. Prior to the law’s passing, a record 46 million Americans were without health insurance and, in many cases, completely shut out of the system due to a pre-existing condition or the growing costs of care.

Since then, the new healthcare law has been implemented in stages. And, if the current numbers are correct, as many as 7 million people signed up for a new plan through either a state exchange or the federal insurance marketplace during the first open enrollment period that ended on March 31, 2014.  Most people would call that a success. However, not everyone is celebrating….yet.

The Good

Before we dig too deep, let’s talk about the many positive changes that were the direct result of the new healthcare law. First, the PPACA barred health insurance companies from discriminating against people with pre-existing conditions, which is one of the main reasons why so many had been previously uninsured.  Second, the PPACA required insurance companies to cover all applicants and offer the same rates regardless of pre-existing conditions or sex, which meant that women and those requiring more care could no longer be charged more for the same coverage.

As if that wasn’t enough, Obamacare also removed lifetime caps from policies and made it impossible for health insurance providers to drop costly patients who were unfortunate enough to get sick.  And finally, the new healthcare law required that all plans offer ten essential benefits to policyholders nationwide, a move that aimed to cut down on the so-called “junk plans” that offered only minimal coverage.

Of course, architects of the new healthcare law knew that these changes would be expensive, so they created several tiers of subsidies to help low-income families afford coverage. The new subsidies would be available for families making up to 400 percent of the federal poverty limit, which is around $45,960 for an individual and $94,200 for a family of four. The subsidies were designed so that the less you make, the more help you receive. Likewise, the subsidy shrinks as you climb the income scale. The following table shows the average subsidy for a family of four living in Los Angeles:

obamacare table 1.jpg

*The Henry J. Kaiser Family Foundation, PPACA Subsidy Calculator

The PPACA also included a provision that allowed families making up to 133 percent of federal poverty guidelines ($14,484 for an individual and $29,726 for a family of four in 2011) access to their state’s Medicaid program, which means that all families making up to 400 percent of the federal poverty limit would receive some level of assistance with the costs of their care. (Note: Certain states chose not to expand Medicaid for their own reasons) But what about the rest of us?

The Bad

Expanding coverage to the uninsured and providing subsidies to working families is an excellent idea. However, certain segments of the population are benefitting far more than others. Part of the problem with the new healthcare law is that the price for a new policy varies drastically by region, likely due to the overall health of local residents and the number of health insurance providers choosing to participate in a state’s exchange.

To illustrate this, the following table offers a glimpse at several notable states and the least expensive bronze and silver plans available through an exchange for a family of four with two 35-year-old adults and two dependents:

obamacare table 2 neww

Let’s take Eagle County, Colorado and compare it to Anchorage, Alaska for a moment. According to Census.gov, the median annual income for citizens in Eagle County was $71,030 from 2008 to 2012, compared to $76,495 for residents of Anchorage Municipality in Alaska. However, the cost of the cheapest bronze plan on the exchange is nearly 300 percent more in Eagle County, Colorado. Does that sound fair? Most people, especially those living in Eagle County, would say no. And that’s one of the main problems with Obamacare. For everyone who comes out ahead, someone else falls through the cracks. Furthermore, citizens in certain regions are being penalized and asked to pay dramatically more than their neighbors across state lines.

The other problem is the fact the PPACA raised the costs of health insurance coverage overall. According to a 49 state analysis by Forbes and the Manhattan Institute, Obamacare increased the underlying costs of health insurance by 41 percent on average across all states. Some states, like New Mexico, Arkansas, and Vermont, watched as their premiums rose more than 100 percent over pre-ACA costs.  On the other hand, premiums were supposed to drop in some states including Indiana, Colorado, and Ohio. Sounds good, right?

Not so fast. I happen to live in Indiana, one of the states where the average premium supposedly went down.  I’m sad to report that the savings haven’t materialized as I had hoped. In fact, my family’s health insurance costs are expected to double later this year if my current plan expires and I buy a new plan on the exchange. The following table shows my costs prior to the ACA, and the cheapest bronze and silver plans currently available to my family of four with two 34-year-old adults and two kids:

obamacare table 3 new
So, what does this mean for my family?  As you can see, the least expensive plan available on the exchange is almost exactly 100 percent more than what we’re currently paying, and with a higher deductible as well.  We earn enough that spending an extra $400 per month certainly wouldn’t break us, but we don’t earn enough for it not to hurt.

And since the new healthcare law requires individuals to purchase approved coverage or pay a penalty, we are required to buy coverage no matter how much it hurts our bottom line  In 2014, the penalty only amounts to $95 or 1 percent of household income, whichever is greater. However, by 2016, the penalty climbs to $695 per adult or 2.5 percent of household income. Ouch.

The Ugly

In many cases, plans are prohibitively expensive for those who earn too much to receive a subsidy. In order for the Obamacare exchanges to work, they need the young and healthy (and the wealthy and healthy) to pay more for healthcare in order to subsidize the sick and old.  Unfortunately, many families may choose to forgo coverage, seek out alternatives, or get creative with their earnings instead of forking over such a high percentage of their income.  And, it’s easy to see why.

For example, the cheapest bronze plan on the exchange in central Indiana now costs almost $9,400, yet covers only preventative care until a $12,000 family deductible is met. This means that a family like mine has to spend well over $20,000 before real coverage kicks in. And while certain families who make well over 400 percent of the federal poverty limit might manage just fine, a family making $95,000 annually might think twice before buying a plan that requires them to spend 20 percent of their income before gaining meaningful coverage.  In fact, it would be far cheaper for many families in that income bracket to pay the penalty and go without.

Of course, several proposed fixes have recently been suggested to provide relief for people who find all of their choices unaffordable.  Among the ideas being batted around is the prospect of a new level coverage, known as “copper.” According to Kaiser Health News, copper plans would be similar to other health insurance plans offered on the exchanges, except that they would have lower premiums and higher out-of-pocket costs.  In addition, other lawmakers have suggested allowing insurers to sell across state lines in order to beef up competition and give consumers more options.

It’s possible that those changes could work. After all, those finding the bronze plans out of reach might appreciate a less expensive tier of coverage to choose from.  And since competition tends to bring down costs overall, allowing insurers to sell across state lines might help those trapped in areas where the underlying costs are high.  Right now, it’s too early to tell.

Obamacare: Still A Work In Progress

High premiums and unfair regional pricing are just a few of the problems that continue to plague Obamacare as the first open enrollment period comes to an end. What happens next will depend entirely on lawmakers as they continue to consider fixes that will improve the law’s functionality in states and regions where it’s struggling.

It shouldn’t surprise anyone that the PPACA is working better for some than for others, or that the rollout has been plagued with problems and controversies. The fact that 46 million American citizens were uninsured in 2010 goes to show what a huge problem we had, and that something drastic needed to be done.

But, will the average family end up saving $2,500 per year as President Obama repeatedly promised? Will rising costs curb dramatically as more people gain coverage and receive preventative care? As it currently stands, the jury is still out there. Health related expenses is the number one cause for bankruptcy in America. Let’s hope the PPACA continues to improve for the good of our country.

What are your thoughts on Obamacare? Have you been helped or hurt by the new law? What are your thoughts about being less tethered to your job now that you can find potentially cheaper healthcare alternatives?

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Sources:

  • “49-State Analysis: Obamacare To Increase Individual-Market Premiums By Average Of 41%,” Forbes.com, November 4, 2013, Avik Roy.
  • Connect for Health Colorado
  • “’Copper’ Plans? A Push For New, Lower-Premium Coverage,” Kaiser Health News, February 14, 2014,
  • Covered California
  • “Examiner Editorial: Dems’ Obamacare ‘fixes’ are just Washington wink-winks,” Washington Examiner, March 31, 2014,
  • United States Census Bureau

Photo Credit: By LaDawna Howard via Flickr and Creative Commons.

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