Pros and Cons

09-25-2014

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Obamacare Pros and Cons

Obamacare is another name for the Patient Protection and Affordable Care Act (PPACA) that was signed into law on March 23, 2010. This law is also commonly known as ACA.

The ACA requires individual and small group plans to include categories of coverage called the Essential Health Benefits. Insurance companies may not reject applicants based on medical status, and premium costs may only vary based on age, location, smoking status, and number of people covered by a plan. However the new regulations in the ACA may lead to increased costs for some consumers, state governments, and the federal government. The following is a non-exhaustive list of pros and cons of the ACA.

ProsCons
Insurance companies are required to issue a health plan to any applicant, regardless of the applicant’s health status or other factors.Underlying behavioral issues contributing to healthcare expenses (e.g. obesity, diet, lack of exercise) besides tobacco smoking are not addressed by the ACA, and positive behaviors are not incentivized with subsidies.
Creates new type of private non-profit health insurer called “co-ops” that offers more affordable, higher quality, and more consumer-friendly health insurance plans.The federal government has spent over $2 billion dollars to fund 23 co-ops.1
For qualifying individuals, subsidies can lower premiums and out-of-pocket costs.Subsidies do not address the underlying cost of healthcare and risk further healthcare spending and deficit increases.
All individual health insurance plans must now have annual caps on out-of-pocket costs for covered services. In the pre-reform market, 4% of plans lacked these caps.2Increased use of narrower networks by insurers. Patients will incur greater out-of-pocket costs if they seek treatment out of their network.
Preventive care services such as screenings do not have out-of-pocket costs.Essential health benefits requirements reduce ability of insurers to offer lower-cost health plans with narrower benefits.
Medicaid expands to cover individuals with incomes up to 138% of the federal poverty level.Not every state is expanding Medicaid in 2014, and the Medicaid expansion uses state and federal funding.
The Children’s Health Insurance Program (CHIP) expands to cover millions more children, including coverage of legal immigrants.CHIP expansion also requires federal and state funding, including increased taxes on tobacco products.
Citizens and legal residents without health insurance will be able to obtain coverage in 2014. In particular young adults under age 26 will be able to stay on their parents’ plans.The implementation of Obamacare and the increasing number of primary care doctor visits could lead to primary care doctor shortages.
Premiums may vary by at most a 3:1 ratio for adults age 21-64 and at most a 1.5:1 ratio for smokers versus non-smokers.Since premiums could vary by up to a 5:1 ratio for adults age 21-64 in the pre-reform market, in 2014 older adults will pay premiums that do not cover their healthcare expenses and young adults will pay premiums that cover more than their healthcare expenses.3
All companies that employ 50 or more full-time equivalent employees (FTEs) will be required to provide qualifying health benefits to their full-time workers by 2016. Employers with fewer than 25 FTEs will qualify for tax credits if they cover at least 50% of full-time employees’ premium costs and their full-time employees make an average of $50,000 or less a year.4Employers with at least 50 FTEs will pay penalties if they do not provide affordable coverage, supposing that any of their employees receives a premium subsidy for marketplace coverage. This mandate has been delayed until 2015 for employers with at least 100 FTEs and until 2016 for employers with 50-99 FTEs.5
Group health plans that were created or individual health insurance policies that were purchased on or before March 23, 2010 (grandfathered plans) are exempt from many changes required under ACA.Individuals who do not enroll in health insurance will have to pay a penalty in 2014.
Legislation highlighted public importance of acquiring health insurance coverage.The online federal individual and family health insurance marketplace experienced technical issues for months after the website was first released. The release of the online federal small business health insurance marketplace was delayed until November 2014.
Obamacare made improvements to Medicare, including eliminating the drug plan coverage gap over time (as well as giving beneficiaries a discount on brand drugs during the coverage gap in the years before it is fully eliminated) and offering more preventive services for less money.Hundreds of billions of dollars were cut from Medicare to fund the implementation of Obamacare.
All Obamacare individual and small group market plans must include prescription drug coverage. Nearly 20% of individual market plans lacked prescription drug coverage before Obamacare was implemented.Obamacare plans only cover the drugs on their formularies, and are only required to cover as many drugs in each category as their benchmark plan. Out-of-pocket limits for individual plans are allowed to exceed $6,000, so even if a drug is on the plan's formulary, an individual enrollee may still have to pay over $6,000 for that drug.
Health insurance companies that spend less than 80% of premium revenues on medical care and efforts to improve quality of care must provide rebates to enrollees equal to the amount by which the premium revenue exceeded the limit.The federal government spent over $400 million for four underperforming state-based Obamacare exchanges in Massachusetts, Oregon, Nevada, and Maryland.

Recent Court Rulings on Obamacare

The differing views, either for or against Obamacare, were recently highlighted in separate court rulings. On July 22, 2014, two separate federal appeals courts determined the legality of Obamacare subsidies. In one court ruling, the subsidies were viewed as illegal if provided by the federal health insurance exchange versus a state exchange. A second federal appeals court argued that the subsidies provided by the federal exchange are legal.

Sources:

1 http://www.cms.gov/CCIIO/Resources/Grants/new-loan-program.html
2 /healthcare-research/infostat/2014-obamacare-deductible-out-of-pocket-costs
3 http://kff.org/health-reform/perspective/the-numbers-behind-young-invincibles-and-the-affordable-care-act/
4 https://www.healthcare.gov/will-i-qualify-for-small-business-health-care-tax-credits/
5 /obamacare/employer-mandate-for-health-insurance



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