How Affordable is “Affordable Healthcare”?

After the Obama administration announced new delays in the implementation of the Affordable Care Act (ACA), causing small business and Spanish-language health insurance enrollment services to not begin on October 1, the administration was quick to add that the new healthcare “benefits” will still kick in on January 1. But exactly how beneficial are these so-called benefits?

It turns out these benefits may not be viewed as such even – or especially – by those who were supposed to be helped most by Obamacare. One family of four in Kentucky, for instance, received a letter from their insurer saying that the cost of their low-premium, high-deductible insurance plan will almost triple next year. Many more families across the United States will run into the same issue as premiums will rise by double digit percentages in 45 states. For many the healthcare overhaul will force them to get a new healthcare plan even if they like their current plan, despite President Obama’s promise to the contrary. In the words of Mary Taylor, Lieutenant Governor of the Ohio Department of Insurance, “consumers will have fewer choices and pay much higher premiums for their health insurance starting in 2014”. As mentioned above, this phenomenon is not limited to the state of Ohio.

Let’s take the state of Washington as an example. In 1993 it adopted the most extensive healthcare reforms ever enacted by a state, promising near-universal coverage at affordable rates. Sound familiar? The only difference with the ACA is that there was no mandate, causing healthy (younger) people to drop their health insurance and those in need for medical care paying significantly higher premiums. Needless to say, no rise in premiums could possibly keep up with the increased claims and insurers were eventually forced to pull out of the individual insurance market. This turn of events became known as the ’94 “death spiral”.

At first glance one might not expect a repeat of this death spiral scenario on a national scale with the Affordable Care Act. After all, the Supreme Court upheld the individual mandate. But what does its decision on the constitutionality of the mandate as a tax really mean? First of all it means the Internal Revenue Service – besides having access to Americans’ medical records – will effectively be in charge of enforcing Obamacare, administering 47 tax provisions including the mandate. Non-compliers will have to pay the fine, or to use IRS terminology “the shared responsibility” payment when filing a federal income tax return. However, the fine is waived for some, “if coverage is unaffordable, if they spend less than three consecutive months without coverage, or if they qualify for an exemption for several other reasons, including hardship and religious beliefs”. As such, the IRS expects fewer than 2 percent of Americans will have to pay the fine, which would seem like a very optimistic prediction to anyone who has been keeping up with the news.

Over time, as the rate hikes start to hit and coverage becomes unaffordable for many, Americans will basically have two options: apply for an exemption or pay the fine. It remains to be seen how exactly the IRS will define “unaffordable” but what’s even more doubtful (given the puny fines of $95 per adult or 1 percent of taxable family income) is if anyone will even bother to apply for an exemption. True, the penalty is set to go up marginally over the years yet not nearly to the same extent as premiums. And since insurers are legally barred from discriminating against people with pre-existing conditions anyway, why get insured before you need medical care?

This is exactly what happened in Washington state two decades ago as demonstrated by a pregnant woman who bought an individual policy a few months before giving birth, only to drop it right after the insurance company had paid her hospital bill. When she became pregnant again the same scenario unfolded, resulting in a total cost of over $7,000 to the insurer versus $1,807 in premiums. As things stand now, the ACA incentivizes people to use the same or a similar strategy to keep health insurance affordable.

And what if you don’t file a tax return? If your gross income is below a certain threshold you don’t have to, and so many people don’t. What means does the IRS have to enforce the healthcare law on those people? Besides, keeping in mind the 2014 Senate and 2016 presidential elections, who is to say Obamacare will even be around long enough for people to see the fines go up? Given the projected massive rate hikes widespread non-compliance and protests are to be expected.

The technical glitches preventing people from signing up for Obamacare online have still not been resolved (as this CNN reporter found) and might very well cause further delays. Nonetheless, what the IT people working for the administration apparently have been able to do, is quietly delete any reference to “free health care” from the website. Probably a smart move..