Oh, Obamacare, we hardly knew ye.
With Trump’s victory, the Affordable Care Act (aka “Obamacare”) that 22 million Americans know and use today will undoubtedly change. To what exactly? That remains to be seen. But this will impact us all financially, so let’s first recap what we know.
- Trump and congressional Republicans have spent much of the last 6 years flinging feces at Obamacare to stir up voter anger and turnout and have campaigned on a platform that included getting rid of it and replacing it with “something amazing”. Now that they have unchecked legislative, executive, and soon to be judicial control, their voter base is expecting them to follow through on getting rid of it.
- But with 22 million people already enrolled (and yet more still enrolling for 2017) plus expanded Medicaid coverage under the law covering millions more, there is a huge segment of the population that relies on Obamacare for affordable health insurance, who could not get affordable access prior. And those who do rely on it are actually quite pleased with it. In a survey this year, 77% of people with private Obamacare plans and 88% of people on Medicaid said they are either “very” or “somewhat satisfied” with their coverage. That’s extremely high praise for a government program with such a strong negative partisan stigma attached to it. What would satisfaction rates be if both parties positively backed it?
- The non-partisan Congressional Budget Office previously released a report that determined that the impact of REPEALING the Affordable Care Act would ADD $137 billion to the deficit over the next ten years. It also determined that the number of people with health insurance would drop from 90% of the population to 82% (24 million more uninsured if repealed).
- You can still sign up for 2017 plans. And if you don’t have an employer sponsored plan or are covered by Medicare or Medicaid, you should. Obamacare signups have actually skyrocketed since Trump was elected with over 100K signups on Nov. 9th alone. It is doubtful that your plan would be pulled away for you any time before 2018.
- In just the last few days, Trump has already started to backtrack on completely getting rid of the ACA, by saying that he might keep some parts of it – in particular the guaranteed issue (one of 3 essential components of it) and the adult children as add-ons to their parent’s coverage (one of many smaller components).
There’s a fairly tangled web that’s been weaved here that includes many political pitfalls, hundreds of billions of dollars, and many lives at stake.
What Is Obamacare in the First Place?
A while back, I did a massive writeup on how Obamacare was working which included a breakdown on how it actually structurally works. To anticipate what is ahead, you must first understand how it works. So let me recap.
Obamacare is a tax and subsidy program that is meant to fill the gap of providing health insurance coverage for those who do not have employer-sponsored coverage. To make this plan work without a government takeover from private insurers (i.e. single payer), there are 3 necessary components:
- Guaranteed issue and community rating: in order to boost coverage for everyone, nobody can be denied coverage because of their age, gender, health risk, pre-existing conditions, lifetime costs, etc. as was commonly practice prior to the law’s enactment. And you are no longer individually rated for premiums – you are bucketed into an age and geography rating.
- The individual mandate: in order to encourage participation, the ACA individual mandate declares that you must have health insurance or you will be have to pay a tax penalty. The goal of this is to get healthy individuals (who may otherwise elect to skip health insurance) to join the risk pool and help lower premiums for those less healthy (this is at the essence of how insurance works). A second goal in this is to get low-income individuals insured so they are contributing some cost to their health care (versus getting the services, not paying for them, and leaving the tab with all of us in the form of higher costs). Note: the individual mandate was removed as a result of tax reform in 2017.
- Subsidies: in order to encourage participation and help pay for insurance, the ACA offers subsidies for monthly premiums on the health care exchanges for households with income up to 400% of the U.S. poverty line (aka the federal poverty level, or FPL). These subsidies are tied to yearly premium changes as well.
The combination of these three components has been metaphorically compared to a 3-legged stool. Remove one of the legs, and the stool will fall. The individual mandate is not popular, but it’s absolutely necessary. Without a strong individual mandate, healthy people would not join the insurance pool, and premiums would skyrocket. Without subsidies, premiums would remain unaffordable for many. And without guaranteed issue and community ratings, private insurers could drop participants at any time or use discriminatory pricing.
Remove any of these 3, and Obamacare would truly result in a ‘death spiral’. Aside from moving to a single-payer or universal health care system (like all other developed countries), the Affordable Care Act was really the only way to effectively provide affordable insurance to tens of millions of people without it. You can tweak things on the edges, but you need those 3 major components for any private market plan to work. Without them, you have what we had back in 2008, when private plans were all garbage, people were dropped from plans and/or price gouged, lifetime caps existed, and premiums were increasing 10% year over year. Those things are exactly what led to 17% of adults having no health insurance coverage, medical bankruptcies, millions of deaths, and everyone paying more to cover their unpaid bills.
Not Enrolled in Obamacare? You will Still be Impacted
Maybe you have a wonderful employer-sponsored health insurance plan and think that an Obamacare repeal wouldn’t impact you. That couldn’t be further from the truth.
There are a number of components to the ACA that were meant to help keep health care costs in check for everyone else. Here are a few of the big ones:
- Insurers must have a medical loss ratio (percentage or premiums spent on medical care) of 85% of premium dollars for large group plans (over 50 employees) on medical care (non administrative costs and/or profit make up the remainder) must refund the difference to subscribers, through refund checks or discounted future premiums. The limit is 80% for individual or small group plans.
- All plans must cover an annual preventative visit, 17 preventative services for all adults, and additional preventative services for women, for free.
- It raised the age of dependent adult children being able to stay on their parents’ plan from 19 to 26.
The Impact of an Obamacare Repeal for Early Retirees and the Self-Employed
Additionally, Obamacare is a critical component for early retirement and for self-employed individuals. Sure, you could buy insurance on private exchanges before Obamacare, but if your income was low enough, there were not any subsidies to make it affordable. And if you were to run into costly health issues, your insurer could drop you at any time, without reason. This typically meant that you would have to go back to work at an employer with a sponsored plan in order to keep yourself healthy and/or alive without going bankrupt.
I had personally never used Obamacare, but It was a major component of my early retirement and self-employment strategy in the decades to come. Now, that future is not so clear.
What are the Obamacare Replacement Options?
Things are going to get really tricky. As far as I see it, Trump and Congress have the following options:
- Keep the ACA untouched: not gonna happen. Trump and Republicans campaigned on bringing it down.
- Starve it to death before getting rid of it: take away 1 or 2 of the main components and watch the plan fall apart. The danger here is that they would be blamed for making the changes that led to the plan falling apart. And if they left people without insurance, millions would literally die at their hands. That would be the ultimate political suicide.
- Move to single-payer or add a public option to the exchanges: LOL. Sorry, thought some of you could use a little humor these days. Trump has actually praised single-payer in the past (and wisely so). Single-payer freakin’ works (note the 88% satisfaction rating from earlier and successes all across the world), and Trump and Republicans could implement it and take all the credit for how successful it is. But there’s one tiny problem: Republicans have spent the last 8 years telling everyone that government doesn’t work. And this would be a big government plan that would work, just as Medicaid has.
- Completely repeal and replace with something new: with what? There is really no other way to make this private insurance thing work without those 3 main components. Republicans have argued against the individual mandate component, in particular. A private market plan doesn’t work without it. And there are significant dangers involved in trying to build something new from scratch, even if it wasn’t a total disaster. If people end up paying more for worse coverage than what they were with the ACA, this would also result in political suicide.
- Keep all of the main components, slap on some lipstick like HSAs-for-all plans and re-brand the ACA as “Amazing TrumpCare, You’re Gonna Love it, Believe Me”: this would be the easiest, lowest risk, and most politically beneficial option.
My Advice to Trump and Republicans on Obamacare
While I would love to see them implement #3 because it is the most likely to succeed and improve the lives of tens of millions of fellow Americans, #5 seems to be the smartest and most politically savvy move. The ACA is well liked by those who use it and hated by those who don’t for partisan reasons. If Obamacare were to have succeeded in the court of public opinion, it would have been a boon for Democrats. So, why not relentlessly trash it (done), make a few minor cosmetic changes (easy), re-brand it as your own (easy), and then talk up how successful it is? Seems like a no-brainer to me, but I’m not a politician.
What do I actually think they will end up doing? #2.