The Affordable Care Act's fiscal and social impact on American health insurance coverage

Affordable Care Act decreased the number of Americans without health insurance by the millions, which was its primary objective. It used three different mechanisms to achieve this goal -- the expansion of Medicaid, the insurance exchanges, and the extension of coverage to young adults up to age 26. These changes have also helped to stem the growth of health care costs, and have delivered greater health care savings throughout the system, even private insurance customers, than was originally expected. There were some initial costs to the ACA, running from 2014-2019 but after the point the Congressional Budget Office expects the ACA will have a net benefit in terms of its impact on the budget, because of the new taxes it created.

The incoming government is expected to unwind the ACA, as this has been a stated goal of Trump, and of the Republican party. What this means has been studied. There will be a cost associated with this. While some ACA spending will be eliminated, so, too, will the new taxes and other fiscal benefits of the law. Further, the healthier workforce will not be as healthy without care, ultimately harming productivity. Whatever new plan comes in is uncertain, so its fiscal benefits cannot be estimated -- but the loss of benefits given by the ACA starting in 2019 will be $137 billion per year.

The number of uninsured Americans will increase substantially with the repeal of the ACA as well. This is more of a social issue than a fiscal one, but it is interesting that the likely outcomes of ACA repeal will be negative both in human and financial terms. There may be individual beneficiaries, but America as a whole will pay more and get less with repeal. If there were grievous flaws with the ACA, the time to deal with them was before the implementation was done, not after, at the point when the benefits are about to kick in.

Introduction

The American health care system is based on a highly-regulated version of the free market. The providers of health care are medical facilities, of which there are many different types, usually differentiated on the basis of the type of care that they provide. These range from family physicians to emergency wards to long-term care facilities and everything in between. The users are diverse -- most Americans would be considered end users of the system. There are basically four major pay models for health care in America, and these are the focal point of the Affordable Care Act. These are federal government programs such as Medicare and Medicaid; the Veteran's Affairs Department, which runs its own parallel health care system; insurance companies and cash payers. The latter are a small group of those who are uninsured either by economic constraint or by choice. The federal government is a major payer through its programs -- Medicare covers those 65 and older, while Medicaid covers many poor. Private insurance payers are a major part of the health care system. They are paid either by employers or by private individuals, and organize and pay for the provision of medical services to their clients.

The Affordable Care Act was created as a means of shifting the economics of the health care system. The problem is sought to solve was that some forty-five million Americans had no health care insurance, and the majority of these were uninsured because they could not afford insurance. Many employers do not provide insurance, and many people are for whatever reason not working. Decreasing the number of uninsured was always a stated goal of the ACA, and this was accomplished through a couple of different means (Kaiser, 2016).

The ACA's provisions include an increase in Medicaid coverage, extending benefits to many who previously lacked them. This is one of the bigger increases to spending under the ACA. The Congressional Budget Office estimates annual spending to subsidize insurance premiums costs $1.156 trillion over the next ten years. However, this is countered by savings brought on by caps on payments to hospitals ($879 billion) and the hospital payroll tax ($631 billion). Thus, the ACA is saving money over the course of the next ten years. Only in the next couple of years does the ACA actually have a net negative effect on the federal budget (CBO, 2016).

Who is Now Covered by the ACA

The ACA extended coverage to some individuals, primarily through expansion of Medicaid. This expansion included granting coverage to young adults under parental plans, up to the age of 26. Further expansion of coverage was achieved through the provision of subsidies to help people buy insurance. This assistance was aimed at making insurance more affordable, and was coupled with the individual mandate. In the three years that the provisions of the ACA have been in place, 16.4 million Americans have acquired coverage who did not have coverage before. This is about one-third of the total number of uninsured Americans at the time the Act was passed.

These gains have come from three main sources. First, they come from the extension of coverage to young adults under 26 on their parental plans. Second, they come from expansions of Medicaid available, intended to cover the more vulnerable members of American society. And third, these gains come from the number of people buying healthcare on the insurance marketplace exchanges (HHS.gov, 2016).

The Congressional Budget Office (2016) has estimated the costs associated with this increase in coverage. It estimates that over the next ten years, exchange subsidies were going to cost $822 billion, that federal outlays for CHIP and for Medicaid were going to total $824 billion and that a further $11 billion would be saved in the form of a small business tax credit to help small business owners offset the cost associated with providing health insurance for their employees. As noted, there would be reductions in certain revenues with repeal. The CBO also notes that 24 million Americans would no longer be insured, so the basic math on that is that each American removed from the ranks of the uninsured costs $69,041 over the course of ten years. That is $575 per month, not counting the revenue opportunities created by the ACA.

Cons of ACA

There are a couple of issues that people take with the Affordable Care Act. An interesting one is cost. While budget estimates show that the ACA will initially cost money, a lot of that is due to subsidies that will ultimately be reduced over time. The costs associated with starting the ACA basically run from 2014 through 2019, at which the program will make money. So while cost is a reasonable objection in the short run, in the long run it is not a reasonable assumption, according to the best available budget estimates.

The individual mandate is another issue that many have with the ACA. This was upheld by the Supreme Court of the United States. But it remain a contentious issue for a couple of reasons. One, it forces people to buy insurance and applies a penalty when they do not. Under normal course of business in the U.S., people have the right to choose when they enter into a contract with a business, but the individual mandate basically compels people to buy insurance, and in some places there is not much competition. The individual mandate's penalty has not yet been applied, however, which is reducing insurance company revenues. The insurance companies are the main beneficiary of the individual mandate -- consumers are compelled to contribute to their profits, ostensibly for insurance coverage, but that coverage is not great -- high prices for even 60% coverage mean that many Americans cannot afford this option. Only around 4 million uninsured will pay these penalties, as most are exempt (CBO, 2016).

Future of the ACA

Even before the election, the future of the ACA was mixed. The Congressional Budget Office highlighted that it would cost taxpayers through 2019, but then deliver cost savings from that point through 2025. There was also the finding that cost reductions in health care were greater than expected, an unforeseen benefit of the ACA (Lorenzetti, 2016). Furthermore, the Health and Human Services department highlighted the success that the ACA had in taking millions of Americans off of the ranks of the uninsured. That counts as a lot of successes. For the struggles such as the launch of the insurance exchanges, the ACA is generally seen as a success by Americans, and in particular by Americans in possession of actual facts (Newport, 2016).

Insurance companies were struggling with the ACA, however. There had been some high-profile withdrawals from the insurance exchanges, which some insurance companies deemed unprofitable. They were unable to leverage their bargaining power with suppliers, and with their ability to pass long costs to the consumer constrained by law, they saw the exchanges as not offering the ROI they wanted. After decades of simply passing on costs to consumers, the insurance companies were clearly struggling with playing their role in managing health care costs. But right or wrong, their withdrawal was seen as a major blow to the ACA, because the law simply doesn't work without insurance companies (Kodjak, 2016).

At issue here is that people using the exchanges -- often without health care for years -- were sicker than forecast. With very few uninsured paying a penalty, there was no incentive for many healthy people to join the exchanges, which no doubt did not help matters. So the cost structure of the exchanges was poor, and once the insurance companies gathered the data, they responded by leaving. HHS has not yet been able to formulate a response to this, which means that even if Clinton had won she would have had a significant job to do with respect to restructuring the ACA into something that worked better for all stakeholders.

The election of Trump, of course, changes everything with respect to the ACA. He campaigned, as most Republicans do, on repealing the law. He did not campaign with any replacement idea, so nobody really knows what is in store for either the ACA or for the state of health care in American period. Trump's choice for running HHS has a plan to repeal the ACA. The key elements of that plan are outlined in his Empowering Patients First Act. This act would basically kill the ACA (Mole, 2016). The CBO has pegged the cost of repealing the ACA at a $137 billion increase in federal deficits from 2017-2025 (CBO, 2016). In other words, repealing the ACA will cost the American taxpayers money, while denying millions of people health care.

The Trump plan, such as it is, is certainly less costly, but mostly provides benefit to the rich and healthy, at the expense of the poor. The provision stand little chance of making health care affordable to the average working class or poor American. The provision that prevents insurance companies from denying coverage for pre-existing conditions would be scrapped, resulting in many people no longer being able to afford coverage. The Medicaid expansion could also be on the table, putting another 15 million people at risk of losing their health care (Mole, 2016). So the plan as it stands would gut the ACA and replace it with a plan that confers benefits on those who least need it, while returning millions of the ranks of the uninsured. The cost is difficult to estimate without seeing specific details, but the ACA is set to save taxpayers money in a couple of years, and that benefit will be lost under the new scheme.

What this will also do is create a lot more confusion in health care markets. The ACA was a significant stress for health care markets, and it was passed four years prior to the major provisions being activated. That was enough uncertainty for the health care industry. Now that the industry is just getting used to the ACA, there is the possibility that it will be unwound in just a few weeks. Yet, the industry has no idea what parts will be demolished, how, and when. And there is even less certainty with respect to what might be replacing the ACA, if anything. There are proposals, but no coherent action plan. It is likely at this point that the health care industry will be facing a prolonged period of uncertainty, some hastily-written and poorly-conceived laws, and general instability at a point in time when it was starting to stabilize.

The same is true for American business. Human resources departments expend a lot of energy dealing with health care, as it is a major cost driver. They have just become used to the ACA and what it means for the business. Again, change is going to be costly, and burdensome, and if the change is hasty and unclear that will only make matters worse. A decline in health care will also hurt the U.S. economy, as workers in poorer health are less productive. At the end of the day, repealing and replacing the ACA is fine enough if there is something better to which the health care system and American economy are going to transition. But that is simply not the case -- there are vague ideas, nothing rooted in evidence, and ultimately a high likelihood of prolonged uncertainty followed by some bad laws.

Even there was a budgetary case to be made, that might be different. But the ACA is set to have a positive impact on the federal budget. Furthermore, saving money on health care costs allows for Americans to divert that wealth to other things. For the American economy, the impact is uncertain, but money not spend on health care can go into other industries. So there is a potential detriment to the U.S. economy if workers who are able to retain their health care plans end up in a situation where they are spending more out of pocket. More workers are likely to spend more when costs escalate again than are likely to save money.

Conclusions

The ACA has generally been beneficial. There is a case to be made that insurance companies have been the most negatively-affected, as they have taken on more high-cost clients than expected, and fewer low-cost ones. The system was going to need to be restructured in order to strike a better balance between the needs of all stakeholders, without a doubt. But total health care costs were dropping, the ACA was going to turn budget positive in 2019, and millions of Americans received health insurance that otherwise would not have had it. The latter was the biggest objective and the biggest benefit, but the higher level of government intervention allowed for cost constraints on the health care industry as a whole.

That will all change. The election of Trump is going to probably result in the repeal of the ACA, but ultimately this will create a lot of uncertainty. The repeal will come first, but there is little in the way of a plan for replacing the ACA, and what is on the table is weaker, and smaller. Millions will lose their insurance. If there was some positive trade-off for this, that would be something worth discussing, but there does not appear to be a positive budget trade-off at this point. At best we can say that the benefits of a new plan are unknown; at worst what has been proposed will accomplish little. Further, generating more years of uncertainty for players in the health care industry is to nobody's benefit. The coming years will be interesting to watch, as the structure of health care in America undergoes further revolution.