Affordable Care Act

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.

Pros of the ACA

The Affordable Care Act was created with two main objectives. The first was to reduce the number of uninsured Americans. This was the central focus of the Act. Most developed nations provide health care for their citizens, as a human right. But there is also an economic case for this as well -- healthy workers are more productive workers, and access to health care is one of the corollaries with good health. It is economically silly that seniors -- unlikely to contribute positively to the economy -- get near limitless health care coverage regardless of financial need, while workers get nothing. So there are a couple of compelling arguments for increasing the amount of Americans with health insurance. In many nations, the insurance system is not used, but rather health care is nationalized. This was not political possible, so the ACA was adapted to fit within the current system.

The ACA has been successful at reducing the number of uninsured Americans. There are a variety of figures out there, but the Congressional Budget Office (2016) estimates that the repeal of the ACA would put 24 million Americans back among the ranks of the uninsured. The ACA has resulted in tremendous successes at improving access to health care for Americans. This was the main objective and it was successful.

There were other objectives as well. One was to curb the rapid growth of costs in health care. The federal government, through the ACA capped some spending in an effort to lower the overall cost of providing health care. Versus original projections, the ACA is saving Americans an additional $2.6 trillion on health care over five years. Health care spending spiked in 2014, the first year of full provisions, but through 2019 is going to result in massive cost savings in health care, and the declines will affect private insurance care as well as federally-paid care. By slowing the growth of costs, the ACA will also cost less, as estimates of how much it will cost in the first five years have also fallen (Lorenzetti, 2016). It is interesting to think about why this savings is occurring, and it ties into the need for government intervention in the health care market.

The health care market is not a free market, and not just because of the role government plays as regulator and payer. An individual consumer does not know when they will need to buy health care. Further, they usually lack basic information about health care -- if doctors go to school for years to learn this information, how can consumers match that knowledge? So when people need to consume health care, they enter the system knowing pretty much nothing about what treatment of ailments cost, what equipment costs and what drugs cost. But they need help, often immediately, and are willing to pay whatever it takes to get better. The health care industry exploits the information asymmetry and the high desire on the part of the consumer to charge high prices. In an economic sense, health care is a difficult industry in which to be a consumer. Insurance companies have proven unable or unwilling to bargain costs down, and only government has been able to do so successfully over the long run, by the force of law usually. So the ACA represents increased government intervention in the market for health care, and not surprisingly the result is that health care costs are lowered for everybody.

So there are benefits both in terms of fiscal benefits to the U.S. taxpayer, to private insurance customers, and to the millions of uninsured who have now become insured as the result of the ACA. There are further cost savings in the 2019-2015 period as well, according to the Congressional Budget Office (2016).

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.