The Affordable Care Act (ACA) is the signature healthcare policy from the Obama administration, yet it seems that much of the voting public is still unsure of what the plan actually entails. A large part of the problem is that the ACA addresses issues as diverse as funding for health information technology to controlling prescription costs. Fundamentally, the way that the ACA will impact voters most are in the provisions designed to contain healthcare costs for national and household budgets.
Healthcare spending in the U.S. stands at 17.9% of GDP. The rate of spending has increased over the decades, driven by rising prescription drug costs, a rise of chronic diseases and administrative costs that are higher than most western nations due to the fragmented payment and delivery system in the United States.
The ACA is designed to tackle healthcare costs on two levels:
1) By streamlining systems and containing costs at a national level and
2) By protecting households from escalating costs by expanding insurance coverage and ensuring insurance policies are comprehensive and fairly priced
A National Approach
The ACA tackles healthcare costs at a national level by regulating prescription costs, aggressively pursuing medical fraud and seeking avenues to cut administrative costs and payments while expanding insurance coverage. For example, discussion that the Obama administration will cut Medicare by $716 billion is only partially true, because those cuts are primarily aimed at reducing the reimbursement rates to hospitals and private insurers.
Protecting Households from Medical Debt
The most contested component of the Affordable Care Act is the individual mandate, a law that requires all residents of the United States to have health insurance, with some exemptions for financial hardship. The logic behind mandating insurance is that in a nation where the median income is $50,054, having no insurance or having incomplete insurance coverage (underinsurance) means that every illness is financially ruinous and as such, it is in the public interest to require everyone to have insurance. However, health insurance is not only expensive, but insurers can also choose to exclude certain groups, such as those with pre-existing conditions. In order to overcome these challenges, the ACA’s provisions include expanding Medicaid coverage to low income adults, creating state insurance exchanges where uninsured adults can find competitive health insurance rates, allowing young adults to stay on their parents insurance, mandating larger employers provide employees with coverage, barring insurance companies from excluding people who have pre-existing conditions and eliminating lifetime spending limits on insurance so that people with illnesses such as cancer are not forced to pay for their own treatment.
The state Health Insurance exchanges are an important element of the ACA’s plan to control insurance costs for individuals. Once the exchanges are implemented, individuals will be able to log into a statewide website where they will see the prices for several different insurance plans and will be able buy into a plan collectively with others in their state. This pooling and price transparency forces down prices and channels insurance plans through a state mechanism that will ensure important services such as mammograms, screenings for cervical cancer and prenatal care are covered at no cost.
The Cost of Uninsurance
The Romney/Ryan ticket has offered an alternative vision in controlling healthcare costs by proposing to not only repeal the ACA, but to also cut Medicaid by a third over 10 years, in addition to implementing fundamental changes to the structure of Medicare. This approach will not only be devastating to a sizable portion of the population, (Medicaid currently provides insurance coverage to 20% of the nation’s children), but it also does not address the economic impact of the uninsured and underinsured.
Critics of the ACA, such as Governor Romney, have stated that the uninsured can find healthcare by going to emergency rooms and safety net providers. A problem with this is that when uninsured individuals do seek care, it results in household medical debt and uncompensated care. The uncompensated care is then paid for in part by the federal government, such that taxpayers are faced with reimbursing emergency room care at rates far higher than if the patients had gone to primary care providers. Uncompensated care is also paid for by hospitals and safety net providers many of whom are facing financial hardship, such that they need to cut costs and/or increase their prices. Consequently, repealing the individual mandate and cutting Medicaid will decrease immediate government outlays towards insuring individuals, but it will increase the tax payer burden for uncompensated emergency room use and healthcare payments will be higher as people without insurance tend to delay care such that when they do seek care it is much more expensive to treat. It is important to note that uncompensated care is not a matter of individuals not wanting to take responsibility for their bills; households that do try to pay for their out of pocket healthcare costs are left in financial ruin. In 2007, 62.1% of bankruptcies were due to illness or the burden of medical bills. This debt burden is also experienced by millions of underinsured individuals, 60% of people that have medical debt had health insurance at the time that the debt occurred.
Another reason that insurance coverage is important to household budgets is that the majority of healthcare spending is due to chronic disease. Currently, 75% of the $2 trillion spent annually on healthcare goes towards chronic diseases such as heart disease, stroke, cancer and diabetes. Diseases such as diabetes can only be treated if the patient can afford multiple provider visits and monthly prescription costs, which for most households can only be achieved through comprehensive health insurance coverage. While many safety net providers do attempt to provide free or low cost treatment for chronic diseases, cuts to government health insurance will mean safety net providers will be overwhelmed with finding ways to serve an increasing number of patients who cannot afford to pay. The Obama administration has been progressive in working towards addressing chronic diseases. In addition to the ACA’s provisions to mandate coverage for preventative health services, the administration has launched programs such as the First Lady’s ‘Let’s Move’ initiative that seeks to address childhood obesity and create healthy communities. As obesity accounts for $147 billion in healthcare spending, the focus on developing healthy communities is critical to the nation’s health and wealth.
The November Decision and Other Challenges to the ACA
If the President is reelected, the ACA will increase the number of privately and publicly insured, protecting many households and institutions from medical debt. It is projected that the ACA will reduce the number of uninsured nonelderly adults by 27.8 million and cut the cost of uncompensated care by 61 percent. However, these figures will only be realized if the states decide to implement the ACA.
While healthcare advocates had desired a public option for universal coverage, even the limited expansion under the ACA has been contested by some states. While the majority of insurance expansion will be federally reimbursed, states will be responsible for administrative costs of reform and potentially the costs of securing and training additional healthcare personnel. Several states challenged the constitutionality of the ACA, resulting in a Supreme Court ruling that upheld the ACA but removed the penalty for compliance. The ruling allows states to decide whether they will implement the ACA, leaving a great deal of uncertainty on what healthcare reform will look like across the nation.
Even healthcare advocates supportive of reform have criticized the ACA on two fronts: coverage and access. The structure of the ACA relies heavily on expansion of private health insurance coverage which will undoubtedly be advantageous to insurance companies, but it is still uncertain if the public will see favorable insurance rates and coverage. Furthermore, having health insurance is not the same thing as having better access to healthcare. Governor Romney instituted healthcare reform in Massachusetts that has resulted in high insurance coverage rates, but not necessarily better access to healthcare as reforms have resulted in more people seeking care, leading to longer wait times.
Given these challenges, only time will tell how much the ACA will increase insurance coverage and whether the increase will translate into improvements in health outcomes and access to care. There are some promising signs even at this stage of reform with a study showing three states that have expanded Medicaid coverage have seen reduced mortality, improved access to care and improved self-reported health.
The ACA holds much promise, but the administration is facing an uphill battle towards nationwide implementation. A second term for the President will protect the ACA, but it is just one of many hurdles that the Obama administration faces in realizing the ACA’s goal of containing healthcare costs and making healthcare affordable and accessible.
Khadija Gurnah is a specialist on Medicaid Retention and Enrollment. She is the CEO and Founder of Zanoora Health Tech Solutions.