How does the repeal of Obamacare affect consumers and the health insurance industry?

As the congress prepares to repeal Obamacare, millions of Americans on both sides of the argument wonder how this will affect their taxes, their access to quality care and ultimately their yearly income based on the policy changes proposed. The following article analyses some of the policy implications proposed by both senators during their February 7, 2017 debate. All proposals have marked winners and losers that will be determined by an array of variables. Ultimately, the fate of the losing group will reflect the views embraced by congress related to the value of good heath to the overall economy, based on productivity outcomes per demographic segment. Below is a brief explanation of the implications of each proposal.

Current Plan- Obamacare:

Among the criticisms brought up during the debate were: health insurance premiums mandates, tax implications, expansion of Medicaid, price increases for healthy patients and prohibition for insurance companies to practice price differentiation attributed to preexisting conditions.

Premium homogenization: Premium increases for some patients results from healthier people subsidizing the cost of care for relatively unhealthier consumers. While this may seem unfair, the same concept is currently used to fund the social security system, taxing wages of working people help support the income transferred to retirees. In theory, considering that overall worker’s health declines with aging, the system may seem unfair during earlier years but it balances out as aging progresses and older people receive the benefits of lower premiums that are affordable throughout the lifetime.

Expansion of Medicaid: Obama’s administration expanded Medicaid’s reach to allow more children of low wage earners to receive subsidized health coverage. The main questions for the justification for this expansion are:

·     How does the government value good health of the non-producing segments of the population (children and retirees mostly)?

·     How does bad health on those demographic groups affect the overall productivity of working family members who take care of the sick? I.e. GDP losses.

·     Should the government place more value on productivity lost or human lives lost if the alternative was not to offer health care to that demographic?

·     Are there more efficient options that would facilitate access to care for that demographic at a price that they could afford?

These are very difficult questions that lead to a complex array of possible remediation policies. Should human life be valued more than current or future productivity capability? If so, should access to healthcare be a human right? In terms of remediation policies, a cost comparison between increasing bureaucracy and direct care is worth exploring.

Most specifically, an evaluation is needed to compare the cost of setting up controls to measure the effectiveness and quality of care of Medicaid in contrast to the cost of directly hiring physicians basing their compensation structure on health outcomes instead of number of visits.

Mandated insurance premiums and tax penalties: Under the current plan, failure to have a health insurance policy can result on tax penalties that will not exceed the yearly premium for the national average price of a Bronze plan sold in the marketplace ($2000 dollars). The main driver behind this requirement is precisely to increase the overall average revenue for insurance companies, while at the same time creating a cheaper alternative for healthier individuals to partially subsidize insurance payments for those who need care. Unfortunately, the obesity epidemic and high percentage of aging population present in the US, increases the probability that a large portion of insured people are unhealthy, thus increasing overall insurance premiums. This mandate, would have been more effective in lowering insurance premiums if the majority of the population were healthy. The other objective of this mandate is to indirectly lower the cost of Medicare emergency payments. Often times, uninsured patients end up in the emergency room to treat acute health consequences of the long-term lack of care, which may add to the cost of public care once the hospital determines that payment can’t be collected from individuals.

Republican view on elements to repeal

Price discrimination: According to senator’s Cruz, insurance companies should be able to exercise price discrimination to favor clients with healthier habits and impose limits on existing customers for the payouts on medical care. This makes plenty of sense while an individual is healthy, but a brief economic analysis of this proposal shows different long-term outcomes:

·     Sick consumers will leave the insurance market because preexisting or new conditions would make it prohibitively expensive to continue paying for insurance. Thus defeating the purpose of having health insurance in the first place.

·     In this scenario, insurance companies benefit the most, because the big majority of their customer pool is healthy (resulting on minimal payouts). While they can also, extract important consumer surplus from unhealthy individuals who would be willing to pay much higher premiums further diminishing the cost of uncertainty risks for the insurance company.

Unless an individual has a zero probability of getting severely sick during his/her lifetime, this is not an ideal outcome for consumers.

Medicaid replacement: The vision transcribed by Sen. Cruz is that ‘Medicare is failing because 700 people on Medicaid died waiting to receive care’. What we don’t know about these figures is the mortality ratios of patients in Medicaid compared to those ratios for private insurance and the uninsured. It would be very enlightening to compare these figures to make an informed assessment about the effectiveness of the current system. Even if the ratios were low and losing 700 lives was not an acceptable number, this would imply that ‘access’ to healthcare should be available to all. When debating on this subject, the proposed solution was to eliminate Medicaid and replace it with some form of private insurance that could yield better results. For this to be an effective replacement, the cost of private insurance should be no higher than the current cost of subsidized Medicaid. In addition the price should also be affordable for retirees or minimum wage earners while providing the same quality of care. For example, for people making less than 24k of income, a $450 dollar a year policy per member[1] would be affordable. However, an elderly person would not get the benefits of this premium if the Republican Party also repeals the preexisting conditions exemption. In this case an elderly person with higher probability of bad health could not afford health insurance at any ‘fair’ market price. Clearly the term ‘access to care’ is being used to describe ‘availability of care’ which is a necessary but not sufficient condition to acquire the service.

The more likely long term outcome of such a policy may be increasing the number of uninsured people and death numbers to match the current mortality rate of uninsured patients. It is impossible to quantify the gains/losses to society without having concrete numbers to compare.

Mandate elimination and access to care: Senator Cruz made it clear that he would repeal the health insurance premiums mandate, but also remarked that the new policy can not guarantee healthcare to those who need it the most. At best, he continued to use the term ‘access to care’ (explained as ‘availability of care’) as a better alternative to the current system. In this case, access is referred to as something that is available to those who can afford to pay for it.

Democrat’s view of the policy:

Senator Sanders on the other hand, continued to defend Obamacare and Medicaid as having their limitations but portraying them as an overall improvement by citing the 20 million people who have gained access to care due to the plan’s reforms. The important question in this regard, would be to quantify the overall cost of increasing access to insurance vs. the overall cost of alternative ways to provide care. This is to say, if the overall cost to consumers is the yearly premium plus the government administrative costs projected to be 1.36 trillion over the course of 10 years, then, we have an approximate combined cost to tax payers of USD12,000 dollars a year per person (combining the 10,000 a year calculation to for the government to coordinate the access to the marketplace and subsidies, plus the cost of the average bronze annual premium cited earlier). Again, are there better ways to spend 1.3 billion dollars to increase access and quality of care at a lower overall price?

 

After careful analysis of both sides of the argument it becomes increasingly clear, that the biggest disagreement between the two parties lies on their valuation of good health. On one end our health system is viewed as purely economic function with clear financial payoffs while at the other extreme, those who view access to care as a human right, lack the expertise to propose an efficient way to provide for this right, preferring to leave things as they are. What this means for the consumers is that if Obamacare is not repealed, Americans will continue to pay exorbitant sums of money access a below average quality of care (Approximately 12k a year per person for a bronze plan). In the other hand, if republicans succeed on repealing Obamacare, certain groups (the healthiest, youngest and higher income segments) will have temporary access to quality health care that they probably won’t need while the sick and poor will most likely be unable to afford any level of care. However, the big elephant in the room is that insurance companies will continue to be the real winners regardless of the repeal, pointing to a high probability of premium increases over time that will affect the consumer’s real income in a negative way.

[1] as cited by Sen. Cruz as the cost for a healthy young 21 year old in 2013

 

Picture Source: PolitiFact


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