What the ACA Decision Really Means for the Future of Private Health Insurance

Did the Supreme Court save private health insurance, or just drive another nail in its coffin?

Ironically, it might well turn out to be the latter.

Keep in mind that from a consumer perspective, much of the Affordable Care Act was about trying to keep private insurance affordable in America.  But “affordable” is a relative term.  When your employer pays most of the cost, insurance is a lot more affordable than if you’re paying the bill yourself. 

At over $20,000 per year for a typical plan providing family coverage, health insurance now costs around 40% of the median household income of $49,445!

Being mandated to take on that expense – even with the generous subsidies ACA provides – understandably rankles people.  It’s no wonder that millions of healthy people may still choose to roll the dice and go without.

But even though we have spent so much time arguing about the cost of insurance and the private insurance market, the fact is that it pays only a small part of the nation’s health care bill.

An August 2011 article in the New England Journal of Medicine reported that private insurance paid only a little over a third of all health care costs, and even less – one quarter – of mental health care costs.

Even those small numbers are high.  When you take into account (1) the share of private insurance that is subsidized by the government through tax benefits and (2) the share of private insurance that is paid by all levels of government on behalf of public employees, the percentage of care paid for by privately-funded private insurance is only in the teens.

Even if members of the public can’t recite the data, they have a sense that health insurance is simply no bargain.

One of the best illustrations of this is in the Pre-Existing Condition Insurance Program (PCIP), the short term solution devised by the federal government and put into place through ACA to provide guaranteed health insurance to adults with pre-existing conditions.  The program will run from 2010 until 2014, targeted to people with pre-existing conditions who were uninsured and uninsurable.

If you meet the eligibility criteria, then enrolling in PCIP is like winning the lottery.  It almost guarantees that you receive more in benefits than you pay for insurance.  In fact, this was true – in its first year or so, it paid out $1.30 for every dollar it took in.

The government estimated that 4 million people were eligible for the program, and that 375,000 of them would enroll.  As of this April 30, only 67,482 had.

What does it say about the future of private insurance when people won’t even buy it when they know it will pay out more than it costs?

It shouldn’t come as a surprise to anyone that so many people – up to 67% - wanted the individual mandate to be overturned by the Court, according to a NY Times/CBS poll taken in March.

Even people who support universal coverage find fault with a system so stacked against the consumer – in which the cost of insurance bureaucracy alone is twice what we pay for our entire system of public health, and more than we pay for all nursing home care, home care, dental care, or veterans services in America. 

It’s not like insurers are highly regarded.

For all the good they’ve done in this country – and they have often done the hard negotiating work of keeping prices of health care under control (for evidence of this I need only look at the statement for my most recent blood tests.  The lab accepted $8.57 as payment in full from the insurer for tests it for which it would have charged me $57.85 if I were paying the bill on my own), insurers have lost touch with the desires of their customers, and are now seen more as obstacles to health than facilitators of care.

And the $1.1 billion in bureaucratic overcharges ACA is forcing them to pay back this year doesn’t help their reputations at all.

The only strategy ACA proponents could come up with to shore up insurance was to mandate people to have it.

Organizations like the Heritage Foundation introduced the individual mandate to our healthcare debate twenty years ago as an alternative to “Medicare for all” proposals.  They understood that Congress was going to have to drag people kicking and screaming into the insurance marketplace.

In the aftermath of the Supreme Court decision, that’s even more obvious.

This is the third in a series of five OHPM columns on the impact of the Supreme Court decision on the Affordable Care Act. Monday: the impact of the ACA decision on Medicare and Medicaid.

What the ACA Decision Really Means for You

Are you ecstatic, happy, neutral, sad, or devastated about the Supreme Court’s ruling upholding almost all of the Affordable Care Act?

The answer may depend on your politics, but it more likely has everything to do with what the ruling means for you and the people you care about.

Back in March, I wrote a column entitled “How We Really Hope the Supreme Court Will Rule on the Affordable Care Act.”  Now you’ve heard pundits, politicians, and public officials tell you how to feel, let’s recap where you might really stand on the decision.

Let’s start with your policy views.

If you favor a single payer, “Medicare-for-all” program:  You’re devastated.

Your only real hope for resurrecting “Medicare for all” was if the individual mandate was thrown out.  It wasn’t.  You may have Medicaid and Medicare expansions, but over the long haul that probably won’t be enough for you. 

If you want a market-driven insurance environment, where insurers compete for your business with a minimal number of mandates and requirements:  You’re also devastated.

Neither liberals nor conservatives truly won on this one.  Like Medicare-for-all advocates, you lost your political battle to reduce the role of government in healthcare, and it may be impossible to win in the future.  

If you want to reduce the size and scope of the state Medicaid programs: You’re unhappy.

Medicaid is getting bigger, but at least the state’s not footing the bill.  Your state can refuse to expand the program, but then it’ll give up all the new federal dollars, too – and may still have to provide an alternative for poorer people who can’t afford insurance.  Maybe the federal government will take over the program in its entirety some day, but don’t hold your breath.

If you want more universal coverage, but don’t care whether it’s private or public:  You’re happy.

It may not be perfect, but the combination of Medicaid expansions, new Medicare benefits paid for by Medicare tax increases for the wealthy, and subsidized private insurance for the middle class will lead to more coverage, and fewer uninsured.

Now let’s turn to your personal views.

If you are among the 206 million people who make less than 400% of poverty (currently $91,200 for a family of four):  You’re happy.

For those who don’t have access to group coverage, you’re about to get a valuable tax credit toward what you pay for insurance.  For example:  A 45 year old with a family of four making $60,000 per year will be eligible for a tax credit of over $9,000, reducing the cost of an average family plan to around $400 per month.

If you are among the estimated 4 million people who can afford insurance, but will choose not to buy it:  You’re unhappy.

By 2016, you will be paying a new tax of $695 per person, $2085 for a family, or 2.5% of income, whichever is greater.

If you are one of the 11 million people due a premium rebate in 2012 because your insurer didn’t meet the minimum loss ratio standards:  You’re happy.

The biggest consumer protection in ACA – the minimum loss ratio – is still in place, along with all the others.  You’ll get your rebate, and your insurer will be paying out more dollars for care in the future.

You or a child of yours is one of the 133 million people with a chronic condition and, especially, one of the 4 million who is uninsurable as a result:  You’re happy.

Your child with a disability will still be covered on your insurance, and as an adult you’ve still got PCIP in the short term until full pre-existing condition relief takes effect in 2014.

You are one of 48 million Medicare recipients:  You’re ecstatic.

Your donut hole coverage and preventive services remain in effect, and will even improve in the future.

You are one of the 17 million people living below 133% of poverty (currently around $31,800 for a family of four) who don’t have insurance:  You’re happy.

Unless your state decides to refuse to expand the program as a matter of principle, in 2014 you’ll be eligible for Medicaid.

You are one of the 13 million adult children currently on your parents’ insurance:  You’re happy.

You can stay on your parents’ plan until you’re 26.

This is the second in a series of five OHPM columns on the impact of the Supreme Court decision on the Affordable Care Act. Tomorrow: the impact of the ACA decision on the future of private insurance.

The ACA Decision Is In

The Supreme Court decision on the constitutionality of the Affordable Care Act is finally in.

Before it was announced, most people seemed to think that the individual mandate would be overturned. 

It did not play out that way.  The individual mandate was upheld – not under the Commerce Clause of the Constitution, but as a tax.  Justice Roberts proved to be the swing vote.

Also left intact are the expansions of Medicaid eligibility and, as a result, the entire law, with all of its consumer protections.

However, there is a major caveat here.


States can opt out of the expansion of the Medicaid program without jeopardizing the rest of its Medicaid funding.  In other words, the Court is allowing a state to refuse to expand Medicaid eligibility to 133% of poverty and to refuse to cover all of the ACA-mandated basic benefits in its program.  If it does, it will only have to give up the new federal money that pays for these benefits.

The consequences may be devastating for lower income people if a state decides to make them scapegoats for a decision it finds otherwise unpopular, and I will be writing more about this in a couple of days. 

The Court's decision is considered to be a major political victory for President Obama.  That may or may not prove to be true in the short term.

And the biggest blow may be felt by those who still believe that a private health insurance marketplace – unsubsidized by the government – has a bright future in America. 

Here’s why.

While the individual mandate will affect as little as 2% of the population directly (because most people who can afford insurance already have it), it was also government’s the last gasp “carrot and stick” approach to convincing people to buy a product – health insurance – that few people actually want or like.

“If you buy insurance,” the federal government has said through ACA, “we’ll subsidize it to the tune of a $9,000 tax credit for a family of 4 making $60,000.  If you refuse, we’ll impose a tax penalty of $2,085 on you.”

“No deal,” said 61% percent of Americans in a poll released this week.  If insurance were popular, would people have to be forced to buy it?

That’s why John Boehner has already announced that he will try to repeal the mandate through legislation, and this will likely become a major political campaign issue this year.

The truth is that ACA is going to have little effect on overall health spending in America, and even with the individual mandate in place the share of health costs paid by private insurance is going to go down. 

To understand why, take a look at the 2012 health spending projections made by CMS personnel and reported in the article entitled National Health Expenditure Projections, published online by Health Affairs in June 2012 and in the July 2012 print issue. 

CMS projects that overall health spending – now at $2.6 trillion a year – will increase by over 62%, or 5.7% annually, through 2021, to $4.5 trillion per year.  The ACA effect?  Under 5% of that, or a cumulative 3.1%, well within the rounding error!   

With two exceptions, ACA won’t change too dramatically who pays the bill.  As is clear from the chart above, only two categories of payers will see their share shift by even 2%.  The first is the Federal share of the Medicaid program, largely because the federal government was paying 100% of the cost of the Medicaid expansion.  The second is the out-of-pocket, or self-pay, share, largely because fewer people would be uninsured.

The biggest surprise?  The share of health expenditures to be paid by private insurance goes down by 1% over the next ten years, in spite of the individual mandate that everyone who can afford it must carry health insurance!

What this means is that even with ACA upheld, we will continue our excruciatingly slow and tortuous march toward a governmental payer, Medicare or Medicaid for all, basic health care financing system.  But for "Medicare for all" advocates – it probably won’t happen in your lifetime.

For all the arguments I and others will make in the coming days that the impact of ACA and the Supreme Court’s ruling on healthcare financing may now be overstated, another truth is that it remains the most significant piece of health care financing legislation to pass Congress since Medicare and Medicaid.

And that the Supreme Court has affirmed this.

This is the first in a series of five OHPM columns on the impact of the Supreme Court decision on the Affordable Care Act.  Tomorrow: What the Decision Means for You  

Holding Your Breath

Here’s why you don’t need to be holding your breath while awaiting the announcement of the Supreme Court’s decision on the Affordable Care Act.

Its immediate impact on you may be a whole lot less than you think.

And here’s why you should be holding your breath.

How the Court rules could ultimately determine whether private health insurance or public health insurance is the way we finance health care in the future.

The reason is this.  ACA expanded both the role of private insurance and public insurance in providing healthcare coverage in the future.  It added a projected 13 million people to the private insurance rolls and 17 million to Medicaid. 

The 13 million were added to private insurance primarily through a mandate that individuals who can afford it buy insurance.  The 17 million were added to Medicaid through a mandate that the states expand the Medicaid-eligible population.

The Supreme Court was asked to rule on the constitutionality of both mandates at the same time. 

If it chooses one over the other – by finding one expansion constitutional and the other unconstitutional – it may well determine just how health financing unfolds for decades to come.

Here are a few things to keep in mind as you listen to the result.

• Despite all the rhetoric, ACA will have little long term effect on overall health spending.  The cost of health care services is projected to rise by an average of 5.7% per year over the next ten years, from $2.6 trillion to $4.5 trillion.  The amount that the entire Affordable Care Act will contribute to this increase is not 100%, or even 50%.  It is around 5% – or an average of three-tenths of 1% per year.

• The share of the nation’s health care bill that private insurance will pay in 2011 is 34 percent, much of which is either paid or subsidized by government.  If all the provisions of the Affordable Care Act – including the individual mandate – remain in place through 2021, then private insurance will pay 33% of the bill, one percent less than it pays today.

One reason – the individual mandate, at the crux of the rest of the legal challenge to ACA, will affect fewer than one in 50 Americans.

• States have claimed that the Medicaid expansion is the real budget back-breaker of the Affordable Care Act.  But a majority of the new Medicaid costs that states attribute to the Affordable Care Act are actually the costs of enrolling currently eligible people.  The Medicaid bill is going up either way; the only question is how big a share of new costs the federal government will pay.

The ACA decision may well be a momentous one politically, but I’m not really convinced about this. 

The only truly “politically framed” issue in the whole debate has been about the fairness of the individual mandate.  Presidential candidates Obama and Romney both opposed it, while public officials President Obama and Governor Romney both supported it.  Maybe one of them will get a lasting boost from the decision about its constitutionality; maybe not.

What will matter more for public policy in the near term is this:  whether either of the provisions, if ruled unconstitutional, is found to be severable from other parts of the law.  That’s because many other parts of the law, such as the consumer protections and the Medicare expansions, are popular and affect most of the voting public.

But neither of these things will matter most in the long term.  What will matter down the road is what we learn from the ruling about the fundamental health financing policy choice of at least the last fifty years – public or private?    

I’ll be looking at this question and more in a series of five OHPM columns that will be published over the next few days. 

The first column will be out tomorrow, shortly after the decision is announced. 

The second, on Friday, will be entitled What the ACA Decision Means for You.

The third, on Saturday, will discuss the implications of the ACA decision for the future of private health insurance.

The fourth, next Monday, will discuss the implications of the ACA decision for the future of Medicare and Medicaid.

The fifth, next Tuesday, will take a look at the post-ACA world for health, public health, and mental health policy.

Of course, if the Court delays its announcement at the last minute, then the columns' publication will be postponed as well. 

In the meantime, let’s just take a deep breath and see what the Court has decided.

If you have questions about this column, please contact gionfriddopaul@gmail.com.  Paul  Gionfriddo will be presenting on the implications of the Supreme Court's ACA decision on Friday, June 29, at noon, at the Mental Health Association of Palm Beach County.  For more information, click here.

What a Waste

Note: After the Supreme Court releases its ruling on the Affordable Care Act, OHPM will be publishing analysis and commentary on what the decision means for key subgroups of the population.  Come back to this site early and often for writing that will cut through the noise! 

Just before he was forced out of his job as a senior Florida public health official – joining thousands of his colleagues across the country who have recently met the same fate – Daniel Parker commented that “we are victims of a false portrayal of public services as waste.”

He is so right.

Source: CMS Data, Health Affairs, June 2012 (online)

Last year, we spent over $86 billion on public health services.

That may seem like a big number.  But it represents only 3% of our nation’s total health spending. 

For that 3%, we have doubled our life expectancy over the last century.  We’ve immunized our children, improved the quality of our food and water, and gotten dangerous chemicals out of our homes and neighborhoods.

We have prevented cancers and heart attacks, and wiped out once-frightening diseases like polio.  

Does this seem wasteful to you?

If not, just imagine what public health might have done with 6% of the nation’s health budget.  Why 6%?  That’s how much we pay for the “net cost of health insurance” every year.

The “net cost of health insurance” doesn’t include any payments for actual health care.  It refers to what’s left over after payers pay the bills – mostly administrative costs and profits, better known as health insurance bureaucracy.

If you find it as troubling as I do that public health professionals are losing their jobs while insurance bureaucracies are bloated, then you’re about to get really irritated.

According to new national health expenditure projections released last week through Health Affairs by representatives of the Centers for Medicare and Medicaid services, our spending on the net cost of health insurance doesn’t just dwarf what we spend on public health.  It dwarfs what we spend on a lot of other essential health services, too.

In 2011, the $152 billion we spent on health insurance bureaucracy was:

• 41% more than what we spent on all of our nation’s dental care;
• 49% more than what we spent on our veterans, active duty personnel, and children’s health insurance programs combined; and
• 108% more than what we spent on home healthcare services for everyone in the country who used them.

As public officials bring down their budget cleavers on the people and services that protect our health, mental health, and well-being, they might want to think about two other things. 

• Health insurance bureaucracy alone costs us more than we pay for all the nursing home care everyone receives in the United States each year. 
• The cost of private health insurance bureaucracy alone is roughly equal to the total state and local share of every state Medicaid program combined – which are, according to public officials, the biggest fiscal burdens breaking the backs of our state budgets.

Does anyone – including health insurance bureaucrats – really believe that health insurance bureaucracy is more needed than all the public health, dental care, children’s health services, nursing home care for elders, and home care for people with physical and mental disabilities we provide in this country?

Or that health insurance bureaucracy is more important to the health and well-being of our country than all the health care we give every year to every living person who has ever served in our armed forces? 

Is it any wonder that some people feel strongly that they shouldn’t be forced to contribute to this monstrosity by purchasing private health insurance?

Certain politicians this year may sing the praises of an unfettered insurance marketplace as a health care panacea and an alternative to the Affordable Care Act.  But the numbers don’t lie.

It is hard to imagine a less productive health system than the one an even less regulated health insurance marketplace could deliver to us. 

But too many public officials are doing the worst possible things, and too many people like Daniel Parker – and all of us he was pledged to serve – are paying the price.

They are ignoring the value of public health. 

They are forgetting their history, and why they expect to live longer than their great-grandparents did.

They are cutting the services we need – dental care, nursing home care, home care, veterans’ care, mental health care, and children’s health programs – thinking that no one will mind. 

And they are turning public services over to some of the very private companies that are already draining our health system dry with their “net” bureaucratic costs.

What a waste.

If you have questions about OHPM or this column, please email gionfriddopaul@gmail.com.

Good News

Special Note:  The Supreme Court's decision on the Affordable Care Act is expected soon, and when it comes there will be implications for us all.  The OHPM publication schedule may change that week to provide timely analysis, and may publish more than once.

I remember how surprised I was the time I was told that a member of my family had hit his lifetime limits on some of his health insurance benefits.  He had about sixty more years of life expectancy!  I knew then that capping health insurance benefits could be a cruel and bankrupting blow to those who need them the most.

That’s why Monday’s announcement by UnitedHealthcare that, no matter what the Supreme Court decides, it will keep in place some of the new  Affordable Care Act-mandated consumer protections was good news.

As reported in Kaiser Health News, the nation’s largest health insurer said that it would keep free preventive services, allow children up to age 26 to stay on parents’ plans, and have no lifetime limits, among other things.

Humana and Aetna quickly followed with similar announcements.

These ACA provisions have already helped millions.

Around 25 million Medicare recipients alone used free preventive services they obtained through ACA in 2011.

And according to a report just issued by the Commonwealth Fund, 6.6 million young people up to the age of 26 are covered on their parents’ health insurance plans as a result of ACA.  This alone may already account for as much as a 2% reduction in the percentage of people who are uninsured. 

UnitedHealthcare’s announcement will be welcomed by the nine million customers it directly affects.

It may feel like a slap in the face to the President of the National Association of Insurance Commissioners, Kevin McCarty of Florida.   Just last week in the Miami Herald  he offered up a convoluted but spirited defense of insurance company overcharges to businesses and consumers when he dismissed ACA as “uninformed tinkering with the health care market.”

Not so fast, Commissioner McCarty. 

The insurers' announcements might also suggest something more – that those consumer provisions are clearly severable from the rest of the law. 

This could be very important.  If the Court finds either the individual mandate or the Medicaid expansion unconstitutional, severability could save other parts of the law – such as closing the Medicare donut hole – too.

There are now at least three good arguments why the Court may have to sever at least some parts of the law.

First, as is the case with almost every politically contentious law, ACA was an amalgam of legislative initiatives that were melded together into one bill.  Closing the Medicare donut hole, expanding Medicaid, funding prevention, and enacting a program of long term care insurance all stood on their own long before they were put together in one omnibus ACA bill.

Second, some provisions of the law have already been implemented (the consumer protections), modified (the prevention fund), or effectively repealed (the long term care insurance program) without affecting either the individual mandate or the Medicaid expansion.  

Third, the conservative Justices of the Court have been clear that when sections of a law can stand on their own, they should remain in place if even other sections of the law are ruled unconstitutional.

Here’s the way Justice Roberts, writing on behalf of a 5-4 majority that included Justices Scalia, Thomas, Kennedy, and Alito spelled it out on page 28 of the Opinion of the Court in Free Enterprise Fund v. Public Company Accounting Oversight Board, (2010):

“Generally speaking, when confronting a constitutional flaw in a statute, we try to limit the solution to the problem,” severing any “problematic portions while leaving the remainder intact.”  Ayotte v.  Planned Parenthood  of Northern New  Eng., 546 U. S. 320, 328–329 (2006).   Because “[t]he unconstitutionality of a part of an Act does not necessarily defeat or affect the validity of its remaining provisions,” Champlin Refining  Co. v.  Corporation Comm’n of Okla., 286 U. S. 210, 234 (1932), the “normal rule” is “that partial, rather than facial, invalidation is the required course,” Brockett v.  Spokane Arcades, Inc., 472 U. S. 491, 504 (1985).”

UnitedHealthcare didn’t go all the way in its announcement. 

It did not, for example, say that it would honor the minimum loss ratio requirements in ACA, or cover all children with pre-existing conditions.  And it could be argued that what insurers have the right to do voluntarily isn’t the same as what the government has the right to impose.

But its announcement and those of other insurers – coming in advance of the release of the decision – clearly puts more pressure on the Court. 

And make a move toward better health insurance – one that happened only because of the government’s “uninformed tinkering” with the health care market. 

Care Delays Raise Stakes in the Healthcare Debate

My daughter was sick last week, with a fever and a sore throat.  She has a history of strep infections, and she thought about going to the doctor and getting checked out.

But her co-pays went up recently, and she was conscious of the cost.  So she checked her own throat in the mirror, decided that she didn’t see any white spots, and stayed home to recuperate on her own.

She’s not the only one treating herself these days.  People are increasingly risking their health by delaying care because of cost – and this isn’t going to change no matter how the Supreme Court rules on the Affordable Care Act.

According to recent data from the Department of Health and Human Services Health System Measurement Project, more than 10% of Americans now report delaying care because of cost.  These include:

• more than 15% of those below 250% of poverty;
• nearly 20% of those with a disability;
• 30% of those already in poor health.

Many delay care because they don’t have insurance.

But here’s the surprise:  the number of privately insured people who delayed seeking needed health care because of the cost increased by more than 50% between 2000 and 2010, from an estimated 8.2 million to almost 13 million. 

Historically, if you had private insurance, like my daughter, then you usually didn’t delay seeking care you might need. 

But in recent years, only children and elders – who have access to strong public insurance programs – haven’t increasingly delayed obtaining care.

There are two reasons why everyone else has.

First, there were 13 million more uninsured people in 2010 than there were in 2000 and 10 million fewer privately insured people.  An uninsured person is six times more likely to delay care because of cost than an insured person. 

Second, even people with private insurance are now more likely to delay care because of rapidly increasing out-of-pocket costs.

This is a natural reaction to paying more for insurance policies that cover less.   

A recent Towers Watson/National Business Group on Health employer survey reported that in 2012 employees will pay an average of $2,764 toward their health insurance premiums – an increase of 9.3% in just one year – and over 34% of their total health care costs after premiums, co-pays, and deductibles are combined.

Meanwhile, insurance policies have become more meager in their coverage.  The biggest area of growth in employer-based health insurance is in high-deductible plans.  Only 2% of companies offered these plans ten years ago.  By next year, 70% will. 

Until recently, most high-deductible plans were offered as one option among several to employees.  In the past two years, however, the percentage of companies offering only high-deductible plans has doubled.    

People with high-deductible plans are among the people we used to call “underinsured.” 

But a high deductible isn’t the only reason to think more people will be delaying care.

According to the US Census Bureau, the percentage of people covered by employer-based private health insurance shrank by almost 9% - to just over half the population – between 2000 and 2010.  And the Towers Watson report found that only 23% of employers are confident that they will be able to offer any health insurance in another ten years, down from 73% who were confident just five years ago.

When your two options are being underinsured or losing your employer-based insurance altogether, you’re not going to feel optimistic about your long-term ability to pay for health care.

What’s more, the Supreme Court decision on the Affordable Care Act probably won’t change this. 

If ACA is upheld, there will be more insurance options available for individuals in beginning 2014, and subsidies to pay for them.  But these may replace employer-based coverage.  Out-of-pocket costs may come down, but only if insurance offerings are rich and prices stay high.

If ACA is struck down, there will be more pressure for insurers to make high deductible plans available to individuals to fill the insurance gap.  This may lower the price of insurance itself, but only if consumers pay more out-of-pocket.

Either way, we consumers are going to be even more motivated in the future to save money by diagnosing and treating our own sore throats.

We’ll risk getting sicker.

And – at a time when we may wish that the health reform issue were finally settled one way or the other – raise the stakes in the next health reform debate.

If you have questions about this column or wish to contact the author, please email gionfriddopaul@gmail.com.