The American Healthcare System (not Obamacare)

Introduction

The Patient Protection and Affordable Care Act (PPACA), sometimes also referred to as the Affordable Care Act, was enacted on March 23, 2010. The objective of this act was to address some of the challenges facing the US healthcare system. Three core challenges may be singled out. The first one is the fragmentation of services, whereby service providers fail to operate in a coordinated fashion. The second challenge is the tendency by healthcare providers to focus on treating diseases while failing to contribute to the improvement of the patients’ overall health. The third challenge is the existence of financial incentives that do not focus on quality of care, but rather focus on quantity of healthcare services provided.

Although many people are happy that this act will address these issues, they are also concerned that it may raise healthcare costs at both federal and state levels. The aim of this paper is to determine whether the Affordable Care Act will increase healthcare costs in the United States. The thesis of this paper is that one of missing elements in the Affordable Care Act that must be addressed is an increase in healthcare costs arising from the introduction of near-universal healthcare coverage. Although this act creates provisions that outline how the costs of coverage will be shared by individuals, their employers, and government, it does not provide for the inevitable, dramatic increase in healthcare costs at both federal and state levels. Towards this end, various provisions of the Affordable Care Act and their consequences will be examined. The paper will also highlight missing cost-related elements and their consequences, future areas of reform that must be addressed, and problems with the enactment of the ACA.

Components of the act and their consequences

The Patient Protection and Affordable Care Act is a landmark law whose aim is to provide near-universal healthcare coverage to the American people. Full implementation of the act will occur on January 1, 2014. At this time, provisions on the responsibility of the individual and the employer will take effect. At the same time, health insurance exchanges at the state level will become operational. Moreover, Medicaid expansion will take effect. More importantly, individual groups as well as small-employer groups will start receiving healthcare subsidies. This means that crucial immediate steps will need to be taken in the near future to ensure that the implementation of the act occurs without hitches. One of the core objectives of the adoption of these steps is to ensure that healthcare services are provided in a coordinated manner.

The Affordable Care Act presents America with an opportunity to overhaul the entire healthcare system. It requires multiple laws to be enacted with a view to enhance the way healthcare services are offered. Together, these laws will constitute a legal framework for the country’s healthcare system. The basic legal protections provided for by the act have always been absent. One of them is a guarantee of access to insurance coverage throughout the lifetime of the individual. A core component of this coverage is that it should be affordable. It is expected that once the Act is fully implemented, there will be a 50 percent reduction in the number of uninsured Americans. It is also expected that 94 percent of Americans will gain access to health insurance coverage. Unfortunately, the law will also leave some 24 million Americans without healthcare insurance coverage

The act seeks to address the issue of fragmentation in the healthcare system by introducing the idea of near-universal coverage. The responsibility for this coverage is to be shared by individuals, their employers, and government. The act envisages that this will lead to affordability, quality, and fairness in the health insurance coverage. The need to pursue these goals arose because of the realization that the healthcare sector was engaging in wasteful spending without necessarily achieving the goal of quality healthcare. At the same time, access to healthcare remained a mirage to a large section of the country’s population. By strengthening access to primary healthcare while at the same time introducing long-term changes to preventive healthcare, the act hopes to address the problem of segmented provision of healthcare services. The act also creates opportunities for the same goal to be achieved through strategic investments in community health and clinical preventive care.

Reforms in health insurance coverage

The Affordable Care Act contains numerous provisions that facilitate the establishment of cost-sharing subsidies. In essence, the provisions lay down the groundwork for the introduction of new guidelines on how the healthcare industry ought to operate. They provide for the establishment of an integrated platform through which healthcare purchasing can take place. By making health insurance coverage a legal expectation for American citizens, the act creates an environment of predictability.

These reforms are bound to have a number of consequences for the health sector. First, the existing mechanisms of health insurance will be strengthened. It is also expected that a new affordable market for health insurance will be created. This market is expected to benefit families and individuals who are not covered by any “essential coverage” such as Medicaid or Medicare. By expanding the existing coverage, the rationale is to restructure Medicaid in such a way as to facilitate coverage to all American citizens.

One of the consequences of this expanded coverage is that the need to register for health insurance coverage will become an individual mandate. This means that most US legal residents and citizens will be required to be covered by health insurance. Failure to enroll for such coverage will attract a penalty. This provision alone goes a long way in streamlining issues of accessibility to healthcare. In the past, healthcare insurance coverage was not an individual mandate, meaning that in most cases, only those who could afford it pursued this objective.

The establishment of entities known as American Health Benefit Exchanges is also expected to increase the accessibility and affordability of coverage. Through these entities, individuals who operate in small businesses or have not access to employer coverage will have an opportunity to purchase coverage. The establishment of new requirements is also expected to ensure that more Americans than ever before will have access to affordable coverage. Moreover, at no time will these citizens live in the fear of losing their coverage. This applies equally to those who belong to the newly created High-Risk Insurance Pool. In the past, these people were being left out of the country’s insurance system because they were either hard to insure or simply uninsurable.

Nevertheless, it must be noted that legally guaranteed coverage comes with coverage obligation. US taxpayers will ultimately shoulder the burden of ensuring that this legally guaranteed coverage becomes a reality. The idea is to establish a risk pool, thereby making the idea of universal coverage feasible. The need to extend the mandate to all citizens arose because without it, a huge percentage of healthy individuals would fail to seek coverage, yet their presence is critical to the establishment of a risk pool. In the traditional structure of the healthcare system, different insurers were providing coverage in a fragmented manner, such that it was not possible for such a risk pool to be formed.

In the previous dispensation characterized by the absence of the mandate, discriminatory pricing was rampant in the private healthcare insurance industry. It was impossible to eliminate these tactics because private insurance companies depended on them as a source of protection against adverse selection. This essentially means that the goal of universal coverage would be impossible without establishing the mandate. Similarly, the creation of the mandate was an essential requirement in the process of ensuring that the insurance foundation was stabilized.

Missing elements in the reform act and their consequences

Rising general healthcare costs

One of the biggest concerns regarding the implementation of the Affordable Care Act is costs. The act did not provide clear guidelines on exactly how the federal and state governments would meet the high costs arising from the enactment of the new law. This leaves Congress with a difficult task of figuring out how to address healthcare costs in the future. One of the ways in which Congress may seek to meet these costs is maximizing the level of funding provided by the federal government. Another option that may need to be considered is that of leveraging on the purchasing power of states. Alternatively, efforts may need to be put in place to ensure that the cost of healthcare for high-cost citizens is reduced.

The intention of the act is clearly to redefine the financial relationship between citizens and the healthcare system. Although the act makes this intention is clear, it does not provide an equally clear framework for funding. The objective was to deal with the health insurance crisis that has continued to affect many individuals, communities, and the national economy at large. Without clear provisions on funding, the act may present unique challenges during the implementation process.

The issue of how Americans relate with the country’s health insurance system and the provisions made by this act in this regard has turned out to be controversial. In fact, it was the subject of a protracted legal battle over the constitutionality of the law. Proponents of the law argue that the PPACA is about regulation America’s economic approach to the task of purchasing care. The argument made in this regard is that since everyone uses care, the only issue that should arise is that of how to pay for this care. In contrast, opponents of the law argue that individuals are passive non-economic actors and should therefore not be forced to buy a product that they do not want. The product being referred to in this case is healthcare.

At the state level, healthcare costs may increases as well. It will be extremely difficult for states to coordinate the newly introduced health benefit exchange by aligning them with other healthcare programs that will already be operational at the state level. In the end, state costs may increase, eventually adding up to billions of dollars every year. Moreover, for some hospitals, normal funding procedures will be affected. These hospitals will be compelled to change their Medicaid eligibility processes to ensure that they are in conformity to the new federal requirements. Similarly, far-reaching changes will be required as far as the coverage of children and high-risk pools is concerned. The same case applies to those who will be forced by circumstances to remain uninsured.

Rising Medicaid costs

The expansion of health insurance coverage will naturally lead to a substantial increase in the costs of future Medicaid programs at the state level. These costs may eventually rise to billions of dollars. Most of the reform provisions that will have a sweeping impact on Medicaid will take effect in January 1, 2014. The costs will increase primarily because of eligibility expansions, changes in how states determine eligibility for programs, as well as payments for services. It is fortunate that for some of these cost-related requirements, federal authorities are willing to provide enhanced funding with a view to facilitate implementation at the state level.

The changes necessitated by the bill will exert considerable fiscal pressure on states for many years primarily because the amount of the reduced amount of enhanced federal funding. It is worrying that the precise cost at the state level is not precise. One of the reasons for this lack of precision is the failure by federal authorities to issue regulations that are highly likely to influence the way provisions of the act are implemented. The act does not provide clear guidelines on what action should be taken whenever this happens.

Additionally, the act gives the state some leeway in the procedures for the implementation of federal mandates. Nevertheless, this leeway comes with a pitfall whereby the risk of a rise in costs is increased considerably. These pitfalls continue to exist even when one takes into account the possible positive or negative fiscal impacts of PPACA that are unrelated to healthcare programs. An example of these fiscal impacts is the changes that might impact on the costs incurred by state employees. Another example is the possible increase in tax revenues arising from state insurance premiums.

Health insurance tax

The PPACA paves way for the creation of a multibillion health insurance tax that will greatly contribute to a rise in healthcare costs. It is estimated that the healthcare insurance tax, which is an integral component of the healthcare reform law, is expected to have raised $87 billion or more by the year 2020. The uniqueness of this bill arises from the fact that as a fixed-dollar amount, its assessment has been done against the operations of the health insurance industry. In 2014 alone, insurers are expected to have paid some $8 billion, with the amount hitting the $14.3-billion mark by 2018. From this point, the tax will be adjusted to conform to premium growth in the insurance industry.

Theoretically, health insurance tax will be levied on health insurance firms. In practice, however, it is just like a typical excise tax that the insurance companies will pass on to consumers and employers. In confirming this fact, the Congressional Budget Office observes that the tax would have to be passed on to the end consumers through higher premiums for health insurance coverage. Critics warn that once the tax emerges, the widely proclaimed benefits of the PPACA will suddenly cease to exist, thereby causing more harm to the US economy.

Many concerns continue to be raised regarding the impact of health insurance tax, with critics anticipating that the tax lead to an increase in the premiums to be paid by individuals and families. The Joint Committee on Taxation, during a discussion of the new law, pointed out that a significant portion of the tax would have to be borne by individuals and families primarily through a 2 percent increase in cost of premiums by 2016. The committee also estimated that by 2023, the tax would have caused the amount of premiums paid by consumers to increase by more than 3 percent.

With the enactment of the Affordable Care Act, it is also expected that Medicare organizations will pay taxes amounting to $34 billion  between 2014 and 2024. The net effect of these taxes is an increase in premiums for beneficiaries. Alternatively, they could lead to a reduction in benefits in terms of care. Similarly, the area of Medicaid managed care is expected to be affected by the taxes in the same way. Today, the Medicaid budget has already proven to be challenges both at federal and state levels. With the introduction of new taxes, this pressure can only increase.

The expected average increase in Medicaid managed care costs at the national level is about 1.5 percent. However, in some states, the increase is expected to be as high as 2.5 percent. It should be borne in mind that funding for Medicaid managed care is jointly done by federal and state governments. This means that if the rates go up, more federal and state funding will be required. The matching formula process of the federal government is likely to force state governments to bear very huge costs arising from higher rates. This essentially means that states will have to look for additional revenue to meet the healthcare budget. Consequently, states might be compelled to resort to Medicaid fee-for-service. At that point, the APPACA will be said to have failed to deliver the promise of affordable, high-quality, near-universal healthcare for all Americans.

The act also puts Medicaid managed care agencies at a position of competitive disadvantage by exempting non-profit insurance firms from the tax. This is likely to prevent beneficiaries from accessing more plan choices. The level of competition is also likely to drop. Moreover, health insurance organizations are likely to be denied the much-needed incentives to introduce innovative care plans into the market. Moreover, since the new tax is only applicable to Medicaid plans, it gives states the incentive to reverse the gains they may have made through the implementation of innovative healthcare delivery reforms aimed at improving the quality of care provided to beneficiaries. Instead, such states are likely to return to the traditional Fee-For-Service model as a way of avoiding huge budget deficits.

Critics also warn that the health insurance tax outlined in the PPACA is likely to increase healthcare costs incurred by employers, thereby compelling them to look for alternative coverage options. Multiple tax experts are of the view that tax will lead to an increase in insurance premiums, thereby prompting many Americans to forego coverage. The likelihood of foregoing coverage is highest among young and healthy Americans. This would jeopardize the stability of the risk pool, which forms the foundation of the healthcare reform efforts. If the risk pool becomes unstable, this may exacerbate on the already-high healthcare costs at both federal and state levels.

Moreover, to avoid the tax, many employers may shift to self-insured plans that are not subject to this tax. This may greatly reduce the number of employers operating in an environment of fully ensured healthcare plans, leaving a few individuals and employers to carry the growing tax burden. The most possible outcome of this phenomenon is an unprecedented increase in healthcare costs, further destabilizing the risk pool in its entirety.

On the basis of these cost-related concerns, one may argue that today’s competitive marketplace faces the risk of distortion following the implementation of the health insurance tax provisions as outlined in the PPACA. It may be prudent for reforms to be made to ensure that the competitiveness of the marketplace is not altered. The tax causes a distortion in the marketplace because it is not deductible. Another reason is that it fails to provide equitability in terms of the framework within which insurance plans are executed. Moreover, it compels insurance companies to set aside an aggregate amount annually. Consequently, tax rates levied on health insurers will be among the highest in the country.

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