For better or worse, the Affordable Care Act (ACA) has been the law of the land since it was signed into law in March 2010 and officially was enacted in the individual insurance markets in 2014.
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In many respects, it's done exactly what was asked of it be now-former President Barack Obama. It wound up lowering the uninsured rate from 16% in the fourth quarter of 2013 to around 9% as of mid-2016, according to the Centers for Disease Control and Prevention. The subsidies attached to Obamacare, as the ACA is more commonly known, along with the expansion of Medicaid programs in 31 states, opened the door to lower-income consumers and folks with pre-existing conditions who'd previously been shut out of the healthcare system.
Conversely, Obamacare's premiums have been rising at a much quicker pace than many consumers expected. Much of this increase in 2017 can be traced to a lack of sustainability among national insurers. UnitedHealth Group (NYSE: UNH), the nation's largest insurer, bowed out of 31 of 34 states it had been operating in this year. Meanwhile, Aetna (NYSE: AET) and Humana (NYSE: HUM), which had their merger efforts thwarted by U.S. regulators, slashed their county-based coverage by nearly 70% and 90% in 2017. Both have since announced that they're leaving Obamacare's marketplace exchanges for good in 2018.
Donald Trump shakes up Obamacare by removing a critical subsidy
But the real damage has been done over the past few weeks, with President Trump, an ardent opponent of the ACA, removing cost-sharing reductions (CSR) from the equation.
Cost-sharing reductions are one of the two core subsidies tied to Obamacare for low- and middle-income families. Whereas the Advanced Premium Tax Credit (APTC) helps lower monthly premium costs for people earning less than 400% of the federal poverty level, CSRs provided subsidies for actually receiving medical care (e.g., copays, coinsurance, and deductibles) for those folks who bought a silver plan and who earned less than 250% of the federal poverty level.
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Trump was able to cut ties with CSRs as a result of a lawsuit that Republicans won against now-former head of the Department of Health and Human Services (HHS), Sylvia Burwell. Filed in 2014, the lawsuit argued that only Congress was legally allowed to apportion CSR funding, and since it hadn't been doing so, CSR payments to insurers should cease. In 2016, a federal judge agreed, but the appeals process from the Obama administration had continued until recently. Using the court case as something of a dangling carrot to coerce cooperation among members of his own party, and perhaps even Democrats, in Congress, Trump decided that enough was enough and pulled the plug on CSRs.
Premiums are set to skyrocket in 2018
Removing CSRs is going to create a big headache for insurers. The more than 6 million people that benefited from CSRs are now considerably riskier members in the eyes of insurers. These folks will either choose to drop out of the insurance pool, thus denying insurers any government-sponsored revenue (remember, the APTC is still being paid out), or these folks could still head to the doctor and leave insurers to handle bills that they can't afford to pay.
The result is simple: higher costs. According to the HHS, the average benchmark premium (the second-lowest cost silver plan) for an unsubsidized individual is set to rise 37% in 2018 to $411 a month from $300 in 2017. I'm going to go ahead and repeat that. The average premium that middle- and upper-income folks are going to pay for health insurance for Obamacare's most popular tier plan is going up by 37% this coming year.
How ridiculous is a 37% increase in Obamacare premiums? It's more than $1,300 extra a year out of the pockets of the average unsubsidized American, and more than $4,900 overall. By comparison, the Shared Responsibility Payment (SRP), which is the penalty consumers are supposed to pay for not buying health insurance, is the greater of $695 or 2.5% of modified adjusted gross income. Under this definition, a healthy individual making $195,000 a year would pay less in penalties than he or she would by purchasing a benchmark plan at $411 a month. That makes no sense, and it shows just how out of touch the SRP is with real-world premium costs. The wider this gap grows, the tougher it is to coerce consumers to buy health insurance.
This is exactly what a death spiral looks like
Whether people want to admit it or not, this is beginning to look an awful lot like the end of Obamacare. More specifically, it has all the makings of a death spiral, which is where premium inflation skyrockets, and healthier Americans choose to remain uninsured because it's cheaper to do so.
There are a plethora of challenges facing the average consumer in the coming year. As noted, premium prices are soaring by double-digits, and CSRs are a thing of the past. Additionally, President Trump cut the marketing budget for Obamacare from $100 million to a mere $10 million, which will make it even tougher to get the word out that it's time to enroll. For those not aware, the enrollment period is ongoing from Nov. 1, 2017 through Dec. 15, 2017 for the upcoming year, with a few states extending the enrollment period a bit longer.
There are also virtually no incentives for insurers to hang around to see if things are going to get any better. Even though each state's Office of the Insurance Commissioner has had little success in pushing premium prices lower, thus allowing insurers to pass along hefty premium increases in recent years, it's just not doing health-benefit providers any good. The failure of the risk corridor reduced competition, and roughly three-quarters of approved healthcare cooperatives have shut their doors. Now, with CSRs off the table, critical government-sponsored revenue is no longer available.
As much as healthcare reform was a struggle for Republicans in 2017, they're going to have no choice but to seriously look at reforms, or work on a bipartisan bill, in 2018. At the rate the ACA is deteriorating, it's looking unlikely that Obamacare will remain a viable health law for much longer -- and that's a terrifying statement for tens of millions of Americans.
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