A Letter from Our CEO
The Affordable Care Act (ACA or Obamacare) is a controversial and complicated topic, so I hesitate a little to discuss it as the CEO of a consumer-facing company.
Unfortunately, I don’t have the luxury of standing on the sidelines on this topic.
I’ve spent the last few days talking to a number of you (our customers) on the phone about your personal experiences (good and bad) with the Affordable Care Act (ACA/Obamacare).
After hearing your stories, I felt compelled to share my perspective on the Affordable Care Act with you.
At eHealth, we’re accountable to you, our customers. We’re only in business because you choose to buy from us and because you share your positive experiences with family and friends – and for that we thank you.
In December 2016 and again in January 2017, nearly 6,000 of you responded to an email survey. What we learned from your responses was that, by-and-large, you’re not terribly happy with the ACA’s results.
- 79% of you said the Obamacare health plans were too expensive
- 89% of you said you want more flexible benefits
- 88% of your supported expanding access to tax credits, regardless of people’s income
- 67% of you oppose the tax penalty for being uninsured
- More of you supported the repeal of Obamacare than oppose it (46% to 39%)
Regardless of your politics, there’s a clear consensus that change is badly needed.
Perhaps surprisingly, many journalists see the same need for change in the ACA.
I’d encourage you to read two stories about the law that do an excellent job of describing the divide on the future of health reform and some of the more pressing issues involved in health reform legislation.
The first is an October 2016 article from Robert Pear, a New York Times journalist who wrote that the Affordable Care Act (ACA or Obamacare) “will almost certainly have to change to survive.”
The second is a February 2017 article from Ricardo Alonso-Zalvidar at the Associated Press who wrote that the health reform created “Winners and Losers When Buying Insurance.”
I agree with most of you, and with both of these articles. From my perspective, the debate in government about whether to “repeal & replace” the law or “amend it, don’t end it” is ultimately semantic.
The ACA has been good for some people and bad for others, but it needs to change in order to survive.
Here are a few facts about the ACA that don’t get widely reported:
- 19 million opt-out – According to a March 2017 article by the Associated Press, 19 million people have opted-out of Obamacare, either by paying the uninsured tax (6.5 million) or by filing a hardship exemption (12.7 million).
- 18 million enroll – Roughly 18 million have enrolled, including about 11 million on government exchanges and almost another 7 million off exchanges.
- Many who enroll cancel their coverage – By some estimates, more than 20% of those who do enroll in Obamacare cancel their plans during the year. Some consumers who purchased coverage on state-run exchanges have seen their plans cancelled for unknown reasons.
- Many doctors don’t get paid – According to the Great American Physician Survey, 45% of doctors with patients on Obamacare have problems collecting large deductibles from patients, and 24% see claims denied because patients’ don’t pay their premiums.
In the remainder of this article we’ll cover the following:
- Who wins and who loses under the ACA
- Where the ACA isn’t working well enough
- What’s the solution?
Who wins and who loses under ACA/Obamacare?
The fact is that Obamacare made the individual insurance market better for people with lower incomes and with pre-existing medical conditions.
The most recent estimate on the number of people who gained insurance coverage either through Medicaid (government-run insurance for the poor) or the insurance marketplaces (private insurance with a government subsidy for those who qualify) is roughly 20 million people.
Obamacare winners: People with lower incomes
Of the 20 million newly insured:
- 14 million were insured through Medicaid expansion – 14 million people got new coverage through Medicaid
- 6 million were insured through individual market reforms – 6 million were added to the individual insurance market.
By comparison, before 2014, when Obamacare’s major insurance reforms went into effect, the old individual market had only 11 million people.
Obamacare winners: People with pre-existing medical conditions
In 2014, people with pre-existing conditions could no longer be declined health insurance in the individual health insurance market.
It’s estimated that roughly 27% of the adult American population under 65 could have been declined coverage without this change in the law. It’s important to point out that the 27% number is only one estimate that might not be completely accurate. The ACA’s pre-existing condition insurance plans that were created in 2010 anticipated 375,000 enrollments, but enrolled fewer than 60,000 people between 2010 and 2012.
Regardless of how many people were kept out of the market prior to 2014, guaranteed access to health insurance is a critical change made by the ACA.
On the other hand, for middle-class, middle-income individuals and families, self-employed persons, and “mom and pop” small business owners, the ACA has been mostly negative.
Let’s look at Obamacare’s losers, and why they’re missing out:
Obamacare losers: Middle-class, middle-income people just below 400% of poverty level
Under Obamacare, anyone earning between 390% of the Federal Poverty Level (FPL) or above is at risk of major tax penalties because of the law’s subsidy cliff and IRS “claw-back” rule.
If your income fluctuates around 400% of FPL, Obamacare punishes any unexpected financial success, because Obamacare requires you to project your income ahead of time AND earn less than 400% of FPL to get a tax credit.
If your income projection is off by $100 – imagine a waiter who works a few extra shifts or a store owner that has a great Christmas season – that money can push you from 400% of poverty to 401% and cost you hundreds or potentially thousands of dollars in subsidies ($4,500 is the average estimate for a married couple).
Obamacare losers: Those earning over 400% of poverty level
In the individual health insurance market, health insurance premiums have doubled in four years under Obamacare.
People with incomes above 400% of FPL don’t qualify for Obamacare’s rich subsidies, which means they’ve taken a direct hit to their family incomes as a result of the law’s mandatory benefits and subsequent price increases, if they don’t qualify for Medicaid. Between 2013, the year before major provisions of Obamacare took effect, and 2016 the average monthly individual health insurance premium has increased 99%. In the same period, premiums for family coverage have increased 140% on average.
Obamacare losers: Young people
When it comes to health insurance there are two critical facts you need to know about young people:
- Without a lot of young people in the market, you can’t lower health insurance costs for older and sicker people.
- There are not enough young people signed up for Obamacare.
In order to achieve a healthy balance among young and older folks, the ACA’s goal was for people under age 35 to account for 40% of all enrollments. As of last fall, people under 35 only accounted for 28% of new enrollments.
This is a critical miss, because without young, healthy people in the risk pools, you cannot lower insurance costs for older and sicker people.
What about ACA/Obamacare isn’t working?
Opinions vary, but here are the key problems we see:
- It’s too easy to game the system – It’s too easy to get insurance when you’re sick and drop it when you’re healthy. Obamacare rules say that you can only get health insurance during open enrollment or with a qualifying life event outside open enrollment. In reality, many people have learned how to game the system by signing up during open enrollment, or falsifying a qualifying life event, then getting expensive medical care and afterwards dropping their plans.
- Applying for tax credits is too complicated – If you’re self-employed or working part-time, it can be very hard to estimate your income ahead of time. But that is what you have to do in order to get an Obamacare subsidy. What’s worse, the application is complicated and confusing.
- The plans are too expensive – The combination of people gaming the system and the difficulty using tax credits have helped to drive costs higher in the individual market. Obamacare also requires all health insurance plans to provide a broad range of mandatory benefits. Before Obamacare, people had the option to choose between health plans with more flexible benefits. People that chose plans with more comprehensive benefits – similar to those available under Obamacare plans – paid an average of 47% more than those who choose plans with more restricted coverage. Robust mandatory benefits have played a big role in rising costs.
What’s the solution?
eHealth believes a healthy individual insurance market must include three factors:
- 40% or more of young people must be in the individual insurance market risk pool – Any serious effort to lower prices for young people and increase their level of enrollment is good for everyone.
- Smart application of high risk pools – About 5% of patients drive 50% of all medical spending in the United States. A well-run reinsurance program – or high-risk pool – would allow state governments to offset costs for insurance companies when their high-risk population goes over a certain threshold. There are many ways to implement a high-risk pool but in our experience. Keeping everyone (including the 5%) in private insurance, and simply creating a release valve when patient costs exceed the high-risk threshold, keeps costs lower for the remaining 95% of healthy people (of any age).
- Put consumers in charge– We believe health insurance companies, health care providers, and marketplaces like eHealth.com and Healthcare.gov should have to compete on quality, service and products in order to earn your business. If insurance companies had to create health insurance plans that people wanted to buy, I think there would be a more affordable, diverse set of products. For our part, we continue to invest in product improvements, like our prescription drug shopping tool, our physician finder tool, our online educational resources and our phenomenal team of customer service staff. We hope any changes in the Affordable Care Act allow us to continue to compete for, and earn, your business.
No legislation is perfect, and there are limitations to what can be changed in the Affordable Care Act through Congress’s budget reconciliation process. For that reason, eHealth is hopeful and optimistic that we will see some bipartisan legislation out of Washington DC that makes much needed improvements or wholesale changes to the Affordable Care Act in order to improve access, increase coverage and lower costs.