Monday, December 2, 2013

Obamacare: Seven Major Provisions And How They Affect You

This is a helpful summary of the basics.   Note that the "safety net" for our poor included 20% of the population before we ever even began implementing PPACA.  Just how many Americans should have healthcare paid for by others?   Clearly 20% was not enought for American tastes.  

Obamacare: Seven Major Provisions And How They Affect You - Forbes

Obamacare, or the PPACA if you prefer, will drastically change major aspects of “the finest healthcare system in the world.” Without question, our system had its problems. Specifically, the cost of health insurance and medical care was indeed rising too fast. Even so, have we taken a chainsaw to fix an issue which could have been remedied with a scalpel and a few sutures? After all, on average, our health care system contained far more strengths than weaknesses. Judging by the number of patients that have come from foreign lands to receive medical care in the U.S., the world whole-heartedly agrees. However, this is all changing. How will Americans receive their health care in the future? What changes can we expect?

 Health Care Delivery Systems

In the future, Americans will acquire health insurance through one of four venues. They are:

    1. Government provided (i.e.; Medicaid, Medicare, etc.);
    2. Employer provided;
    3. Exchanges; and
    4. Other.

Today, most people obtain their health insurance through their employer. A large number are also insured through the government. Most of those who remain will go through an Exchange, especially since this is the only way to obtain a premium subsidy.

 Overview of Obamacare Provisions

The PPACA contains a number of requirements to which insurers and individuals must adhere. Here is a list of the major changes under Obamacare.

Guaranteed Issue: Health insurers will no longer be able to deny coverage based on current or prior health. Depending on enrollment, premiums are likely to trend higher. This could also have a negative impact on the quality of the “risk pool” as those previously unable to obtain insurance will now be eligible for coverage.

Minimum Standards: Each policy must now meet certain minimum coverage standards called essential health benefits (EHB). In addition, children can remain on their parents’ health coverage until age 26. This may cause premiums to rise if the new minimum standards are higher than existing coverage.

Individual Mandate: Unless you qualify for an exemption, you are now required to purchase health insurance or pay a non-compliance penalty. This could cause premiums to fall because younger individuals must purchase coverage and this group is generally in better health. Therefore, younger individuals will be supporting those who are older. However, I suspect this will be a nightmare to enforce as many young people will simply choose not to participate. After all, when you’re young, health insurance is a low priority.

Health Insurance Exchanges: If you do not have insurance through your employer or the government, you will either purchase it through your state’s Exchange (if available), the Federal  Exchange, or through what I call “Other.” This could cause premiums to rise as it will add an additional layer of bureaucracy and expense. Also, because government has no profit motive, there is less incentive to operate with the same efficiency as a private sector company.

Low Income Subsidies: Individuals and families with an income less than 400% of the federal poverty level who purchase health insurance through an Exchange will be eligible for a subsidy from the government. The federal poverty level is based on the number of family members and state of residence. See TABLE A for details. This will put tremendous pressure on the federal budget and create an argument for higher taxes. As has occurred numerous times in the past, actual costs will almost certainly exceed projections. Moreover, anytime the government subsidizes a program, its cost tends to increase. Just look at our university system and the staggering cost of a four-year program.

US Poverty Guidelines 2013

Medicaid Expansion: Medicaid is a state-administered program created in 1965 to provide healthcare services to the poor. Moreover, this program has been a major budgetary item for state governments for many years. To help, the federal government contributes a percentage of each state’s Medicaid budget, as long as the state abides by federal guidelines. The federal reimbursement percentage varies from state to state, but averages about 57 percent.

One of the major provisions of Obamacare was an increase in the Medicaid income threshold which is used to determine if an individual or family qualifies for the program. Any expansion in Medicaid, even if supplemented by the federal government, will increase expenses for the state. This issue also ended up in the Supreme Court where a fragmented and diverse set of opinions ensued. However, the court ruled that a state may “opt out” of the expansion without jeopardizing its existing federal Medicaid contributions. Many states did exactly that while others are allowing the expansion. One source reported that, as of October 22, 2013, 15 states have opted out, 7 are leaning that way, 21 are participating, 3 are leaning in that direction, and the rest are considering an alternative model. In any event, millions of additional people will now qualify for, and enroll in, Medicaid. TABLE B provides the number of individuals who have received a benefit from Medicaid and the total dollar amount the program paid from 2000 through 2009. This will most certainly put upward pressure on health care costs and premiums. It will also be amplified by any operational inefficiencies which may persist.

If your state did not opt out, you may qualify for Medicaid if you earn up to 133% of the federal poverty level (See TABLE A). Obamacare also provides a 5% “income disregard” which effectively increases the qualifying threshold to 138%.

US Medicaid Data 2000-2009

NOTE: I was unable to find Census Bureau data after 2009. I did find other sources with post 2009 data, but because I could not verify the data in time, I chose to omit it.

Medicare payment Reforms: Currently, medical payments under Medicare are paid on a “fee-for-service” basis. With Obamacare, payments will be “bundled.” For example, if you had a knee replacement, in the past, you would receive a bill from the medical facility, the surgeon, the anesthesiologist, etc. Under a bundled system, a single payment will be made to a hospital and a physician group for a specific procedure.

I believe this approach has many potential problems. First, someone must decide how much will be paid for each procedure. Moreover, adjustments will need to be made for complications and the degree of complication will also vary. Then, allowances must be made for geographic differences. In short, will a knee replacement cost the same in Quitman, Mississippi and Los Angeles, California?

This could push premiums higher depending on the amount of payment allowed for various procedures and the physicians willingness to accept it. If the allowable payments are perceived as too low, it could cause medical providers to refuse Medicare patients. If enough practitioners did this, the government could hire its own doctors and take control of this segment of health care or they could increase the allowable fees to make it attractive for practitioners to continue accepting Medicare patients. With the complexity of the PPACA and the aging U.S. population, this could become a very significant issue.


To summarize, the PPACA is a highly complex piece of legislation which was rushed through Congress and signed into law before most lawmakers read it. Today, we find ourselves in the midst of a heated debate and a program with many glitches. Even so, if Obamacare survives, it will likely end up as one of the most costly social programs in the history of the United States.