Credit: Shutterstock photoVoters go to the polls in less than 30 days to decide whether Hillary Clinton or Donald Trump will be the next President of the United States. The election, to date, has been one of the most tumultuous races in recent history. At the heart of the controversy is a difference of opinion regarding key policy issues, including trade, regulation and income inequality. But some of the most polarizing debates have been driven by the Affordable Care Act, otherwise known as Obamacare. Hillary Clinton has been a staunch advocate of the policy while Donald Trump insists he will repeal it if he is elected President. Policy experts and economists, like the candidates, have been at odds whether the bill’s merits outweigh its costs.
Structure
The Affordable Care Act was formally signed into law in 2010 with the intent of making health care both accessible and affordable. Historically, millions of Americans were without insurance because they were not poor enough for Medicaid but couldn’t afford private insurance. Obamacare set out to tackle this problem by directly expanding Medicaid and providing the less fortunate with individual subsidies. It also required that all Americans obtain health insurance through an employer, private or state based marketplaces.
Moreover, insurance companies are encouraged to compete on price and value for federal subsidies and tax credits. They are no longer allowed to calculate premiums based on sex and pre-existing conditions, but must do so by age and geography. Out of pocket expenses for older customers are capped at three times as much as young adults, thereby squeezing insurers’ profits. But the sole purpose was never meant to benefit the insurance industry, but rather cut costs, extend coverage, boost employment and spur the economy.
Cost Reduction
For years health care spending and the cost of health insurance outpaced wage growth, leaving Americans with very little discretionary income. However, this appears to have changed since the passage of the Affordable Care Act. In 2013, the share of GDP devoted to health care was approximately the same as it was in 2009. One of the promises of Obamacare was to curb costs primarily through tax credits and federal subsidies. To make this possible, the plan introduced various tools to prevent doctors from abusing the previous fee-for-service system. For example, health care providers would receive financial rewards for cutting costs and penalties for subpar care, measured by remittance rates.
One of the biggest problems for insurance companies has been balancing modest premiums and rising costs when accepting sicker patients. Older and sick patients often require very expensive treatment that under Obamacare becomes less profitable. In order to compensate insurers for some of these losses, Obamacare provides reinsurance, risk adjustment and risk corridors when costs are higher than expected.
In addition, there is the cost of employees missing work or being less productive because of physical or mental illnesses. Each of these conditions is treatable but is often overlooked when people are under or uninsured. The Center for Disease Control and Prevention (CDC) pegged the annual costs of productivity loses linked to absenteeism at $225.8 billion in the United States. The Affordable Care Act will by no means eliminate these losses, but reducing them goes a long way.
Labor Market
The law has a number of provisions that are perceived to have adversely impacted employment. According to the law, firms with 50 or more employees that work 30 or more hours are required to offer health insurance. Naturally this has prompted employers to either stop hiring or limit its staff to under 30 hours per week. Part-time work surged in the early days of Obamacare, but has since decreased as the labor market improved. During this time average weekly hours have remained relatively flat between 34.3 and 34.5 hours, opposite of what many economists expected. Strength in other employment metrics mainly unemployment and non-farm payroll suggests Obamacare hasn’t made a dent in the labor market.
Economic Growth
A recent report released earlier this year found that over 20 million people gained health insurance since the passage of the Affordable Care Act in 2010. Those provisions include an uptake in Medicaid and Medicare, but also a decline in uninsured young adults. Between 2013 and 2015 the level of uninsured Americans decreased from 13% to 9%. One study found that the growth in real spending during this time closely matches the 4% increase in the number of American with health insurance. Part of this is undoubtedly going towards health care, but equivalent gains have been made across other goods and services. This alone is reason to believe that the bill has been more helpful than detrimental to the U.S. economy.
What’s Next?
Obamacare has not only been a hot button issue for the Presidential candidates, but also for insurance companies. This year, Aetna (AET) and United Healthcare (UNH) both announced they would be withdrawing from several Obamacare exchanges in 2017. Aetna, like United Healthcare before it, claims to have suffered $430 in losses since January of 2014, citing issues with the risk pool. They found that sicker patients are signing up for the exchanges more than healthier ones, thereby squeezing profitability. These problems could cause more companies to leave the exchanges and start the unraveling of Obamacare. Ultimately this will be in the hands of the next President to reform or eliminate the bill.
Final Remarks
Obamacare has been the most polarizing issue in American politics since its passage in 2010. There are those that believe it has done harm to the economy while others point to its positive impact and upside. Quite simply the bill accomplished its goal of providing Americans with access to affordable and quality health insurance. But this has come at the cost of insurance companies which are now jeopardizing the future of the bill. Whatever comes of Obamacare, there is very little evidence to suggest it’s had an adverse impact on the economy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
