With the Affordable Healthcare Act (“Obamacare”) again featured in the news (this being a day ending in “y,” I think we’re required to have Obamacare in the news), a bunch of my foreign friends have been trying to figure out what the heck it all means. Here’s a primer, along with some comparative information for US folks. I’ll keep this as apolitical, and as base-factual, as possible.
The Basic System
In the US, the government does not play a large role in most people’s health care. Services are offered by private companies, both profit (mostly) and nonprofit (in some cases). These services must be paid for by the patient, and the rates are set by the providers themselves – and can be exorbitant. A short ambulance ride to the ER, for example, can exceed $1000. For this reason, people try to have health insurance. Again, this is provided by private, for-profit insurers. You pay a monthly premium (or, more often, your employer does) and in exchange, you get certain services covered entirely, others covered for a small co-payment ($10-$25, in many cases), and others offered at a discount. Some services require you to fully cover the cost until an annual “deductible” is met (for example, I have a $1000 annual deductible for imaging services), after which those services are covered either entirely, or in a split (20% you, 80% the insurer). Insurers negotiate discounted rates for services.
That’s the basic system.
As an aside, health insurance is a curious beast. With most insurance, you can reasonably expect to never use it. I’ve owned a home for 11 years and never used my homeowner’s insurance, and hope to never have to do so. Ditto with my car insurance. Health insurance, though, I know I’ll need to use. Possibly a lot. And so health insurance doesn’t have the same roll-the-dice situation as many other kinds of insurance. Instead, it’s a balancing act, with insurers attempting to manage costs and profits across large chunks of the population based on risk factors like age and overall health. The math must be horrific.
Rationing of Health Care
There’s a twist to the program, in which insurers don’t have to cover every possible medical service or product you might want. Typically, they outsource these decisions to firms which specialize in evaluating your condition, your doctor’s recommendation, and the financial situation of the proposed product or service, and then deciding if they’ll cover it. In most situations, for all but the most routine care, you need to get “prior authorization” from your insurer before having anything done. For example, many less-expensive plans will simply not cover newer, brand-name medications, but will instead only cover less-expensive, generic versions. If your drug isn’t available in a generic, then your plan simply may not cover it. This is a “rationing” of health care dollars, designed to keep the insurance companies solvent (and profitable). It is entirely legal; you are always welcome to pay out-of-pocket for whatever else you might want, the theory goes, although in practice very few individuals can afford to do so.
Insurers also have a maximum indemnification, both on an annual and a lifetime basis. For example, after an insurer has paid $1 million in benefits to you, if that’s what your policy says, they can quite legally cut you off – and it’s doubtful another insurer would pick you up.
As a sidebar, the above situation creates a lot of debt and wrecked credit. Having medical-related chargeoffs or delinquent debt on your credit report is more or less standard for US adults (almost half of us have some). If you’re faced with going into insurmountable debt to get a life-saving procedure, or just dying, most people will take the debt and try to live with it or figure it out later. Health care is our largest form of personal debt, ahead of student loans, credit cards, home loans, and even debt to the IRS. There’s an entire sub-industry devoted to the collection of medical debts.
The rationing can get a little silly. For example, there’s an inexpensive CT test that, in about 10 seconds, can measure the amount of calcium in the walls of your major arteries. This creates a risk score, which along with cholesterol counts is an excellent indicator of overall cardiac health and risk. The test costs $150 (I just had it), and isn’t covered by any insurance company whatsoever (which is largely why it only costs $150; much more, and nobody would pay for it, showing how a free market can work). The test is recommended by pretty much every health body – the American Medical Association, the American Heart Association, you name it – but insurers simply don’t care to pay for it, especially given that may people are willing to pony up on their own. (My score was zero risk, by the way, thanks for asking!)
The Government Role
The government’s predominant role is in programs like Medicare and Medicaid, which provide insurance payments for seniors and low-income families. These programs are funded in part by Federal dollars, and in part by State funds, and are largely administered by the States. It is worth noting that it is illegal for Medicare – which is in fact the largest payer in the country – to negotiate pricing for some health services. This creates a bit of a problem, because Medicare is forced to pay whatever the going rate is. Medicare, like other insurers, does not cover any ol’ medical thing you may want; there’s a strict list of what will be covered, and under what circumstances. (Medicaid, on the other hand, gets “most favored nation” treatment, wherein it receives the lowest-offered prices for drugs, but cannot negotiate anything lower.)
Medicare and Medicaid are nuts-complicated. Medicaid often ends up paying less for the same things, due to the way the laws are written, whereas Medicare is simpler a payer, and insurance companies and health providers negotiate the prices paid. Medicaid also has legal protections against rising drug prices (like the Epi-Pen situation), but Medicare does not.
State governments also have a role in regulating insurers, but this is largely a licensing and oversight role. States do not take a role in setting price caps for services or insurance, for example, and instead limit themselves to investigating claims of abuse or fraud.
Not a Free Market
A difficulty with our system is that it isn’t really a free market. Most participants in the market – patients – have no idea whatsoever what their care costs. Their employer pays most or all of their insurance premiums, insurance negotiates discounted pricing, and insurers pay large portions of the costs. So patients aren’t able to shop around, for example. This is made more difficult by many insurers’ use of “networks,” in which you get better pricing, or are only covered, if you use healthcare providers who accept the insurers’ pricing, terms, and conditions. It’s often more expensive to actually “shop around” outside your “network.”
You might wonder why not having a “free market” for healthcare is such a big deal. It’s a cultural thing. Americans are born and raised on the ideal of capitalism, and we’re pretty deeply convinced that competition is the best thing for any industry. Obviously, not everyone shares that outlook, but in general it’s been very positive for our economy and country. It’s difficult for us to not deeply believe that a free market system, versus a government-controlled on, would be best. But it’s equally difficult for us to accept, at an emotional level, that our existing system is not a free market in any measurable way.
Some of the outcry over Obamacare has been the recent spike in rates. It’s a little bit of a politically and media-driven frenzy. For example, a friend recently told me of a friend of hers, whose insurance rates under an ACA plan had almost doubled, to more than $1200/mo for a family of 3. That’s a lot. But my friend actually has no clue how much insurance costs. Her employer pays all but a tiny fraction of her premium, and she’s single. So $1200 seems like a lot to her, but she actually doesn’t have any idea how much insurance should cost, or does cost on average. It’s like saying that $20,000 is a lot of money for a car. Yeah, it’s a lot of money – but that’s what cars cost. Cheap ones, in fact. This is again proof that our system isn’t really a free market. If you don’t know how much something costs, you don’t have a free market.
ACA / Obamacare
Obamacare initiated a few major changes to our insurance marketplace.
- The individual mandate you hear about is essentially a penalty on your Federal income taxes if you’re not insured. The idea is that insurance is expensive when the only people in the market are older and more in need of care; insurers have fewer people to spread costs across. By having everyone insured, the theory goes, you get a lot of younger, healthier people in the pool, lowering costs. In practice, that hasn’t worked out. The penalties are poorly enforced (they’re in fact nigh-unenforcable from a practical perspective) and many young, health people simply forgo insurance.
- Pre-existing conditions were a bane of the US system until Obamacare, preventing you from getting insurance if you were already sick (or imposing a months-long waiver for coverage on whatever those existing conditions were). Insurers were also famous for dropping very sick people who weren’t profitable. Obamacare prohibits both exclusions and dropping.
- Exchanges are per-State websites, essentially, where individuals (as opposed to employees covered under an employer group plan) could buy insurance plans. Individual insurance was always available, but was often substandard, expensive, and hard to shop for. Obamacare created some standard coverage levels to simplify comparisons. Unfortunately, because costs weren’t driven down as expected, these plans have gone up and up – and many insurers have simply backed out from offering those plans, due to their unprofitability. Note that many States opted not to run an Exchange, and so the Federal government did so on their behalf. This is complex, because health insurance is regulated on a per-State basis. You can only offer insurance on a given State’s exchange if you’re licensed in, and by, that State, regardless of who operates the Exchange. As a result, there’s a butte-tonne of inconsistency from State to State when it comes to costs, coverages, availability, and so on. The Federal government has declined to try and take over insurance regulation (and to be honest, any such attempt would likely fail both politically and Constitutionally).
- Subsidies are government grants to low-income individuals, to help those individuals pay for their health care plans.
- Employer mandates require most employers with 50 or more full-time (or equivalent; part-timers are aggregated for this count) to provide group insurance for their employees. Tax credits are available to smaller businesses who provide group insurance for their employees, similar in purpose to the individual subsidies.
- Medicaid was expanded under Obamacare, covering more people and offer more coverage for them. States were required to opt-in to this expansion, since the programs are State-run, and many States – honestly, for purely political reasons – did not opt-in.
- Expanded coverage allows young people to remain on their parent’s insurance plans (often obtained from an employer) until the age of 26, provided certain conditions are met (like, attending school or living at home). This was a marked change when you normally would get bumped from your parents’ plan at 18 or 21, depending on your insurer.
- Coverage standards attempted to standardize certain key medical products and services, insisting that plans cover these minimums. These are grouped into “Bronze,” “Silver,” and “Gold” levels of care, with each tier offering more and better coverage, in exchange for higher premiums, higher co-pays, and/or higher deductibles (usually a combination of all three).
Obamacare is obviously much more detailed than that, but those are some of the major tenets of the law.
Now, for comparison, nearly every other wealthy, developed country on Earth has social health care. “Social” is a bad word for many Americans, because it invokes “Socialism,” which many Americans dislike intensely (and often conflate with “Communism,” something many politicians take advantage of). If Eisenhower had pushed for a “social transportation network” instead of an “interstate highway system,” we’d still be using poorly-paved 2-land roads to get around the country. Anyway, under most other countries’ systems, health providers remain private, independent workers and entities. Health care pricing is set for, and paid entirely or largely by, the government. There are no private insurers, and the government is the single payer for health services, giving it enormous negotiating power when setting prices (you hear “single payer” in the US when discussing other health care options that have been, and are being, considered). Criticisms of other counties’ systems include high costs (which the US has in spades, as well), long wait times for care (which many parts of the US also have), and poor quality of care (which the US also enjoys in many areas). Obviously, each other country has variations in how their systems work, and variations in the perceived cost, quality, and availability of care.
Opposition to the ACA
Obviously, there is considerable political opposition to Obamacare, which is why it’s in the news so much now. I confess that – largely because of the company I keep and the region I live in – that I’m not entirely familiar with the opposing arguments, so it’s difficult for me to articulate them. I do know that many Americans object to being forced to purchase health insurance, although everyone I’ve spoken to who holds this view has insurance from their employer.
There is no question that Obamacare has not controlled health care costs as it was intended to do; prices for services and for insurance have indeed climbed. However, it’s difficult to ascertain if that climb was going to happen without Obamacare. Like everyone else, we have a large, aging population in need of significant care. Younger, healthier people weren’t insured before Obamacare, so they never provided any kind of counterweight to rising costs. It’s certainly possible that costs were going to rise no matter what, but the “Affordable Healthcare Act” was pitched in large part on controlling costs.
There are certainly ongoing objections to the general concept of the employer mandate (alleging it raises the cost of employment, it creates fewer full-time and more part-time jobs, it is burdensome for companies of all sizes, etc), as well as to the specifics (certain employers have religious objections to some of the services that the law mandates be covered).
Another objection is more philosophical in nature, and relates to the ACA’s extensive level of regulation. The Republican party, in general, objects to government regulation of private industry (which, remember, our health care system is), and in general seeks to de-regulate rather than regulate.
Subsidies of any kind always create a lot of political tension in the US, and the Obamacare subsidies are no different. Many Americans feel that most social programs largely benefit people who are simply too lazy to work, and who want to live for free on government handouts. It’s worth acknowledging that such people do exist, although they’ve traditionally obtained medical care from emergency rooms (which are required by law to treat everyone who walks in the door), who then subsidize the costs internally by jacking up the prices for paying customers. Also, Americans with little or no income have, and continue to have, access to government-paid insurance in the form of Medicaid. Most people receiving ACA subsidies, by all reports, are “working poor” who make too much to qualify for Medicaid, but not enough to afford their own insurance, and whose employers don’t provide insurance.
It is worth noting that many Americans are deeply misinformed about what the ACA actually involves, which creates a lot of “false objections.” This is largely fed by politicians and political groups who want to build consensus and support. For example, many people continue to believe that Obamacare gives the Federal government the right to decide if a particular medical service will be permitted or denied to you. That is not the case. Your private insurer will make that decision, with no input from the government. Even Obamacare’s “mandatory coverage” items do not have to be authorized in all circumstances; insurers get to decide when a given treatment is appropriate. Many also believe that the Federal government would dictate which doctor you could see; this is entirely false. Again, insurers always have, and continue, to decide which doctors they will cover. Some Americans continue to believe that “participating in Obamacare” will result in an RFID chip being implanted in you – which is obviously false. These kinds of misunderstandings have made it very difficult for us, as a country, to have a substantive and actionable discussion about healthcare.
What’s especially important to know is that, if you ask most Americans, they would state that, above all else, they believe every American citizen should have access to affordable, quality medical care, regardless of their income or personal situation. As a country, we just disagree deeply on how to get there.
With both halves of our Congress run by the same party (although not by supermajority in the Senate, which is key in some cases), and with our new President having at least a modicum of Republican leaning, the party is attempting to get rid of Obamacare, possibly replacing it with an (as of this writing) unformed and unspecified new setup.
Many options have been discussed in the news, although none of them would be a fully social system like most European countries (for example; Canada and Australia also have large single-payer systems) use.
For example, one idea has been to force insurers to offer plans with cheaper monthly rates, but higher deductibles – meaning you pay more out-of-pocket until the insurance “kicks in.” These are coupled with special tax-free savings accounts, in which you, the government, or your employer could deposit money toward future medical expenses. The idea is that if you start young, you can save up quite a lot against your older age. An objection to these plans is that they’re very similar to our 401(k) retirement plans, which (a) young people routinely ignore and (b) employers under-contribute to. It’s worth noting that these “High-Deductible Health Plans” (HDHPs), using “Healthcare Savings Accounts” (HSAs) existed before Obamacare (I had one), and were not widely popular due primarily to the high co-pays and high deductibles.
There’s no question that this is a complex, divisive topic that goes far beyond the core financial concerns. In the US, at least, health care inevitably treads into cultural and religious grounds, and with a population roughly the size of all of Western Europe, it’s difficult for our entire population to find a great deal of common ground. Looking at other countries, it’s clear that there’s no perfect solution, but in the US that means it’s only more difficult for us to find one that works well for all of our constituents.