Obamacare Paradox: Unsubsidized, But Satisfied Insurance Customers

Source: Getty Images

Source: Getty Images

Government data shows that more than 80 percent of individuals who have selected health insurance plans through the state or federal Affordable Care Act exchanges were eligible for the federal tax credits that subsidize the cost of premiums and out-of-pocket medical expenses for lower-income Americans. With approximately 5 million enrollments recorded as of mid-March, that means that around 1 million people signed up for coverage and did not qualify for federal subsidies. According to the Department of Health and Human Services, this puts the ratio of subsidized to unsubsidized exchange enrollees well within the bounds projected by the nonpartisan Congressional Budget Officer, which determined that 86 percent of exchange enrollees could receive financial assistance and the system would still be supportable.

To put this in context, the Urban Institute has found that of the 12 million Americans buying health insurance on the broader individual market, about half are not eligible for subsidies. That distribution of insurance customers — with the exchanges seeing far more lower-income, and therefore subside-eligible, enrollment numbers than the individual insurance market — suggests that those who do not benefit from subsidized insurance pillar of the healthcare reform are staying away from the exchange system. While it is true that people who qualify for financial assistance are more likely to enroll for coverage via the marketplaces, the fact that those who are not eligible for subsidies are purchasing exchange insurance at a much lower rate is not a sign of their displeasure with Obamacare necessarily. That is an important distinction to make because of the criticism that have be leveled at the subsidies.

Subsidies have been a major focal point of the campaign against the healthcare reform. Senator Ted Cruz of Texas took aim at the tax credits in a August 2013 interview with conservative radio host Rush Limbaugh. He likened the subsidies to a sugar addiction, a tool for President Barack Obama to ensure that the American people would never support a repeal of the healthcare reform. “President Obama’s strategy is very simple,” he said. “He wants to get as many Americans as possible addicted to the subsidies, addicted to the sugar, because he knows that in modern times, no major entitlement has ever been implemented and then unwound.” In other words, when the exchanges are “up and running” it will be too late.

The other concern for the critics of Obamacare are taxes. To fund the tax credits, the federal government will distribute to subsidize the cost of health insurance for those Americans earning between 138 percent and 400 percent of the federal poverty level — a income bracket that may include as many 17 million individuals — the federal government is boosting tax revenues by $1 trillion over the next ten years. As early as 2009, before the Affordable Care Act was signed into law, former Republican Senator Jon Kyl of Arizona told current Speaker of the House John Boehner, a Republican from Ohio, that, “The whole concept of the bill, with its government mandates, its taxes, its spending, and all of the other features of it, are what make it unacceptable.”

Even worse, Forbes contributor and health care expert Avik Roy argued in a February 5 article that, “Obamacare’s $1 trillion in tax increases, which will discourage work and depress economic growth.” That conclusion that was largely based on the Congressional Budget Office’s Budget and Economic Outlook for 2014 to 2024, which included an updated analysis of the “labor market effects of the Affordable Care Act.” The nonpartisan agency found the reduction in the total number of hours worked by the American labor force due to the Affordable Care Act would amount to 2.5 million by 2017.

But subsidies make the individual mandate work, as does the tax penalty levied against those individuals who do not purchase Obamacare-compliant policies and do not qualify for the hardship exemption. While Roy’s concern is valid, especially when compared to Cruz’s bluster, it may not be true that Americans who don’t qualify for subsidies are avoiding the exchanges as a sign of protest. Even more importantly, it is also true that those Americans who do not purchase coverage through the exchange system can still benefit from the reform.

Through interviews with several people whose family income disqualifies them for subsidies and who bought insurance on the individual market for this year, the Atlantic’s Andrew Sprung drew a picture of a different type of insurance consumer than the Republican party often depicts. Far from the embittered policyholder struggling with premium increases and cancellations, Sprung argues that veterans of the individual market are accustomed to its shocks and uncertainties. He makes no attempt to downplay the fact that nearly a quarter of those 12 million Americans who buy health insurance on the individual market received cancellation notices last fall or that many other insurance customers face substantial premium hikes. He also notes that some who will be forced to pay more will do so because they will receive coverage for services they do not want like maternal or mental care. But Sprung reported that many insurance customers are finding their options to be better and their insurance “status less precarious” than in the pre-Obamacare market.

Those policyholders Sprung interviewed all had a very important trait in common; all had a member of their household with a preexisting condition, meaning they benefit from the provisions of the Affordable Care Act that prohibit insurers from basing price or eligibility on medical history and that lump all insurance insurance customers in the same risk pool. Before the passage of the reform, they had been subject to above-market rates or faced limit choices because of their family member’s medical history. Many critics of Obamacare argue that the improved situation for insurance customers with preexisting conditions comes at the expense of their healthier counterparts, at least half of whom do not qualify for subsidies. That is not an invalid claim; forbidding insurers from charging chronically ill insurance customers higher premiums than healthier counterparts raises costs for those cheaper-to-insurance individuals.

But to Sprung, the size of the category of people who were previously impacted by pricing based on previous medical history justifies the change. According a report from the Department of Health and Human services between 19 and 50 percent of Americans are considered by insurers to have a preexisting condition. The fact that insurance policies would affect a whole family in some cases drastically increases how many Americans saw stiffer prices before the passage of the Affordable Care Act.

But the people interviewed by Sprung, who he termed the “satisfied unsubsidized,” did not purchase their plans through healthcare.gov. Rather, to avoid a further layer of bureaucracy, they bought their policy directly from an insurer.

Take for example the case of Colorado-based artist named Karen that Sprung interviewed. She and her husband are both self-employed, and she had a rare, benign tumor that required complicated treatment. Karen’s condition locked her into policy for ten years, and by 2013 the couple’s premium had rising to $1,200 per month. Using ConnectForHealthColorado, the state’s exchange, she found a plan that would save them $657 per month. However, because of the well-publicized problems with the healthcare website, she purchased the policy through the insurance company. “Applying directly to Kaiser saved us time over applying through our state’s exchange, because we didn’t have to go through the rigmarole of seeing if we qualified for a subsidy when I knew up front that we didn’t,” she told Sprung. The application process was also a lot easier than in the past, because insurers no longer require detailed medical histories. “You just have to give them your credit card, your ages and location, and boom — you’re done.”

It is still important to note that it will take many more anecdotal stories like Karen’s and many more years before health care experts have the necessary data to weigh the experiences of people who previously been subject to above-market rates against those of unsubsidized insurance customers whose premiums jumped after the implementation of the marketplace system.

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