Affording the Affordable Care Act

As enrollment in the Affordable Care Act’s (ACA) new health care markets, or exchanges as they are also known, begins, much of the debate over the law is focused on insurance: Who will get coverage? How much will premiums cost? Should our state expand Medicaid? Yet health insurance is not an end in itself.

The point of insurance is to help people get the health care they need at prices they can afford and, in the event of serious injury or accident, to protect them from catastrophically high medical bills. What often gets lost in the debate is how the new law will affect Americans’ ability to buy health care.

While relatively little will change for most people who already get their insurance through employers, an estimated 49 million Americans will be affected by the new law, either becoming newly insured or changing their source of coverage. How will these changes affect consumer health care spending? Will the Affordable Care Act live up to its name?

Of course, ultimately only time and experience will tell. But in the meantime, the law is being implemented, and policymakers and consumers confronting the new health care market are seeking answers about the law’s likely impact, beyond politicized charges and countercharges about whether it will succeed.

Using the COMPARE microsimulation model, my RAND colleagues and I examined how the ACA will affect spending by consumers who are insured for the first time or who change coverage as a result of the law. Specifically, we looked at out-of-pocket spending (spending at the point of sale — copays, deductibles, and coinsurance, which is the fraction of spending not covered by insurance); total spending on health care, which includes out-of-pocket spending plus insurance premiums; and consumers’ risk of high medical care costs.

The analysis focused on 2016, the first year in which penalties for not complying with the individual mandate will be fully in effect, and considered two scenarios: one in which the ACA is fully in place and another that estimates outcomes without the ACA.

We found that out-of-pocket spending on health care will decrease for both the newly insured as well as for those changing their source of insurance. These decreases will be largest for those who would otherwise be uninsured. In some cases these reductions will be dramatic. For example, the largest reduction in out-of-pocket spending will happen for the 11.5 million people who enroll in Medicaid under the ACA; their reduction in out-of-pocket spending will be nearly fortyfold — from $1,463 to $34 per year. Enrollees in the new individual exchanges will also spend less money out of pocket than they would if the ACA were not in effect. The reduction is most dramatic for individuals with higher incomes — 400% or more above the federal poverty level (FPL), or roughly $45,960 for an individual, in 2013 dollars — who will spend $1,227 under the ACA, compared with $5,368 if the ACA were not in effect, a reduction of $4,141.

When we consider total spending (out-of pocket spending plus premiums) the picture becomes more complicated. For those individuals who will become newly insured through Medicaid, total spending, like out-of-pocket spending, will fall because Medicaid has no premiums and little, if any, cost sharing. Of those who would have been insured in the old individual market in the absence of the ACA, but who will shift their coverage to the new individual market under the ACA, total spending will decrease for the segment with incomes below 400 percent of the FPL.

It will increase for the segment with incomes above 400 percent of the FPL, at least in part because the latter group is not eligible for federal subsidies. Likewise, for individuals who would be uninsured without the ACA who become covered in the new individual market, total spending will increase. This will happen because these individuals and families will be paying premiums for the first time. For example, people with incomes between 138 and 400 percent of the FPL will spend $1,567 more per year than what they would have spent if the ACA were not in effect.

A key question, then, especially for those whose total health care spending will be higher under the ACA, is whether health insurance is serving its other intended purpose of shielding them from catastrophically high medical bills, a factor that contributes to bankruptcies in the United States. To answer this question, we used our model to estimate the likelihood of incurring medical costs that exceed either 10 percent or 20 percent of annual income, either of which can be financially devastating.

We found that consumers will be less likely to incur such high medical costs after implementation of the ACA. These results held for consumers at all income levels and across all sources of coverage. Consumers with the lowest incomes will see the most dramatic reductions in risk of catastrophic medical costs. For example, the 11.5 million individuals who become newly insured by Medicaid will see their risk of spending at least 10 percent of income on medical costs decrease from 45 percent to 5 percent.

Ultimately, whether the ACA will make health care affordable is a judgment call. For most lower-income individuals, total spending will fall as a result of the coverage they obtain under the ACA. At the same time, total spending may increase for individuals who become newly insured through the individual market (especially those not eligible for federal subsidies) because they now must pay health insurance premiums. However, their premiums will buy them the benefits associated with health coverage, such as access to free preventive care and regular wellness visits, and will also better protect them against catastrophic medical costs.

Christine Eibner, Ph.D. is a senior economist at the nonprofit, nonpartisan RAND Corporation. This commentary originally appeared on The RAND Blog.

10 replies »

  1. This is what happened to me since the “unaffordable” for health act has kicked in. My insurance premiums have gone up over 400%!!!! My deductible has gone from $1200 to $3600……where I had NO co-pays before, I NOW have $30 co-pays too? My first prescription of the year was 1000% higher. (ten times the price of my old insurance!!!!) This same rate was also true on a simple finger stick….. old price $6….new price $59 ????

    This is all out of my pocket now!!! (every time) Like others have said …this is like NOT having any insurance at all. With BIGGER payouts. PLUS the insurance did not add any value or benefit to me coverage wise. PURE JUNK!!!!
    What if one of your bills went up 400% how would you feel…..ripped off RIGHT? You got it!

  2. It is an unfortunate matter that the Affordable Care Act is being deemed unaffordable by thousands of Americans. The bronze, silver, gold, and platinum divisions of the plan appear to be a solution on the surface level. However it is seen that when put in action the majority of people changing plans to the ACA are increasing their out of pockets and premiums by far more than they can afford. The United States spends more on healthcare than any other nation in the world, and it is clear that the ACA is not going to fix that problem. Saying that whether or not the ACA will increase affordability of healthcare is a judgment call is spot on. There are points of the ACA that give it an appearance of making it a truly affordable plan. Clearly, there is more than what meets the eye as unsuspecting consumers see their rates rise.

  3. I don’t see costs decreasing. Mine will go up drastically. I am below poverty level, but somehow don’t qualify for a subsidy because I “make too much.” My state won’t expand Medicaid, so I don’t qualify for that. I would gladly pay for health insurance that I could afford, but the premium I would have to pay would eat up my paycheck. Plus, even if I did manage to afford the “bronze” level plan, the deductible and cost sharing is so high that I could not afford to use the coverage that I would be paying for!

  4. I seriously hope ObamaCare is going to be a great success. The United States has a national interest in a healthy population with access to care driven by both quality and cost. The question is how to get there. Regardless of the fate of the Affordable Care Act, the United States faces a crisis in health care. On the other hand, universal health care is not something new. It has been implemented successfully through out many countries in the world. While the ACA extends coverage to most Americans, issues of cost and quality remain unaddressed. ObamaCare seems like a good idea on the surface but unless the major problems with it can be addressed then the system just isn’t going to work. If you can’t enroll in the system then you can’t use it and the implementation of ObamaCare as so far been atrocious. – See more at: http://www.formosapost.com/obamacare-single-payer-healthcare/

  5. I have looked at estimates of my private personal coverage on healthcare.gov and their link to another site. My premiums and out of pocket will be 1.5 to 2 times what I’m paying now, and that’s with the subsidies for income included. I thought through all this process it was supposed to the Affordable Care Act, well for who?

  6. I think that when Congress and the White House devise ways to immune themselves from the very laws that they pass (as in the case of Obamacare) it speaks volumes regarding the the true cost and effectiveness of this impending healthcare legislation.

    I’m clearly not a healthcare expert, but when everyone is fully participating including big corporations, the unions, and most certainly Congress and the White House, including all other public servants inside the Beltway, civilian or otherwise, then I will have a little more faith that this new healthcare law is the right prescription for our country’s medical needs.

    In order to achieve affordable health insurance for everyone, my first recommendation would be for all members Congress and the White House to be banned from taking money from the entire medical-insurance-pharmacy complex without any exceptions whatsoever. My second recommendation would be for all of these public servants to be sent to the exchanges to find and pay for their own health insurance without any government subsidies whatsoever.

  7. “The reduction is most dramatic for individuals with higher incomes — 400% or more above the federal poverty level (FPL), or roughly $45,960 for an individual, in 2013 dollars — who will spend $1,227 under the ACA, compared with $5,368 if the ACA were not in effect, a reduction of $4,141.”

    Did you look at any healthy people? I have never spent anywhere close to $5,368 in a year. Assuming risk as an element of out-of-pocket may or may not be a valid element in out-of-pocket. I’d like to see a link to the study. Not sure what age groups were examined as well.

    I have found that having health insurance is just a care loan program – usually paid in advance. Add up the premiums and most premium payers are paying for care anyway.

  8. Obamacare is a very serious and sensitive issue for Americans, who have now been divided into gold, silver, bronze and platinium. Different level of premiums will give relief to all the insurance holder. In sincerity, providing insurance would be a burden for the government and the government shutting down is an indirect result of it.

    Read more on: http://goo.gl/cy7tYM

    It is a well written piece on Obamacare and Healthcare.Gov with all the repercussions described in detail.


  9. “much of the debate over the law is focused on insurance”

    Well, that’s because the ACA is really just a byzantine INSURANCE reform bill (with a smattering of QI projects sprinkled in).

    Just as HIPAA was not “about” privacy. Only 13 of its 167 pages address privacy and security topics. According to JD Kleinke that section (Subtitle F) was an 11th hour add tossed in to appease some critical fence-sitters.