The Unaffordable Care Act

Liberal public health advocates and left-of-center health policy wonks have long thought every American needs health insurance (they don’t, but that’s another discussion). Lefties assume health insurance is the only way Americans access medical care. After all, the purpose of the Affordable Care Act was to insulate Americans from the financial hardship of medical care they couldn’t afford to pay for out of pocket. Moreover, many pundits believe having to reach for one’s wallet during a medical encounter is unacceptable. So imagine my shock when I read a headline in  The New York Times claiming that Obamacare is no guarantee against crushing medical bills.

In a survey of non-seniors, the New York Times/Kaiser poll found about one-in-five people struggle with medical bills even though they have insurance. Among insured people who reported crushing medical debts, about three-quarters reported putting off vacations, major purchases and cutting back on household spending. Nearly two-thirds used up all or most of their savings. Far fewer had to resort to second jobs, take on more hours or ask family members for funds (42 percent to 37 percent).

Why are these insured Americans having to reduce their standard of living and, in fewer instances, having to resort to more drastic measures? Was it entirely because they’re sick? A common refrain among those struggling with medical bills was that money was tight prior to a family illness. This includes high-income households as well as low income households.

Money is fungible; it can be spent on vacations or medical needs. However, there are trade-offs in life. Like it or not, medical care is a component of household budgets. Funds spent on vacations cannot be spent on medical care; and funds spent on medical care are no longer available for vacations. Yet, putting off a vacation to pay medical bills is certainly not a travesty. Most would consider vacations a luxury, not a necessity.

One final thought about polls. A couple weeks ago in an earlier Townhallcommentary, I explained that people tend to report problems paying bills they don’t want to pay. Yet, they are seemingly willing to purchase items they should probably have left at the store. For example, people may report experiencing problems paying medical bills, but are unlikely to say they have trouble affording alcohol. They may report problems buying cigarettes but continue to buy them anyway. Americans report putting off vacations and major purchases because of medical bills. But why didn’t they report having no problems with medical bills, but problems paying for vacations or major purchases? It’s a reflection of their priorities. Consider this: in the survey the uninsured reported problems with medical bills at a much higher rate than those with insurance. Just over half of the uninsured people surveyed reported problems with medical bills compared to about 20 percent of the insured. But when asked what they’ve had to give up to pay medical bills, the uninsured actually had an easier time with medical bills when compared to the insured. Less than two-thirds of the uninsured put off vacations, major purchases and had to cut back on household spending. Only half used up savings. Those are smaller proportions than those with health coverage — possibly because they had not sank money into coverage that provided little of their needs.

However, a growing problem that could increase the ranks of the uninsured is the cost of Obamacare policies — even if you don’t experience an illness. Take the example of my family. Insurance for my wife and me costs approximately $12,000 per year. Annual deductibles for that level of coverage are nearly $13,000 per year. Suffice it to say that $12,000 in premiums and any health care spending we may encounter before our deductibles are met would buy a lot of amenities that would enhance our standard of living. Indeed, the cost of our health insurance would buy a months-long stay at a renovated farm house in the Spanish, French or Italian countryside.

The cost of Obamacare is undoubtedly straining other Americans’ household budgets just as it is straining ours. After paying $1,000 per month for family coverage, few families can afford any type of health complaints which requires another $13,000 annually in deductibles. As an earlier article in The New York Times explained, high premiums and high deductibles are causing many people to weigh the cost of forgoing coverage entirely and just paying the penalty. In many people’s minds, it’s already a given that they will have to pay out of pocket for all their day-to-day medical needs. So what good is expensive insurance if you have no funds left over to see a doctor?

Whether your priorities are medical care or vacations, Americans will increasingly find they cannot afford both Obamacare and a decent standard of living on the same budget. I have an idea: why don’t we take a vacation from Obamacare?

An earlier version of this Health Alert appeared in Town Hall.

Devon M. Herrick, PhD is a health economist and senior fellow at the National Center for Policy Analysis. He has written on ways consumers can lower their drug spending for more than a decade.

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22 replies »

  1. i hesitate giving Washington bureaucrats any credit for being intelligent when it comes to strategy, but it makes sense to increase the “misery” factor related to the ACA to the point where those affected demand a “fix,” ergo universal health care, i.e. we’re just in the opening innings of the game whose ultimate objective is one of the left’s golden policy nuggets. In the mean-time, it’s very difficult for me (upper middle income) to rationalize the $25k or so annual cost (premiums plus out-of-pocket) of health care coverage… do any listeners have an opinion about the “faith-based” health care cost sharing plans that are available?

  2. Healthcare in American is expensive. But before Obamacare (The Patient Protection & Affordable Care Act) insurance was out of reach for millions. And if god forbid insurance said you have a preexisting condition your just out of luck until broke or dead.

    I’m curious to hear the alternatives for all the faults you see. If you have no alternative then suggest that we start work on both sides of the aisle to improve what we have now.

    An example of one improvement can be found in Norway. They have one of the highest standards of living of any country but their cost medical care is only half of what we spend in the US per individual. How can that be in a country where a used 2014 Toyota Rav 4 cost $52k before tax and here we buy the same for $19k.

    For one thing Norway actually uses the concept of negotiating the price of drugs with the manufacturer. But here in the US the congress does not allow the largest buyer of prescription drugs (Medicare) to negotiate drug prices.

    So who is against the ability of the largest drug purchaser in America, Medicare, from negotiating drug prices? Senator John Cornyn of Texas for one. He denounced the bill allowing Medicare negotiation in 2007 as “a step down the road to a single-payer, government-run health care system.” What?

    This issue is coming up for a vote again this year. I think it is in all our interest to use sensible business practices, such as negotiation, to reduce prescription drug prices and start to correct the real problems in healthcare.

  3. No denying that the big insurers have benefited from the ACA, but what about Pharma, big hospital networks, medical devices, etc?

    Seems to me that all those guys are making out a lot better than the AHIP folks, who tend to have much lower profit margins.

    Not opposed to hating on the insurance companies, but there’s so many more people to hate on who deserve it even more!

  4. Curious – what do you see as the alternative?

    Obamacare deductibles and premiums are certainly insane. However, it seems to me that this is a result of the extreme cost of healthcare in the US, as driven by inefficiency, a cultural commitment to freedom of choice, and unreasonably high prices on everything from ambulance services to hospital stays to specialty drugs.

    What makes Obamacare uniquely expensive as compared to any other system? And what do you propose that would work better?

    Just not sure I’m understanding how the points you make in your post link directly to Obamacare (as opposed to health spending in general).

  5. An emotional and lightweight post. Derogatory labels for those with different opinions are decidedly unhelpful in this debate. And, as so often, criticism is cheap if you don’t offer constructive solutions. If Obamacare is not a good start to achieving the Triple Aim (Care better than we have ever seen, health better than we have ever known, cost we can all afford, …for every person, every time.), then how do we get there?

    Just to be sure, I am not a “Leftie”!

  6. Paradigm blinders in Wonkistan (i.e., assuming that “intermediated pre-payment” = “coverage” = “insurance” = “health care”), and the lobbying power of AHIP. Obama “led from behind” (staying notably passive) allowing the sausage factory that is The Hill to run rampant. There were FIVE health insurance industry lobbyists for every member of Congress.

  7. Well, yeah. I was never particularly a fan of the ACA. I followed every House draft along the way while it was still a bill.

  8. Enjoyed your synopsis of the book, Bobby. What I find hard to understand (other than cronyism) is why all the supposedly brilliant minds that contributed to the ACA didn’t see this coming.

  9. “AHIPcare.” It’s not about “care” and it’s only partially about “insurance” (actuarially speaking). A huge chunk is rearranging the regulation of routine 3rd party intermediated pre-payment.

  10. But don’t call it the Affordable Care Act, because it’s not. Which was the whole point to begin with.

  11. Did Bill Clinton say that before or after he raped a woman and was paid for deals that he made?

    We don’t have a free market fee for service system in this country. We are mostly all under the government’s thumb and that government involvement has been increasing the cost of healthcare for decades while making a lot of people that did business with the government very wealthy.

  12. Right on Robert Essenreich. The only thing we should be talking about is the ridiculous cost of care in this country. As Bill Clinton said: “It’s the cost of healthcare, stupid”.

  13. I agree but why does healthcare in USA cost more than 2.5 times other countries? Don’t blame it on Obamacare because that was the case before Obamacare. My health insurance cost was rising faster before Obamacare. Look at the history of health care cost in this country we were the same cost up to 1980 after 1980 cost in this country started creep up from the rest of the world. Guess who become our president?

  14. I don’t find any of this shocking. Firstly almost everything bad about the ACA was predicted before its passage. Secondly, it was not as much about providing reasonable healthcare at reasonable cost as it was for the progressive movement to increase their power. After all the Obama administration demonized both businesses and the insurers. Afterwards they got them to sign on board through threats and promises of greater income along with a bit of bribery.

    The insurers ever striving to become monopolists and almost having achieved that goal were offered guaranteed premiums from the entire non Medicare public while figuring that many healthy lower paid workers would enter the exchanges. The corporations could hope that they could benefit by unloading workers onto the exchanges.

    The progressives benefitted from this bill by placing hospitals, doctors, hospital workers and other healthcare workers under progressive leadership increasing the number of government jobs progressives could occupy making that movement stronger while paying off with cash and other things to our legislators and business people. The only one to suffer was the taxpayer who is also the patient.

    Costs did not fall, rather rose. Healthcare quality did not rise rather probably has fallen along with access since narrow panels are becoming the norm. The progressives now have power over 1/6th of the economy and are able to hire loyal supporters to increase the power of government and the progressive thuggery movement.

  15. The actuarial values of 60, 70, 80 and 90 for the bronze, silver, gold and platinum plans mean that folks are buying a very odd product indeed: It is not exactly insurance in the sense that it makes you feel comfortable or secure or makes one feel safe from catastrophes. Eg with the bronze plan, your insurer is only agreeing to come up with 60% of your ‘covered’ costs. This means costs for approved maladies. Odd pains or sagging eyelids may not be approved. When the patient has to come up with 40% of his costs, it is not exactly “insurance”. It is more like a coop or club where you and your insurance firm have both decided to foot your bills. So there is very little comfort for the patient here in such an arrangement.

    And the higher actuarial value plans are almost no better when one realizes that hospial bills of hundreds of thousands of dollars are quite common…so that a patient still has to come up with a fortune, out of pocket, to pay these bills.

    The net result is that people are feeling forced to buy what is really a pretty shabby product. No wonder they are not selling well.

    A partial solution is that the benefits that plans offer have to be severely reduced so that premiums are going only for illnesses that are really significant: diseases that might kill you or make you go into bankruptcy or disable you. These are where we need terrific protection and 95% or greater AV plans. We may have to _not_cover the cyst or the hangnail or the drugs for irritable bowel.

    Of course, the other answer is that prices must come down in general. It is the prices, stupid. No health care reform will work with these prices. Every stakeholder in our sector, except the patient, benefits from high prices. A fundamental problem.

  16. I call it AHIPcare.

    See my review of the book “Obamacare is a great mess.”


    I just covered the Health 2.0 WinterTech 2016 conference. One of the VCs waxed rather approvingly over the prospect of investing in health-related “consumer finance” apps, given the rise of OOP from the historical baseline of about 5% to as much as a forecasted 35%.

    As I wrote at KHIT:

    “One presenter demo’ed an app purporting to generate a general personal “health score” once seeded with some basic info, after which the score would get “refined” by the addition of various social media metrics (the creepy phrase “digital exhaust” comes into play in this regard). Someone used the “FICO score for health” analogy in response.

    That gave me the groans. See Morozov’s “Your Social Networking Credit Score.”

    Another VC panelist spoke glowingly of potential “opportunities” devolving from the inexorable rise in patients’ “OOP” (out-of-pocket expenditures, something I came to know acutely in 2015). With OOP rising to perhaps as much as 35% of health care billings, perhaps “financial services” were a potential investment growth area.

    Yeah, what could possibly go wrong there? …

    The “financial services” idea proffered at WinterTech surely went to stuff like getting patients to apply for financing in advance of treatment. That’s not exactly news. Think “Bosley Hair Transplants” or “Clear Choice Dental Implants,” etc. “We’ll even discuss financing options with you…”

    Back about four years ago I had to have a periodontal cadaver/bovine jaw bone graft px. Had to pay for that sucker up front before they’d even book the chair (about 5 grand). At least my AMEX “points” got me a Kindle reader out of that encounter.

    Yeah: subprime health care tx financing, right down to your deductibles and co-pays. Margalit will have an aneurism…”

    My wife and I (largely on the advice of the billing mgr at the radiation oncology clinic where I was getting my tx) just went full Medicare (A, B, D, and MediGap Supp). Shelter from the storm (for now, I know). I’d checked via “Covered California” just for grins. A “Silver” plan — just for ME — would have been close to $900 a month (we’ve been on a BCBS high-deductible HSA plan). Our Medicare, while not “free,” is WAY below AHIPcare rates.

  17. “Lefties”

    Don’t get out much, ‘eh? Far out, man, groovy…

    This is the most lightweight post I’ve ever read on THCB. Made of Banal Blinding Glimpses of the Obvious on a bed of Straw.

  18. The “Affordable Care Act” should have been named, the “Insurance Mandate Act”.
    While I have not problem making sure the working poor can get health care, what this law has done is to make insurance (not care) more affordable for SOME Americans. It’s pretty sad when middle-upper middle class Americans can’t afford health care. Even those on Medicaid are having trouble getting care because it pays doctors so poorly, many don’t accept it, or limit their Medicaid Panels.
    I just learned of a middle aged family friend with 3 kids and wife diagnosed with Pancreatic Cancer and they are in danger of losing their home, due to medical bills and the fact that he is unable to work with his illness.
    The ACA mandates coverage for preventive care and wellness, yet many experts (even Dr. Emmanuel who helped write the law) can’t agree on whether these are even worthwhile and what they consist of. I would rather pay for these myself and negotiate what’s needed with my doctor. The ugly reality is that this country is having more cancer diagnoses in the population which means huge bills for treatment that can break most anyone’s budget very quickly.
    Here’s an article from Medscape on how many Americans are spending up to 25% of their income on healthcare:

    I think at this point many would welcome some sort of reprieve. The danger is would any changes make things worse?