The Affordable Care Act and Affordability

The official name of what some call Obamacare is the Patient Protection and Affordable Care Act. Most frequently it’s referred to as the Affordable Care Act or the ACA. There’s just one problem with this title: it’s questionable whether the new law is making health care — or health insurance — more affordable

When you ask politicians about bringing down the cost of medical care, they invariably pivot to discussing health insurance premiums. And the press lets them, no doubt because: 1) insurance companies are easier to beat up on than doctors and hospitals; and 2) controlling the cost of care is much more complex than addressing insurance premiums.

When it comes to “bending the curve” concerning premiums, the ACA is arguably working. While every broker can cite examples of clients receiving double-digit increases (often, many examples and north of 20%), overall, according to PolitiFact, “premiums have risen by about 5.8 percent a year since Obama took office, compared to 13.2 percent in the nine years before Obama.” This year, for example, the 2015 UBA Health Plan Survey indicates that the average annual health plan cost per employee in 2015 is increasing just 2.4 percent from the prior year.

One point for the ACA–for now. In some parts of the country, it should be noted, the second most affordable silver plan in the exchanges (a key benchmark) is increasing by 30% or more.While this development doesn’t mean all rates are going through the roof in all places, it’s a warning sign that needs monitoring moving forward.

For now, the rate of increase we’re seeing in health insurance premiums have stabilized. That, however, doesn’t mean that health care coverage is more affordable. Health insurance costs are like a teeter totter. On one side is fixed-costs known as premiums. On the opposite seat are variable costs represented by out-of-pocket expenses. The higher the fixed-costs, the lower the variable ones and vice versa. The laws of physics cannot be legislated away. So as the ACA helps keep premiums down, out-of-pocket costs are rising.

One driver of higher out-of-pocket costs is straightforward: High deductibles in health plans are increasingly common. Another less obvious reason is that carriers are narrowing their provider networks while increasing the cost of seeking treatment outside their networks. For example, according to the UBA study, family out-of-network deductibles increased 75% in the past five years.

For healthy consumers this is a net positive. Premiums are lower under the ACA and, since they don’t see providers, narrow networks aren’t a problem. For those who do need health care treatment, however, (and families are especially likely to have someone needing medical attention in a given year), this teeter totter is what’s making the Affordable Care Act not so, well, affordable.

This isn’t to say that the ACA is a failure. The uninsured rate in America dropped to 10% in 2014 from 18.2% in 2010–and will likely be lower in 2015. This means 15 more million Americans now have coverage than in 2010. Perhaps if we renamed the ACA the Health Insurance Access Act the description would be more accurate.

However, that’s not what it’s called and the ACA is failing to keep live up to its name. The reason, I believe, is because it does too little to address the cost of medical care. To be fair, the ACA includes provisions to reduce medical costs. Accountable Care Organizations and the Independent Payment Advisory Board are two elements of President Barack Obama’s health care reform plan that show promise.

At best, however, the ACA only lays the groundwork for controlling medical costs, and we need to do more. Because at the end of the day, to make coverage more affordable, we have to attack where the money is going. And in that regard, the facts are straightforward: health plans must spend 80% (individual and small group coverage) or 85% (large group plans) on claims. If health insurance is to become more affordable, health care must be more affordable.

That means changing the ACA something that will not happen during a presidential election year. That doesn’t mean, however, that we can’t begin pinning presidential candidates on what they would do to bring down medical costs. We’ve had a question  about fantasy football during the debates. Maybe the moderators could slip one in on concrete steps the candidates would take lower the cost of health care … and not let them pivot to the easy dodge of attacking health insurance premiums.

OK, that’s asking too much. Maybe they could ask them what they’d do to control insurance premiums and then ask about controlling medical costs. If nothing else it would be interesting to see how many of the candidates realize these are two different questions.