“The Patient Protection and Affordable Care Act (PPACA) commonly called the Affordable Care act or ObamaCare” was signed in to law on March 23, 2010 by President Barack Obama.”
The Affordable Care Act includes multiple provisions that take affect in stair steps between 2010 and 2020. These provisions include significant reforms in the U.S. health care system, most of which took effect on January 1st, 2014. The provisions include reforms such as:
- Guaranteed issue: This prohibits the insurers from denying coverage to individuals due to pre-existing conditions. It also includes adjusted community rating.
- Minimum standards for health insurance policies: Essential health benefits mandated by the Department of Health and Human Services. This is a core package of health services offered in all health plans to individual and small group markets. ESB’s include:
1. Ambulatory patient services
2. Emergency services
3. Hospitalization
4. Maternity and newborn care
5. Mental health services, substance abuse disorder services and behavioral health treatment
6. Prescription drugs
7. Rehabilitative services and devices
8. Laboratory services
9. Preventative and wellness services and chronic disease management
10. pediatric services, oral and vision care
- Individual mandate: requires all individuals not covered by an employee sponsored plan, Medicaid or Medicare to purchase a private insurance policy or pay a penalty.
- Health insurance exchange: An on-line marketplace where individuals and small businesses can compare premiums and purchase Health insurance.
- Medicaid: Eligibility was expanded to include individuals and families with incomes up to 133 percent of poverty level.
- Medicare: The ACA reforms to the Medicare system are being done to promote greater efficiency in the delivery of health care to seniors. The current fee-for-service system will be scraped for a bundled payments system. The bundle payment system would make a single payment to a hospital or a physicians group for a precise event of medical care, rather than making an individual payment to a service provider or a number of service providers. It is also intended that the Medicare Part D coverage gap will shrink in stages closing completely by January 1st, 2020.
- Employer mandate: Businesses with 50 or more employees that do not offer health insurance benefits will be forced to pay a tax penalty if the government has subsidized any of their employees health plans through tax deductions or other means.
What is insurance?
According to Kaplan University, “Insurance is a social device for spreading the chance of financial loss among a large number of people. By purchasing insurance, a person shares risks within a large group of others, thereby reducing the individual potential for disastrous financial consequences.”
“Insurance is based upon the “law of large numbers”. By combining a number of people who share common risk factors and characteristics. The insurer is able to make predictions of possible losses.” This is the foundation that the Patient Protection and Affordable Care Act is based upon.”
The ACA is counting on the law of large numbers to lower the costs of providing heath insurance to the majority of American citizens. The ACA calls for a partial community rating concept, that requires insurance providers to offer policies within a given territories at the same price for all persons without medical underwriting regardless of health status. This is similar to the manner that health insurance is offered to employees on a group basis.
The partial community rating differs from the normal method of determining insurance premiums. In the private insurance market, a risk rating is used to calculate the premium payable by a potential policy holder. In the community rated market that the ACA is attempting to utilize, the insurer can no longer calculate premium on the basis of risk factors, which opens the door for adverse selection. This is something that the private insurance industry would like to avoid.
Adverse selection is the likelihood that people who are high risk are more likely to purchase health insurance because the insurer is unable to effectively discriminate against them due to a lack of information about their individual risk.
Will medical cost increase?
Many have asked if the implementation of the Affordable Care Act will increase health insurance premiums and medical costs for all Americans? There is very good reason to believe that health insurance premiums will increase.
The ACA is using the private health care system to mandate that individual, small and large businesses purchase health insurance. Utilizing partial community ratings to offer health insurance policies at the same price to all persons without regard to medical underwriting.
Large insurance providers such as AETNA and United Health Group claim that premiums could rise from “25 percent to 116 percent for some people in 2014” per the Huffington Post. keep in mind that these insurers are being forced to utilize a community rated market model, rather than an individual risk market model. They are signaling to the country that insurees will have higher premiums due to decreased ability to medically underwrite.
The large insurance providers are correct in their estimations. Insurance premiums will increase annually as long as Americans are mandated by law to purchase a private company’s product.
Prior to the implementation of the Patient Protection and Affordable Care Act, insurance premiums had been on an upward trend since the 1980’s. From 2003 to 2012 Health insurance premiums have increased 80 percent. Depending on who is asked, this was okay; individuals could either purchase the product at your own discretion or not. Today, Americans no longer have that option.
What Americans need to realize is that as long as their insurance is in the hands of private for-profit companies, there will always be pressure to move premiums upward.