With the debate on Obamacare being potentially repealed and if so, hopefully replaced, I tried to better understand the mechanics behind the law. I would appreciate any comments on what I got wrong or potentially missed. So, here goes. The bargain between the government in ACA is as follows:
- Private insurers can participate in ACA's exchange marketplaces (i.e. more business for them), but in return,
- Participating private insurers must accept anyone who wants to buy insurance
- To address potential profitability risks, the US government gives A.C.A. tax credits to insurers, aka carriers.
Unfortunately, here is what happened and that was not well forecast, i.e. integrated, by the Obama administration in their financial models:
- Too few enrollees, half as many as they actually projected
- The ratio between healthy vs. not healthy in the enrollee population has skewed too much on the not healthy side and beyond the range that would have made the ACA business model sustainable
- As a result, insurers hiked the premiums, which make the plans less affordable
- Another consequence is that young healthy people are being charged way more than they would outside of the exchanges, and that is to subsidize the less healthy folks that insurers are obliged to take on.
That's why it's probably not sustainable in its current form and that would explain why carriers are pulling out. It's costing them too much and the ACA doesn't give them enough tax credits to recoup their losses. So what's the way forward? I guess it first depends on your political philosophy:
- If you are on the right, then you feel that the government has no business in insuring private citizens. That means you stop ACA and you don't care that about 40M Americans will go back being uninsured
- If you are on the left, then you would want something like a public option. It would not be like France, where it's a single payer, but a hybrid where the public option carries enough weight to push competition on the private carriers.
- If you are against too much government involvement but do not want to have Americans without insurance, then I guess you make the ACA more affordable for the carriers by increasing the subsidies somehow.
Personally, and if my analysis above is correct, then my heart is with #3, but I am afraid that at the end the private carriers will get so much out of the government in subsidies, that the government would be better creating a public option that will put the carriers under pressure to cut the fat in their cost structures. So in the end, #2 is probably the answer for me.
