Obamacare: There is risk for the American public to be worse off

With the implementation of health insurance exchanges in October 2013 and the beginning of the Affordable Care Act (ACA), also known as Obamacare, there is tremendous risk for the American public to be worse off. Certainly the millions of Americans who currently are uninsured because their employers do not offer insurance coverage and those with pre-existing conditions unable to purchase affordable individual coverage, will benefit. It is those with employer-based insurance coverage who may lose.

They just don’t know it yet.

Employers have found it difficult to absorb the rising health insurance premiums and costs, which have increased faster than inflation. They have tried many ways to slow health care spending including requiring employees to have more “financial skin in the game” to encourage them to make “smarter” choices about their health care. They’ve done this with higher deductibles and co-pays and requiring employees to pay a larger percentage of the total health insurance premium. Yet despite these strategies, employers have seen their health care costs soar.

Desperate for a solution, it appears that the ACA may have given them an option. With the term “health insurance exchanges” becoming part of the American lexicon, companies now have a way to finally contain health care costs. With public health insurance exchanges, individuals with no ability to purchase health insurance from an employer, will be able to purchase health insurance in a marketplace much the same way they do for hotels or flights. Depending on their household income, they may qualify for a tax credit. Shifting from a company offering health insurance benefits and instead having individuals find insurance on their own will increasingly be the norm. It is this where employers have now seized the chance to improve their own costs.

Large employers have started creating private health insurance exchanges for their employees. Instead of purchasing health insurance coverage for the benefit of their workers, companies will give them a sum of money and let the individuals choose. This is particularly good news for large companies which self insure. When they self insure, companies take on all of the financial risk, pay all of the medical claims as they come in, and often, despite their best attempts, have little control over how much health care their employees use. Now by giving workers a lump sum of dollars and have them choose what plan they can afford and how much risk they are willing to take, employers can predict how much they will spend on health care. If employees want more coverage they pay the difference out of pocket.

Instead of employers trying to structure health insurance benefits packages and balancing what they can afford and what current and future employees might find attractive, these private health insurance exchanges give workers the responsibility to make these choices and have them choose what is right for them.

As a result, companies is now they have predictable costs around health care. Employees have even more choices to purchase the right type of insurance for them. Recently IBM, General Electric and Walgreens have announced that they will move both retirees and current workers into such an arrangement.

In theory this is good for both employers and employees, right?

Sadly, however, a similar story occurred a few decades ago when employers were faced with financial risks and costs that they wished to manage better. They moved that financial risk and costs to employees and offered them more choices to do better than the employer by allowing them to choose how to spend their money. It was when companies moved from providing pension plans (defined benefit) to 401(k) plans (defined contribution).

We now know decades later that workers have suffered tremendously as companies have done well.

Now I am not recommending that employers be paternalistic or that they not find ways to manage their expenses. What I am saying, however, is that history has demonstrated that in the realm of financial planning the public on average has not been particularly good at saving money for something in their best interest – retirement:

The Employee Benefit Research Institute’s yearly Retirement Confidence Survey found that the percentage of workers confident about having enough money for a comfortable retirement is “essentially unchanged” from the record lows observed in 2011, with 28 percent of workers “not at all confident” they have saved enough and 21 percent saying they are “not too confident.”

The Economic Policy Institute, a progressive economic think tank, recently found that nearly half of households have no savings in retirement accounts at all, and for the half that do, savings are very unevenly distributed — a household in the 90th percentile of the retirement savings distribution has nearly 100 times more retirement savings than a household in the 50th percentile, who have almost nothing saved.

The need for individuals to manage retirement funds created a new industry with a plethora of financial products and services like financial advisors, mutual funds, and brokerages.  Yet as these groups “compete” for these dollars that individuals must manage for retirement, the data demonstrates that despite all the help, workers are in a dire economic situation. Many must continue working beyond traditional retirement to make ends meet.

Extrapolating this outcome to the shift in health care coverage from defined benefit to defined contribution is quite easy.  Individuals should make smart decisions to stay healthy. What we eat, how much we exercise, what habits do we keep and which ones do we change, and many others, are daily decisions which are subtle and can have profound impact on our health. With the new health insurance exchange products which have high deductibles and health savings accounts (HSAs), employees will now have a financial incentive to stay healthy as well as a new way to save money for future medical expenses. However data has shown that the public already has a track record of not saving well already.

Could this shift in how we get health insurance create a country where even more people will not have the financial resources to take care of themselves either retirement or now increasingly health care? Is it possible that another new industry will arise helping these individuals in this new world where they need to improve their odds of financial well being and health? Is it possible that those who offer these services and products will profit financially and yet those who are helped are poorer as a result? There is evidence that entrepreneurs see an opportunity and a new market to fulfill that gap. Get DNA testing. Body scans. Alternative treatments with hormone supplementation. Use of wearable devices. Will these products and services make people better and healthier? Will it simply make them poorer? Whether the outcome is the same as retirement planning remains to be seen.

This is the real risk to patients.

Our nation so far has been willing to accept that if individuals are unable to save adequately for retirement, that is their fault. If they work hard to close that gap, then this is a consistent quality and trait Americans appreciate — hard work and consistent with the Puritan values our country was founded on. Will we be equally as tolerant however if individuals become ill or injured, sometimes through no fault of their own or choose to have a lower quality of life because they cannot afford a MRI, a doctors visit, or treatment? Will less expensive options created by entrepreneurs be adequate to replace these traditional forms of care? How will the quality and safety of these options be evaluated?

As increasingly more Americans will undoubtedly purchase health insurance via these exchanges, time will tell if what occurs will model what occurred with retirement planning or will it evolve into something better. If the former, it is possible Americans will not like what they see and the US health care system with its mix of public programs (Medicaid and Medicare) and private insurers may be moving towards a single payer option. If the latter, where health care is more affordable and accessible through innovation and new modes of care delivery, then the shift to insurance exchanges was a good thing.

Let’s hope our past history about future events is wrong.

Davis Liu is a family physician who blogs at Saving Money and Surviving the Healthcare Crisis and is the author of The Thrifty Patient – Vital Insider Tips for Saving Money and Staying Healthy and Stay Healthy, Live Longer, Spend Wisely.

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  • http://onhealthtech.blogspot.com Margalit Gur-Arie

    Absolutely Fantastic article, Dr. Liu!

    Perhaps now, folks will understand why liberals (with a conscience) cannot support Obamacare, because it’s not that Obamacare is not doing enough, it’s just moving us in the wrong direction. The conservative view of “personal responsibility” translated into voucherization of all health care, not just Medicare, plus the insidious high deductible (cruelly called “consumer driven” ), is just a mechanism by which financial risk is transferred to individuals, one at a time, instead of pooling risk over larger groups, thus diluting the notion of “insurance” to just catastrophic events that are covered after one comes up with thousands of dollars he or she doesn’t have, a.k.a. Obamacare health insurance exchanges (including Medicaid in some “forward” thinking States).

    Obviously this is a regressive policy, as we should have all known, considering where the idea came from. So poor and middle income people will get poorer, corporations will get richer, entrepreneurs will find more ways to extract more money from health care selling snake oil to the desperate, and we will all live happily ever after. Or not.

    • Rob Burnside

      Probably not. But shouldn’t we call it a “work in progress” Margalit? It’s a beginning, at any rate.

      • http://onhealthtech.blogspot.com Margalit Gur-Arie

        We could, Rob, but frankly, I don’t know what is beginning. On the surface, having more people have insurance (and some peace of mind) is a good thing, and the Medicaid expansion is certainly a good thing, but when we redefine the term “insurance” in the process to mean very little, is this a beginning of providing adequate services to all people, or is this a beginning of lowering the bar on expectations people have?

        And I’m not even talking about the delivery system, which is being turned over to corporations as part of ACA design, and all that this entails.

        • Rob Burnside

          You make too much sense, Margalit. There must have been moments in his New World Voyage when Columbus feared he might actually sail off the edge. I guess we won’t know until we get there, but one of my great hopes for the ACA is that it will help restore mobility, and expandability, to our moribund middle class. “Americans,” it’s said, “are the only sailors who put to sea in a storm.” You raise the mainsail and I’ll tighten up the jib!

          • http://onhealthtech.blogspot.com Margalit Gur-Arie

            Well, let’s hope for the best…

          • Rob Burnside

            Aye!

    • doc99

      Better would have been to remove the restrictions against individuals or groups of individuals coming together to form one large group to get the same preferential rates that large employers/groups receive from insurers.

  • Deceased MD

    I wish there were more articles like this in the mass media. I think because there is no transparency behind the ACA getting passed, all people are looking at are the logistics of the bill and not the long range concerns. Or said better few people understand the root of the problem as you described well.
    In essence there is little diffrence between the Dems and GOP. They both are supporting capitalism in healthcare. Just going about it in a different way. That is the fundamental flaw.

  • http://www.peerlending.co/ Daniel S. Hobbs

    Excellent article, Dr. Liu. This massive transfer of risk to individuals, just like the transition from defined benefit pensions to 401(k)s, is just another way for companies to enhance their own balance sheets as they look to transfer uncertainty and risk back to their employees.

    A politician thinks of the next election; a statement of the next generation. A politician looks for the success of his party; a statesman for that of his country. The statesman wishes to steer, while the politician is satisfied to drift. — James Freeman Clarke

  • flowerdocs

    Bottom line is that the status quo, where the rich and employed have access to health care and no one else does, was no longer tenable. While you may quibble about whether or not the ACA was the right direction to go in, the reality is that it was the only direction that congress would allow. Is it perfect? Of course not. Is it better than what we had? Definitely yes. Will it be perpetually sustainable? Well, it is still a profit based, poorly regulated, capitalist insurance system, which is only sustainable as long as there is profit to be had.
    Still, at this point, ANY movement is better than none, because once we start moving in a direction, any direction, we introduce the reality of change, and the potential to change for the better. Continuing to gripe about the ACA accomplishes nothing. Evaluating the process and results, however, may help move us toward a more equitable and sustainable health system in the future.

    • Marc

      Couldn’t have said it better myself!

  • dontdoitagain

    My insurance premiums have risen as has my deductable…now up to $5,000 per family member to a max of 15,000 per year. So I spend 1,200 a month for this coverage. This is considered a cadillac plan by the IRS. (cost) 40% tax. IF I had a preexisting condition that cost would be much much more. Pre-existing COVERAGE, while allegedly now available is cost prohibitive. (I understand why this is so, it just doesn’t make anything better if you can’t afford the coverage.) I do NOT make that kind of money to support this year round. So I will get a nice fat fine. How is this helpful? My employer takes the money out of my pocket at $9.95 per hour worked. There is now way out of it, I checked. I’m waiting for my job to turn into a “shared job”. Kerry thinks this is wonderful as it will drive down the unemployment rolls. 2 people to do 1 persons job. Great! (sarcasm) The only thing the ACA did was turn over all liability to taxpayers, especially the lower middle class. Health care still gets more and more expensive, but the government found a way to force us to pay for it, no matter what it costs. So much for “affordable” care and “patient protection.”

  • Marc

    In either case Dr Liu, the two outcomes you outlined above are preferable to what we have now.

  • jpsoule@hotmail.com

    Dr. Liu, I believe you have accurately identified half the diagnosis. The ACA was indeed supported by big business as a way to shift healthcare cost onto patients and the federal government and so massively increase profits. It was also cheered on by big insurance as now it is ILLEGAL to NOT buy insurance from THEM. The American Hospital Association supported it as a way to get paid for all those non-paying patients the feds mandate they care for anyway, more money. The AMA supported it, for Lord knows why….

    Now the other side. Obama and the liberals have said over and over again their real goal is a single payer (federal only system). They also have said the ACA is only an ‘intermediate’ step. They have used private business’ greed to pass this act, knowing it will lead to such a hue and cry from the people, that they, the Wizards of Washington, will become heroes, and have to step in and ‘save us’ from the mess THEY enacted and mandate a single payer system.

    Rather clever. “Never let a crisis go to waste.” Create your own crisis, use it to get what you wanted in the 1st place…and you are very clever!

    • safetygoal

      Amen to that! And once that happens the Entitlement State will be complete and the incentive to work will go out the window. There will be fewer people working than living off the government and we will become Greece.

  • Bob

    What I find very interesting is that while Dr. Liu touches on DNA testing he doesn’t go into all the rapid advances that the Human Genome has spawned.
    Medicine will change rapidly and in a manner that is unprepared for with stem cells and other DNA methods that few physicians, nurses and other current health care providers are totally unaware of and untrained in. Few I the population will be able to find let alone afford such treatments.

  • Ronald Pires

    In my experience, very few employers completely self-insure. Most who go this route will actually cap their exposure with a re-insurance policy, often written by the company that administers their self-insurance. This would especially be true as the number of covered lives dropped toward 10,000 (the minimum pool size).

  • Kronosaurus

    I’m not sure this is a fair comparison. If I leave my job my pension benefits may or may not follow. Also, what gets put into my pension or 401 is more transparent when it comes to figuring out what you “really” get paid. I see this move away from employers providing health insurance a possible good thing. Yes, in the short-term it may be bad, but if you get the money employers would have paid on your behalf then theoretically you should get a similar health plan. If we find that with the same amount of money people can’t get a similar plan then we need to re-haul the whole system again (public option?) What I suspect the fear is is that employers will drop your insurance and then not pay you the same dollar amount they were paying before. This is a problem of transparency. It’s unfortunate that de-coupling healthcare from employment has to happen in this unplanned way, but it may end up being a good thing.

  • Noni

    Agree, particularly now that health insurance can be obtained through exchanges for all. Also, true catastrophic plans would be nice where nothing is covered except for hospitalizations. Everything else can be paid for out of pocket and offices and institutions can compete for pricing. It would be nice if young and otherwise healthy people could have such an option.

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