If Obama Gets Stuck on Health Care Reform

At the beginning of the year, several parts of Obama’s sought-after health care reform went into effect. The challenges were not few, starting with the website that oversaw the acquisition of insurance plans. The lack of resources for sustaining the new system is concerning.

A Historic Reform

On March 23, 2010, the U.S. government approved one of the most important reforms in American health care policy of the past century: the Affordable Care Act, better known as “Obamacare.” The objective of the reform is to improve on three crucial aspects of the American health care system: access to health services, the expansion of insurance coverage and control over health care spending. The 2010 vote was historic for Americans and a dream come true for Democrats, who had been pursuing this outcome since the middle of the last century. Health coverage is not public but universally accessible, thanks to a virtual marketplace for signing on to health insurance plans at the best price on the free market, without any more discrimination.

Nevertheless, the reform started off with many challenges: Beyond the dreaded government shutdown in the fall at Republican hands, the healthcare.gov web portal also managed to embarrass Obama, with its error messages and slow loading pages. And, in the country that is home to Google and Facebook, up to now, few have been able to register, a necessary step in progressing to the acquisition of an insurance plan in the virtual marketplace.

The Essential Points

The reform makes 2014 the turning point year, whether on the worker access to health services front, or for low-income individuals and those at increased health risk, or regarding the expansion of insurance coverage. Employers with more than 50 workers in their charge are now required to provide insurance coverage for their employees in exchange for tax relief. A fine of around $2,000 per employee for each year of no insurance assures the regulation’s enforcement.

Medicaid expansion also begins this year. Alongside Medicare, it is the public pillar of the American health care system: It is an insurance plan that provides hospital and medical coverage to low-income people and those with few or no economic assets. (1) Obama’s reform provides for all individuals whose total family income amounts to less than 133 percent of the federal poverty level — around $30,000 per year for a family of four. All those who will not fall under the expanded Medicaid plan, but whose family income amounts to less than 400 percent of the poverty level — $88,000 per year for a family of four — will be considered for subsidies to purchase a private plan. Even in this case, the reform guarantees insurance coverage to many individuals who were living in real limbo before: They were not poor enough to be covered by Medicaid, but also not rich enough to avail themselves of private insurance plans.

Finally, for the first time, Obama’s reform provides for a ban on insurance companies setting premiums based on a patient’s medical history — the so-called pre-existing condition. This substantially limits the ability of companies to dump — in other words, turn down — higher-risk individuals through price policies. (2) On the coverage expansion front, the reform establishes the obligation for insurance companies to include in the insurance plan a few essential health services, like mental health care and some preventative measures. These are health services that are generally less profitable; insurance companies often do not offer them, trying to cherry-pick the best risks and limit the moral hazard problems “ex-ante” — in other words, the disincentive for fully covered individuals to carry out preventative methods when they have complete treatment coverage. The requirement to include these types of health services in insurance coverage constitutes an important development, in line with many European insurance plans.

Concerns and Critiques

Basically, the critiques of “Obamacare” traverse three fronts. On one hand, the massive increase in individuals covered by public insurance will lead to a consistent increase in the demand for health services with prices set by the states, as occurs within the Medicaid program. However, only a limited number of doctors are prepared to offer health services at prices that are set on the lower end. (3) With the number of services remaining constant, the concrete risk is that the massive increase in the number of the insured could considerably increase the average wait period for Medicaid patients. Second, the required inclusion of burdensome services in the insurance plans did not come at zero cost, as we were legitimately expecting. The apparent “guarantee” of further information on insurance plans will entail thousands of cancellations on the part of insurance companies because the old contracts will not be in line with certain “essential” characteristics established by law. Millions of Americans, especially those not receiving insurance through the government or an employer, could therefore be forced to buy new insurance plans that are in compliance with the law but certainly more expensive.

Even the obstruction in the process for buying health insurance online is because of the massive increase in individuals receiving subsidies. The web portal HealthCare.gov — CuidadoDeSalud.gov in the Spanish version — opened on Oct. 1, 2013. It is there that one is supposed to be able to purchase private health insurance through government-promoted websites — the so-called “Health Insurance Marketplaces” — but recently it went haywire and page loading proved itself to be extremely slow. Consequently, only a few people were able to register, which defeats the objective of boosting the foundation of individuals covered by insurance.

Obama’s reform is certainly far from the revolution in European-style “socialized medicine” that the Republican Party is trying to conjure, but it has concrete weaknesses and raises some concerns for the future. In part, this is surely because of the higher adjustment costs that any radical reform must sustain. The procedural obstruction seems to be a venial sin, if it is temporary. Other problems that have emerged with the implementation of the reform are most likely attributable to the absence of adequate financing. Without a subsidy, the requirement to expand the offered health services induces companies to increase premiums, and that entails a contraction in the demand of the insured. The idea of financing the reform through a “Cadillac tax” was probably the right one, but it has met with Republican resistance. (4) Nevertheless, resources need to be found for at least lining up the reimbursements for workers operating within Medicaid with those foreseen for private plans.

For now, it is not possible to evaluate the consequences of the health care reform on their prickliest front, the one related to medical assistance costs. Today, the U.S. spends more on health care than almost any European country, without better quality services to justify this. In the world classification system for health care, the U.S. is in 37th place, before Cuba and Slovenia, while France holds first place, and Italy second. (5) Most likely, a good part of the final game of “Obamacare” will be played on this front. However, the midterm election is blocking the goals.

(1) The law that introduced the two public health insurance systems was passed in 1965, during Lyndon Johnson’s presidency. Medicare is the federal public medical assistance program for those over 65, the disabled, patients affected by end-stage renal disease or amyotrophic lateral sclerosis. Medicaid is the public program managed by individual states, with a federal contribution applicable to certain categories for low-income individuals. Vedi Agency for Healthcare Research Quality, 2010, “America’s Health Insurance Plans — Questions and Answers about Health Insurance: A Consumer Guide.”

(2) J.E. McDonough (2014), “Health System Reform in the United States,” International Journal of Health Policy and Management, 2: 5-8.

(3) A. Goodnough, “Medicaid Growth Could Aggravate Doctor Shortage,” The New York Times, 28 November 2013.

(4) “Obamacare” was supposed to have been financed through cuts to the Medicare program and new taxes, the so-called Cadillac tax among them, which was supposed to target the most expensive insurance programs and incomes above $250,000 per year. Vedi J. Gruber, 2010, “The Cost Implication of Health Care Reform,” New England Journal of Medicine, 362-22: 2050-2051.

(5) OECD Health Data, 2012.

Vincenzo Carrieri is a Science of Finance researcher and adjunct professor of Public Economy at l’Università di Salerno. Cinzia Di Novi is a researcher at l’Università Ca’Foscari di Venezia.