Obamacare

The Affordable Care Act of 2010 (ACA), affectionately referred to as "Obamacare," attempts to resolve issues of affordability and access to health insurance that left many Americans without health insurance. The health insurance industry and health providers were locked into a situation that they couldn't resolve on their won, so the federal government had to step in to help.

In a nutshell, what was happening is that health insurance companies would tell their prospective clients, "Hey. Sign up with us, and we'll get you a discount on your health care costs." These discounts are referred to as "negotiated rates," "allowable amounts," "usual, customary and reasonable," etc. Then, the insurance companies would tell health care providers that in order to be in the health insurance companies "network," they would have to give discounts to their customers. Most health care providers want to be part of these networks, because they funnel patients to them.

The health care providers need to earn a certain amount of money in order to stay in business, and giving discounts to insured patients could put them out of business by reducing their revenues. But the health care providers came up with the idea of inflating their prices, in order to provided the required discounts and still earn enough to stay in business.

Using a personal example, I had my gallbladder removed about 10 years ago. Everything came out fine, and I don't miss it one bit. I received an "Explanation of Benefits" from my insurance company showing that the hospital had billed $55,000, but my bill was repriced to $5,500 (the "allowable amount"). In other words, the hospital had inflated the bill 1000% so it could be discounted back to $5,500, which would have been enough money to profitably treat me.

If I did not have health insurance the hospital accepted, I would have been responsible for paying them $55,000. Sure, they probably would have giving me a discount, but the discount would have had to be 90% in order to get the bill down to what an insured person would have had to pay. I'm not that good of a negotiator, and I doubt very many people are.

This system of inflating prices in order to give discounts isn't limited to hospital stays. It also applies to pharmaceuticals, outpatient procedures, physician visits, emergency rooms, etc. As long as you were insured and were treated by someone or somewhere in your network, at a minumum you had access to the real prices for everything.

But if someone was uninsured, they still had to be treated, and they'd receive a bill they could not pay. So health care providers were being saddled with increasing amounts of unpaid debts they needed to recover. So what did they do? They raised prices on everybody else. That's why you'll see such wildly different costs for various procedures at different facilities. The major reason why everything is so much more expensive at some hospitals is because they have so many people who didn't/couldn't pay their bill.

And all this was getting worse and worse each year.

Insurance companies, in response to so many complaints about their policies getting more and more expensive each year, came up with the idea of "consumer-driven plans," which sounds nice and friendly, but what it really means is that in exchange for a lower premium, your deductible, copays, and coinsurance amounts went up and up.

Another big problem that Obamacare addresses is the ability to buy health insurance. If someone had anything wrong with them, they could not buy health insurance due to their pre-existing conditions. The conditions could be as minor as once having acne or taking a anti-depressant. Pretty much the only way someone with a pre-existing condition could get health insurance is if it was through their employer, because employer-sponsored policies are guaranteed-issue. So someone who has any medical issues would be stuck paying the highly inflated uninsured rates. How fair is that?

If someone had an individual health insurance plan, and became ill (we'll use diabetes as an example), they would not be able to change plans when they became too expensive. Healthy insured people could and did switch to less expensive plans. As the healthy (profitable) insureds left a plan, the remaining pool of insureds became increasingly expensive, and the health insurance companies had to raise premiums to keep up. They didn't increase them by a little -- they increased them by a lot -- and their customers had no choice but to pay the increasing amounts, oftentimes until they went bankrupt or just stopped being treated. I was in that situation, and luckily learned that California had a pre-existing condition health insurance program. It was kind of expensive, but the care I received was very good.

The Affordable Care Act fixes these problems by forbidding insurance companies from turning down people due to their medical status, and by requiring that a certain amount of insurance company revenues go to patient care. This is referred to as a loss ratio. If an insurance company does not spend enough on patient care, they have to rebate their customers the difference. The Affordable Care Act also requires that each insurance plan provide a minimum level of coverage (minimal essential benefits), and to standardize the way the companies describe what is and isn't covered so consumers can make an educated decision about which plan to go with.

For people who have lower incomes, the government will provide a subsidy (which they pay directly to the insurance company) to make your plan affordable. The formula is kind of complicated, but essentially they pay the difference between a certain percentage of your income that the government has decided is affordable and the second cheapest Silver-level plan in your coverage area. Many of my clients have been very happily surprised by how much their subsidy is, and how little they have to pay for health insurance. Many of them did not have health insurance at all because of the sky high premiums. One person told me he had "Sign of the Cross" insurance, which I thought was pretty sadly funny. It basically meant that he prayed that nothing happened to him.

For people with very low or no income, Medicaid was expanded and now includes adults.

So now, in theory, doctors and hospitals are no longer being stuck with unpaid bills from uninsured people, so prices should go down. It's too early to determine if that's what is actually happening, but I'm cautiously optimistic.

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