The great debate: affordable or Unaffordable Care Act?

• Author: Lang, Ron
• Position: Regulatoryupdate

four years after the passage of the Affordable Care Act (ACA), there's still great debate on the law's outcomes. How many uninsured will enroll? Will ACA create doctor shortages? Will death panels ration medical care? And the trillion-dollar question: Will the cost of health insurance go up, down or stay about the same?

Presented here are the basic economics and human behaviors that will determine the macro-cost of health insurance across the entire population, as well as the micro-costs to individuals, businesses and families.

How it Works

Although the ACA introduces regulations through the entire health care arena, for the most part, it set out to address the approximately 47 million uninsured. Simply, the uninsured fall into two categories: people with pre-existing conditions who could not obtain insurance, and those who could not afford--or chose not to purchase--insurance.

AGA eliminates pre-existing condition limitations and addresses affordability by providing subsidies. It's estimated that 90 percent of the uninsured will qualify for some level of subsidy.

As these two groups--one with higher than average claims costs due to their preexisting conditions, and the other with below market premiums due to subsidies--enter the insured roles, these costs will be passed through to the population that does not qualify for subsidies. Applying the "no free lunch" principle, the premium subsidy and high health Care "utilizer" costs will he absorbed by the remaining population.

The subsidies will be funded by taxes from a variety of sources. ACA taxes on pharmaceutical, medical equipment and health insurance companies will all pass through to the consumer through increased premiums. Individual and employer mandate taxes may not have a direct relationship to premium costs. Others, like the tax on "Cadillac" plans, may have varying consequences on premiums and benefits as companies and unions tactically avoid paying the tax.

The AC.A will reduce the costs of caring for the previously uninsured, and these savings will pass through the insurance system. The timing and magnitude of this effect is a great unknown and will ultimately determine the ACNs cost containment success or failure.

Winners and Losers

A number of ACA provisions combine to create winners and losers in the individual and small-group markets. Generally, younger individuals and larger families will pay relatively more than older individuals and smaller families. Benefit mandates may...