Tag Archives: Affordable Care Act

by | July 6, 2021 · 4:21 pm

Even with Recent Improvements, Obamacare’s Exchanges Don’t Cut It

“Health care should be a right, not a privilege, and Americans facing illness should never have to worry about how they are going to pay for their treatment.” Thus begins the Joe Biden White House’s description of the signature health care investment in their American Families Plan (AFP).

Unfortunately, that proposed $200 billion investment in no way matches the rhetoric. The AFP makes the expanded health care subsidies in the recently passed American Rescue Plan (ARP) permanent, but these expanded subsidies serve primarily to funnel money into insurance executives’ pockets while only making health care somewhat more affordable for millions of people in need. As policymakers debate their next steps forward on health care, it is essential that Democrats take a more critical look at one of Obamacare’s worst elements.

Health policy analysts typically focus on monthly health care premiums as the primary indicator of health plan affordability. In a February column excitedly touting the ARP’s temporary subsidy improvements, for example, New York Magazine’s Jonathan Chait included the graph below from my former colleagues at the Center on Budget and Policy Priorities (CBPP). It shows that the new subsidies should be saving people making between $30,000 and $60,000 roughly $100 per month on their premium payments.

Unfortunately, these types of graphs miss what’s really happening with health care affordability. On the most basic level, by plotting monthly premium amounts against annual income, they make it seem like premiums are much more affordable than they really are. $274 per month doesn’t sound nearly as bad as $3,288 per year, which is how much a typical 45-year-old individual making only $45,000 a year will continue to be expected to hand over to their insurance company if the AFP becomes law.

More importantly, these graphs omit the significant amount of additional money it takes for low- and moderate-income people to actually access the care their premiums are supposed to cover. Deductibles in particular are incredibly high on the Obamacare exchanges. The average deductible for a benchmark (Silver) plan on the exchanges is $4,800, meaning that, if the aforementioned 45-year-old got sick and needed $4,800 worth of care, the insurance company would not chip in at all. So that individual would end up paying $4,800 for their care in addition to $3,288 in premiums to the insurance company – or 18% of their income in total. If the individual’s health care costs exceed the amount of the deductible and the individual receives care from an in-network doctor – which is hardly a guarantee – the insurance company will begin to contribute. But even then, the individual will be on the hook for additional “co-pays” or a percentage of the additional costs due to “coinsurance.” Americans facing illness should never have to worry about how they are going to pay for their treatment, but if they have a new and improved Obamacare exchange plan they’d still be crazy not to worry. And they will continue to decline needed care because they cannot afford the deductibles and/or coinsurance.

In addition to ignoring the continuing health care accessibility problems faced by many individuals, common analyses of the increased subsidy approach fail to show the massive amounts of money being funneled from taxpayers to the insurance industry. Expanded subsidies mean individuals pay less to the insurance company but the government pays more.

The graph below addresses all of these problems. It shows health care spending and revenues for a 60-year-old individual making $30,000 who requires some medical care during the year – two doctors’ visits beyond the physical Obamacare covers, two lab tests, and a routine surgery, the combined price of which can be estimated at $5,583 – under five different coverage scenarios. The first three scenarios are coverage under an average Bronze, Silver, or Gold plan that this individual would have access to today (with the enhancements in the ARP that the AFP seeks to make permanent factored in). The fourth scenario is coverage under the Medicare program, which 17 senators and 156 House Democrats recently asked Biden to improve and extend to individuals below age 60. While Biden and Democratic leadership have yet to indicate they will actually do that, the White House does claim in both their AFP Fact Sheet and budget writeup that, in the words of the budget document, Biden “supports…giving people age 60 and older the option to enroll in the Medicare program.”

The fifth and final scenario is coverage under the Medicare for All proposal that was a centerpiece of Bernie Sanders’s presidential campaign. Medicare for All legislation in both the Senate and House of Representatives has numerous cosponsors. Biden and congressional Democratic leaders remain opposed to this policy, however.

Each bar in the graph has three potential components: individual spending (yellow), or how much the 60-year-old spends on health care taxes (they would have to pay the 1.45% Medicare payroll tax under each scenario, which would come out to $435 annually), premiums, and payments to their health care providers; net government spending (blue), or how much the government spends in payments to the individual’s insurance company and health care providers plus administrative expenses minus the fee the government charges the insurance company to sell insurance on the exchanges and the health care taxes and/or premiums the individual pays to the government; and insurance company spending (gray), or how much the insurance company ends up paying to the individual’s health care providers on the individual’s behalf.

The dotted lines show overall health care spending and who receives the revenue. The horizontal line shows what the health care providers receive in every scenario: $5,583, which is the cost of the care itself. The vertical lines show net insurance company revenue, or how much the insurance company takes in from the government and individual from premiums and subsidies minus the fee the company pays the government to sell on the exchanges and what the company actually contributes towards the individual’s care.

As the graph shows, the Obamacare plans are a disaster for both this relatively healthy 60-year-old and the government. The new subsidies in the ARP actually bring the average Bronze plan premium for this person down to $0 annually, but the average Bronze plan’s deductible of $6,900 means the individual must pay for the full cost of care themselves (assuming they do not forgo the needed care because of the cost), bringing their total health care expenses (including Medicare payroll taxes) to over 20% of their income. The government, meanwhile, pays the insurance company an annual premium of $8,160 through the Obamacare subsidies – far more than what the care itself costs and netting the insurance company $7,976 after subtracting their $184 user fee – in order for the insurance company to contribute nothing at all!

Silver plans are typically considered the best value on the exchanges, in part because lower-income individuals who buy Silver plans can qualify for some cost-sharing reductions. The amount of those reductions vary, but let’s assume this individual buys a plan with a sizable reduction that takes their deductible down $2,000 from the $4,800 average. Co-pays and coinsurance also vary plan to plan, but one of the better Silver plans might cover 80% of costs above the deductible. So once the $2,800 deductible is exceeded, the insurance company in this case would pay $2,226 of the remaining $2,783 the individual owes. Yet between the individual’s $1,020 annual premium payment to the insurance company, Medicare taxes, and $3,357 payment to their health care providers (due mainly to their still-large deductible), they would still be paying close to $5,000 towards health care – which someone making $30,000 a year obviously cannot afford. The government’s subsidy payment to the insurance company would be even larger than it was for the Bronze plan – $10,176 for the year – and the insurance company would pocket $8,718, which would once again be far more than the cost of care itself.

The average Gold plan, with a deductible of “only” $1,600 and coinsurance that might be 10%, is the best plan for an individual needing care. But with an annual premium of $1,848, the $1,600 deductible, and a $398 coinsurance payment above the deductible, our example 60-year-old making $30,000 a year would still need to pay over 14% of their income towards health care costs. The insurance company would contribute $3,585 towards care in this scenario but would still net a tidy $8,169 in revenue.

With government insurance the situation is radically different. Medicare Part B requires individuals at this income level to pay premiums comparable to those under the Gold plan, or $1,782 annually, and also has 20% coinsurance. But the deductible is only $203, saving our hypothetical 60-year-old $785 relative to the Gold plan. The biggest difference is that there is no massive subsidy for the government to pay to the insurance company in this scenario; administrative expenses are negligible (only $73) and American taxpayers collectively save thousands of dollars that would otherwise be wasted on insurance company executives’ outrageously high salaries. There’s really no justification for the Obamacare subsidies approach relative to the expansion of Medicare approach unless your goal is to pad insurance company profits.

Medicare for All would result in slightly-smaller-than-for-present-day-Medicare-but-still-major taxpayer savings relative to the Obamacare approach and, most importantly, is the best deal for the individual needing care. Our 60-year-old friend’s taxes would increase somewhat (by $704) under the income-based tax proposal Sanders released as one of a variety of potential Medicare for All financing options, but that tax increase would be more than offset by eliminating premiums, deductibles, and coinsurance. This individual would pay less than 4% of their income towards health care costs regardless of what care they needed. They would not “have to worry about how they are going to pay for their treatment,” which is why Medicare for All is the clear choice for everyone who truly believes that “health care should be a right, not a privilege.”

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by | January 18, 2016 · 3:25 am

Bernie Sanders-Style Health Care Would Be a Big Win for Low- and Middle-Income Americans

Bernie Sanders just released his new proposal for a single-payer health care system.  As former US Labor Secretary Rob Reich notes, Sanders’ plan would be “a huge advance over what we have now.”  Reich’s summary:

It builds on the strengths of Medicare. Like Medicare, it’s universal — separating health insurance from employment, and enabling people to choose a health care provider without worrying about whether that provider is in-network: All they’d need do is go to the doctor and show their insurance card. No more copays, no more deductibles and no more fighting with insurance companies when they fail to pay for charges.

Through a single national insurance system, we’ll no longer be paying for the marketing and advertising of private for-profit health insurers, nor their giant executive salaries, or their complex billing systems. Government will negotiate fair prices with drug companies, hospitals, and medical suppliers.

The plan’s release came right before the fourth Democratic debate and after a week of attacks from the Hillary Clinton campaign, which had been simultaneously complaining about not having plan details and distorting the details of a similar proposal Sanders introduced in the Senate in 2013.  Even those sympathetic to Clinton have labeled these attacks “questionable” or “genuinely strange,” while those willing to more accurately describe her team’s “GOP fear tactics” have noted that they are “wildly misleading,” “flagrantly mischaracterizing,” “mostly false,” “nonsense,” “disingenuous,” “stupid,” and “dishonest.”  Sanders’ plan would expand Medicare, not “dismantle” it; cover more people, not “strip millions” from coverage; ensure that insurance is provided in every state, not “empower” governors to “take [it] away;” and save most Americans lots of money, not “cost” them.

That last point in particular deserves more emphasis, as it’s one about which Clinton appears to have been lying outright.  Speaking to George Stephanopolous about single-payer health care on Wednesday, January 13, Clinton said: “Every analysis that I’m aware of shows it’s going to cost middle-class families and working families.”  Yet I have never seen such an analysis, and every analysis I am aware of says the exact opposite: that most families would gain big from a switch to a Sanders-style health care system (as Sanders explained at the debate, their savings from not having to pay premiums anymore would outweigh any increased taxes they would have to pay to fund the program).

Consider, for example, a 2013 analysis of the Expanded and Improved Medicare For All Act from UMass-Amherst economist Gerald Friedman.  Physicians for a National Health Program called this bill and Sanders’ old plan (which, despite Clinton’s suggestion to the contrary at the debate, is not all that different from his new one) “simply two expressions of the one single payer concept;” Clinton spokesman Brian Fallon agreed that the two bills were “similar” in a recent interview.  As shown in the graph below, Friedman estimated that everyone in the bottom 95% would see their after-tax incomes rise under such a proposal.  Fallon is clearly familiar with this analysis – he selectively referenced parts of it in the interview linked above – and it’s been the most common citation for cost estimates that Clinton herself has used; it’s near impossible to believe that Clinton was not “aware of” it.

Friedman HR 676

Distributional analysis, from UMass-Amherst economist Gerald Friedman, of a 2013 proposal for single-payer health care.

Friedman now estimates that, “[f]or a middle-class family of four with an income from wages of $50,000 and an employer-provided family plan of an average price, the Sanders program would save $5,807, or 12% of income.”  Similarly, the Sanders campaign had previously estimated that his old plan would have saved a typical family between $3,855 and $5,173.  PolitiFact argued that employers might respond to the financing scheme in that plan by reducing workers’ paychecks, but still estimated, even under pessimistic assumptions, that “the average family would save $505 to $1,823 a year.”

There have also been analyses of proposed state-level single-payer health care plans.  A proposal in Vermont in 2001 would have saved an estimated $995 on average for families making between $50,000 and $75,000 a year, while a proposal in California in 2006 would have saved families in that same income range an estimated average of $2,942 (the poorest families – those making less than $10,000 a year – would have saved an estimated average of $608 in both states).

Each of these analyses indicates that Bernie Sanders-style single-payer health care is a major win for low- and middle-income Americans.  It’s theoretically possible that Clinton both isn’t “aware of” any of them and that she and Fallon are sitting on credible analyses that say something different, but I’d give that possibility much lower odds than Martin O’Malley winning the Democratic nomination.  And while Clinton shifted gears slightly at the debate in response to Sanders’ new plan, many of her comments, like the assertions that Sanders would “tear [the Affordable Care Act] up” and that Democrats “couldn’t get the votes for” a public option during the ACA debate, were still extremely misleading.

This conversation about single-payer health care has become a perfect window into the choice facing Democratic primary voters.  After receiving millions of dollars from the health insurance industry, Hillary Clinton no longer supports the type of truly universal health care coverage she backed in the early 1990s.  Instead, she has attacked Bernie Sanders’ support of such a plan with very similar tactics to those she herself decried in 2008 as “right out of Karl Rove’s playbook” (see video below).  These attacks, besides being dishonest, undermine key Democratic values.

On the other hand, Bernie Sanders has a consistent record of fighting for those values.  He rejects money from special interests and believes, as his new proposal reiterates and he said at the debate, that health care is a right that “should be available to all of our people.”  As he also pointed out, the real question isn’t whether single-payer health care is desirable – it’s quite clearly “a pretty good deal.”  The more pertinent question is “whether we have the guts to stand up to the private insurance companies and all of their money, and the pharmaceutical industry.”

Sanders certainly does.  Let’s hope the voters choose wisely.

Update (5/29/16): The Tax Policy Center issued an analysis of Sanders’ overall proposals on May 9.  While headlines have tended to focus on their estimates of how much the plan would increase the national debt – estimates which other analysts sharply dispute – less attention has been paid to the fact that the Tax Policy Center also found, consistent with every other analysis above, that Sanders’ plans would bring large benefits for low- and middle-income families.

Sanders Tax and Transfer Distributional Analysis.png

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by | February 14, 2015 · 2:46 pm

It’s Not What Employers Are Doing, But What They Can Do, That Matters

A few days ago, Buzzfeed reported that Staples, the large office supply chain, had stepped up its enforcement of a cap on hours worked for part-time employees. Despite the company’s unconvincing claim* that the policy is longstanding, it appears that Staples implemented the 25-hour-per-week cap in January of 2014 “to skirt impending rules requiring companies to provide health insurance” to employees who work at least 30 hours a week.

Staples' original memo to store managers, as published by Buzzfeed.

Staples’ original memo to store managers, as published by Buzzfeed.

Staples’ decision will undoubtedly renew arguments that the Affordable Care Act’s (ACA’s) employer mandate – the provision that requires companies with more than 50 full-time workers to insure employees who work at least 30 hours each week – has led to harmful effects on work. These arguments, like parallel narratives about minimum wage laws and paid sick leave ordinances, are largely inaccurate, and advocates of evidence-based, power-balancing policy are absolutely right to debunk them.

However, we cede too much when, as is often the case, we default to a defensive stance. “Yes, the negative incentive is there, but the data show such effects to be small or non-existent” should not be the full scope of our response.

Instead, it’s imperative that we change the nature of these conversations. As Thomas Pynchon astutely observed: “If they can get you asking the wrong questions, they don’t have to worry about answers.”

Opponents of an employer mandate, minimum wage, and paid sick leave want people to focus on what employers will do in response to each policy’s enactment. The more relevant question, however, is about what employers can do.

First, it’s important to remember that businesses can deduct employer-provided benefits from their tax bills, and that the employer contribution to health benefits is widely viewed as coming out of worker salaries. Providing employees with health coverage, decent wages, and paid sick leave costs less money than a lot of people think, though it’s certainly more expensive than offering meager wages and no benefits.

More importantly, providing such benefits is the right thing to do. And it is undeniable that a typical business, when confronted with the prospect of labor cost increases, has numerous options. The business can explore ways to improve its productivity. It can raise its prices. It can reduce the salaries of affluent executives, or maybe make a little bit less in profits.**

In the most recent quarter for which financial information is available, August through October of 2014, Staples made $216 million in after-tax profits. Their CEO, Ronald Sargeant, made over $10 million in total compensation in 2013, while other top executives raked in well over $2 million apiece. Barack Obama didn’t have those numbers when he was asked about Staples’ policy a few days ago, but his suspicion “that [Staples] could well afford to treat their workers favorably and give them some basic financial security” was clearly right on the money. The ACA didn’t make Staples cut its employees’ part-time hours; instead, Staples management consciously chose to prioritize a fifth car or third house for a few wealthy individuals over its part-time workers’ ability to put food on the table. Other large companies, from Starbucks to McDonald’s to Walmart, make similar callous choices on a range of issues all the time.

There are two ways to address this problem. The main mechanism currently at our disposal is to loudly call such decision-making what it is – greedy and unethical – and vote with our dollars for companies that treat their workers fairly. Opponents of labor standards focus on what businesses will do rather than what they can do in part because we let them avoid moral reckoning. We won’t win everyone over, but we must not underestimate the power that moral authority has to shape behavior.

The second mechanism is policy that addresses firms’ decision-making. Some recent legislative proposals, in fact, like Congressman Chris Van Hollen’s CEO-Employee Fairness Act, have the potential to begin to wade into these sorts of waters. If we’re worried that companies will choose to lay people off in response to a minimum wage increase, for example, we could raise taxes on the executives of companies that make this choice.

No matter the policy outcomes, it’s essential that we ask the right questions in these debates. It’s worthwhile and important to document the evidence that policies like the employer mandate, minimum wage, and paid sick leave have minimal consequences on work. But it’s also essential to point out that any consequences these policies do have aren’t inevitable.

*As Buzzfeed’s original coverage explained, Staples claims that their part-time hours policy has been in effect for over ten years, and that the memo Buzzfeed obtained only “reiterated the policy.” Yet the memo contained phrases like, “Beginning with the week ending 1/4/2014,” and “Staples is implementing a policy.” A Staples spokesperson did not respond to follow-up questions about the memo’s language.

**It’s possible, though I’ve never seen a study to prove it, that some businesses actually can’t afford to adequately compensate their workers, that they’re barely squeaking by as is with low executive salaries, non-existent profits, and the highest level of productivity they can possibly attain. To the extent these businesses exist – and I’m skeptical that many of them do – it’s worth asking whether a business’s right to keep its doors open should trump its workers’ right to make enough to provide for their families. I don’t believe it should.

Note: A version of this post appeared in The Huffington Post on February 16.

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