Ag Innovator — Winter 2016
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Obamacare: Outlook For 2016/2017
Robert Graboyes And Brian Blase

There is no debating that Obamacare contains benefits and costs and that the law continues to sharply divide the country. Its supporters say that it is working, while its opponents argue otherwise and continue pressing to undo the law. In January, Congress sent a bill to the President’s desk that would have repealed large swaths of the law, including most of its taxes and much of its spending; as expected, the president vetoed the bill. Many of Obamacare’s key provisions, including those affecting businesses, have been subject to several delays, but one key provision—the employer mandate—is set to take full effect this year. These provisions are still not widely understood and will almost certainly raise costs and uncertainty moving forward.

Impact on Coverage

The numbers have increased: Obamacare supporters primarily and repeatedly cite the decrease in the number of people without health insurance. The Obama administration estimates that 12.6 million people gained insurance coverage from 2010 to 2014. However, several million people became uninsured during the financial crash of 2008-2009. Part of the post-2010 increase simply reflects a return to pre-recession coverage levels as the economy has slowly improved. Using a 2008 starting point reveals that the number of uninsured fell by only 6.7 million people.

Most of the increase is Medicaid: The net gains in health insurance have come mainly through Medicaid and not private insurance, since the number of people covered by employer-sponsored insurance (ESI) has somewhat declined. Medicaid is a program for lower-income people and is plagued with problems including poor access to care for enrollees. A recent economics study found that enrollees only receive 20 to 40 cents of benefit for each dollar that Medicaid spends on their behalf.

Exchanges are doing poorly: Overall enrollments on the Obamacare exchanges are far lower than the government had previously forecast.

The only people signing up in large numbers are those who receive large tax credits to lower premiums and large subsidies that reduce large Obamacare plan deductibles.

Increasing the number of people with insurance cards tells us little about whether those people gain anything in terms of health, and numerous studies have indicated a loose connection between health insurance and health.

Impact on Insurance and Premiums

Premiums soar: President Obama told Americans that Obamacare would reduce family premiums by $2,500. However, since Obamacare was signed into law, family ESI premiums have soared— increasing by more than $4,000 since 2009.

Young and healthy decline to subsidize old and sick: Obamacare requires that health insurers offer a standardized health insurance product to all applicants and that it charge the same premiums to people of a certain age without accounting for health status.

Insurers are also prohibited from charging near-retirees more than three times the amount charged to 20-somethings. As a result, Obamacare increased individual market premiums with younger and healthier people bearing the largest increases. In 2014 and 2015, insurers selling exchange plans lost significant money overall as the plans attracted older and sicker enrollees than expected. In 2016, most exchange plan premiums are increasing by double-digits. UnitedHealth, the largest insurer in the country, has announced that it may stop offering exchange plans altogether after 2016 because of market instability.

Plans are becoming stingier: Premiums would be even higher, but insurers designed exchange plans with very narrow provider networks and high deductibles and cost-sharing amounts. Many are discovering that their treatments are “covered” under their plans but not paid for by their plans.

Impact on Businesses and Workers

Employer mandate arrives in full force: After two years of delay, the employer mandate takes full effect in 2016. The employer mandate requires that employers with at least 50 full-time workers offer acceptable coverage to their workers or pay tax penalties. These penalties can equal $2,000 per worker or $3,000 per worker receiving insurance subsidies. The mandate incentivizes employers to trim hours below 30 per week and reduce full-time workers (plus full-time equivalents) below 50.

Employer paperwork will become heavy: The IRS has created seven new forms for Obamacare, several of these for businesses. In particular, complying with the employer mandate will be a major paperwork burden for businesses. Businesses will have to report on their health insurance offering as well as the monthly take-up rate for their workforce.

SHOP exchanges are mostly failing: The Small Business Health Option Program (SHOP) exchanges were designed to provide small businesses the ability to offer their workers more health insurance options and lower overall premiums because of additional pooling of risks. Thus far, the SHOP exchanges have been a failure—only enrolling a small fraction of the number of people projected.

CO-OPs have failed: All of the COOPs— state-based insurers established by the law through large federal start-up loans—are under water. More than half have already closed. CO-OPs, modeled after agricultural co-ops, were intended as a substitute for the “public option” that many Obamacare supporters wanted in 2009.

New definition of small business: Originally, businesses with 51-100 employees would have become “small businesses” under the law—a change that would have added significant costs for many employers. A law passed last fall gives states flexibility in how to deal with firms of that size. It’s important for employers to know the definitions and implications.

Fewer jobs: The Congressional Budget Office estimates that Obamacare will reduce the amount of full-time work in the economy by about 2 million jobs, decreasing American economic output by about half a percent. This is largely the result of lower-wage workers working less because additional work will reduce or eliminate their eligibility for subsidies.

Recent Congressional Action

Three taxes were delayed: In December 2015, Congress passed tax and spending bills delaying the Cadillac Tax on “high-cost” plans until 2020 (it was originally scheduled to begin in 2018), and making it deductible if it ever takes effect. Congress also delayed the medical device tax for two years and the health insurance tax for one year.

Special budgetary process sped repeal bill to the President: In January, the House of Representatives—on a nearly party-line vote—sent a bill to the president repealing large parts of the law, including its tax increases, health insurance subsidies, and Medicaid expansion. The bill was passed through a special budgetary process that allowed the Republican majority in the Senate to pass it with a bare majority, rather than the 60-vote threshold required to break filibusters. As expected, the president vetoed the bill. While the effects of the repeal exercise were largely symbolic, it showed that Congress can use the reconciliation process to essentially repeal the law with a bare majority in the Senate. Thus, January’s reconciliation exercise establishes a precedent for near-total-repeal of the law, should Republicans retain control of Congress and take the presidency in 2016.

Moving Forward

Insurance company subsidies were reduced and are ending: Obamacare contained two back-end subsidy programs to assist insurers offering Obamacare plans. The first, called a reinsurance program, pays the majority of the costs of insurers’ most expensive enrollees. The second, called a risk corridor program, transfers money from insurers with profits to insurers with losses. As a result of Congressional action, the risk corridor program was made budget-neutral so taxpayers would not be on the hook to make up the deficit. That made a big impact, since a lot more insurers lost money than made money on Obamacare plans in 2014 and 2015. Insurers were upset by this action and are lobbying for taxpayers to finance the risk corridor deficit. Both reinsurance and risk corridors end after 2016, so Obamacare plan premiums in 2017 will have to rise, perhaps substantially, to account for the loss of these back-end subsidies.

Individual mandate tops off: Obamacare supporters hope that the increase in the individual mandate penalty, which will now equal the greater of $695 per person or 2.5 percent of household income above the tax-filing threshold, will incentivize more young and healthy people to purchase coverage to stabilize the risk pools. To date, the individual mandate has not been nearly as effective as many experts had predicted it would be.

Cadillac Tax faces an uncertain future: The Cadillac tax was primarily placed in the law as a way to deal with the ESI tax exclusion, which means that ESI premiums are not subject to federal income or payroll taxes. Economists generally agree that the tax exclusion causes numerous problems and contributes to the high cost of American health care. The Cadillac tax was slated to begin in 2018 and was a 40 percent excise tax on plans valued at more than $10,200 for single coverage and $27,500 for family coverage. After aggressive lobbying by business and labor groups, Congress delayed the Cadillac tax until 2020. Among people who believe the exclusion needs to be capped or limited, the Cadillac tax delay raises concern that will ever happen.

Summary

Six years after enactment, Obamacare remains a law very much in turmoil. The law has decreased the number of people without health insurance, and its regulations and subsidies have benefitted some lower-income people and many with pre-existing health conditions. Many more, however, find they have less freedom and that their coverage is deteriorating from what it was prior to the law’s passage.

Among the changes: higher premiums, fewer providers, higher out-of-pocket costs. Beyond the widely reported website problems, many of the law’s fundamental institutions—individual exchanges, SHOP exchanges, CO-OPs, mandates— are failing to perform as expected.

The roller coaster ride is not over. Businesses—and particularly small businesses—will experience sizable changes in 2016: higher costs, more paperwork, and ever-changing rules. Congress is moving to pare the law down, though near-certain presidential vetoes will likely prevent any additional major changes before the next president takes office in 2017.

The law will certainly be one factor in this year’s elections. Obviously, the law’s long-term future depends heavily upon who is elected president this November. The current administration has altered the law and its regulations appreciably through executive action. Any such changes can theoretically be reversed by a future president.

For business owners, the most important thing is to stay abreast of the changes. Have your extra-large bottles of Excedrin and Mylanta at hand and your benefits advisor, attorney, and tax accountant on speed dial at all times.

Robert Graboyes is a senior research fellow with the Mercatus Center at George Mason University, where his work focuses on technological innovation in health care. He also teaches health economics at Virginia Commonwealth University and the University of Virginia. In 2014, Dr. Graboyes received the Reason Foundation’s Bastiat Prize for Journalism.

Brian Blase is a senior research fellow with the Mercatus Center at George Mason University, where his work focuses on the Affordable Care Act and other health care entitlement programs. He previously worked on health policy issues for the Senate Republican Policy Committee and the House Committee on Oversight and Government Reform.
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