As the health care exchanges go online, two major factors work together to keep premium prices down. First, the individual mandate to purchase insurance forces healthy people into the risk pool and keeps rates reasonable (often reducing a $1,500 monthly premium to $300 in many cases). However, even these drastic rate reductions are difficult for many working class and working poor Americans to afford. So we bring in factor II: subsidies that limit premiums and out-of-pocket expenses from a basic silver-level plan to a portion of income for people with incomes between 100 and 400 percent of the poverty level. In my case, subsidies will reduce my premium by about $140-$185 a month depending on where my final income shakes out.
As a result of the individual mandate and subsidies millions of people who couldn’t afford insurance are going online to the insurance exchanges and making the exciting discovery that they can afford real coverage for the first time.
And there was much rejoicing.
But that’s just the opening chapter. The next part of the story details what happens to the subsidy levels in the future. Follow me below the jump for potential future problems in the subsidies and the gamble the ACA takes.
According to the CBO, between this 2014 and 2019, the premium subsidies increase by the rate of the Consumer Price Index (a standard measure of inflation) plus the difference between the CPI and the inflation rate of the health care sector. In English, that means the subsidies will generally keep up with the increasing cost of health care.
After 2019, however, subsidies are set to only increase annually by the levels of CPI. This keeps the overall cost of the ACA down, but it has the potential to leave consumers in the lurch over the long term.
For good progressives, that might sound scarily similar to one of Rep Paul Ryan’s (or, perhaps good progressives prefer Charlie Pierce's term for him) budgets.
The ACA’s premium structure is similar to the Ryan plans in one important sense, but it departs drastically from it in other very important ways.
The similarity is that the vouchers under Ryan’s plan and under the ACA may lose value against the cost of health care and offload costs on consumers. There, the similarities end.
The differences are legion. Under the ACA, subsidies (even ones that erode a bit) are an upgrade from the situation in which most of the people who will be using them lacked meaningful access to insurance before the ACA. Ryan took people who would otherwise be getting guaranteed coverage under Medicare and pushed them off into vouchers, degrading their coverage. Second, the ACA moves people into tightly managed insurance exchanges to guarantee that they can get access to reasonably comprehensive health insurance, whereas early versions of the Ryan plan repealed most of those protections and tossed people out on the open market with a voucher.
And finally, the ACA actually implements dozens of projects and policies designed to lower the long-term growth of health care costs through reforming delivery systems, (e.g. stopping doctors from doing stuff like this) instead of merely shifting those costs onto consumers, which the Ryan plan sought to do.
That’s the several-trillion dollar gamble that Obamacare makes: Can we lower the growth rate of the cost of health care enough to make CPI-based increases in subsidies viable? That’s a challenge we’d have to face without health reform as well, and I think the implementation of the ACA has strengthened our hand considerably.
Early results on cost containment seem positive along this score, as the growth in health costs has slowed significantly, but check back in five years, when tweaks to the structure of Obamacare will undoubtedly be necessary. Hopefully we can get a good batch of elected officials in place to do so.
Postscript: Incidentally, for a bang-up summary about the subsidies (or absolutely anything else you ever wanted to know about the ACA), check out John McDonough’s outstanding book, Inside National Health Reform. McDonough is a former state legislator in Massachusetts, has a PhD in public health from Michigan and was Sen. Edward Kennedy’s adviser to the Senate HELP Committee during the health reform battle. His book spends a detailed chapter describing each title of the law, as well as an insider’s account of the intrigue and policy deal-making that surrounded the law’s passage.