Insights & Advice


The Affordable Care Act won’t go away

Throughout the presidential campaign, our president-elect, Donald Trump, bashed Obamacare at every opportunity. But don’t assume that just because he doesn’t like it in its present form, it’s the end of America’s first attempt at solving our universal health care issue.

“Its gotta go,” said Trump, during a CNN interview during the presidential campaign. He promised to “repeal and replace it with something terrific.”

If those words have filled you with dismay, they shouldn’t, because even the creator of the healthcare act, Barak Obama, warned us at the outset that the first version of the legislation would need to be adjusted and changed. It wasn’t perfect six years ago and it isn’t now.

Why am I so sure that Obama’s legacy will remain? It’s simple: the act brought over 20 million Americans into the health insurance net. That means that those same 20 million people won’t be showing up in the emergency rooms of the nation’s hospitals in the future without any visible means to pay for the health services they will desperately need. And if they can’t pay for them, who does? Well at first they become losses on the hospital ‘s books but they then deduct that from their taxes and by the time all is said and done, it’s you and me, the taxpayers, who will pay and pay dearly.

And despite Trump’s and the Republican Party’s rhetoric, every one of them is well aware of that fact. But it goes even deeper. Even Trump sees the wisdom in insisting that insurers cover people with pre-existing health conditions. As a survivor of cancer, I am well-aware of the risk to me and my loved ones without that provision. Trump also agrees that it makes a great deal of business sense to allow parents to keep their kids under their health plan until their mid-twenties.

If one puts aside their built-in prejudices for and against the act, it is clear that there are some glaring holes in the legislation. For one thing, an inordinate amount of expense falls on the shoulders of younger participants. That’s because health insurers must charge their premiums based on the age of their customer. Generally, the base rate is what a 21-year old would pay and is then adjusted upward for older purchasers.

As you might imagine, premiums are higher for those of us over 50 years old, which makes sense since we spend more on health care than youngsters. We Baby Boomers are considered high risk while my daughter’s generation is low risk. The problem centers on a cap written into the legislation, which prevents people 64 and older from being charged more than three times what is charged to a twenty-one year old. At age 50, the cap is 1.78 times and 2.23 times at age 55.

Six years ago, no one really knew if that made dollars and sense. But let me give you just one anecdotal example. I am 67 years old and have been in the hospital four times in the last year and a half. Figure the cost of those episodes to the insurance company was $200,000-plus. In the same time period, my daughter’s family of four had no health insurance claims over $2,000. As you can see, my health care expenses were 100 times my daughter’s claims. Multiple that by the millions like me and you got a big problem.

Granted, you may argue that mine was an exceptional case. I had two knee replacements, a urinary tract infection, and prostate cancer. None of the above are rare or exceptional health disorders. People my age are getting those operations every day; its why the orthopedic business is booming in this country. The point is that these age bands need to be widened. That means Baby Boomers need to be paying more for the services that they are consuming at a much faster rate than younger people.

By doing so, we could help strengthen the financial base of the health insurance sector by lowering premiums on younger people. That should encourage healthier younger Americans to sign up for health insurance. Young adults only account for about 28% of those who signed up for Obamacare. The projections were for over 40% of young people to purchase insurance. If Americans want this effort to work, the Boomers are going to have to pay more.

Paul Ryan, the Republican House chairman, has his own health care plan that includes many of Trump’s ideas such as tax-free health savings accounts and allowing consumers to deduct the cost of their premiums on their income tax returns. Notice that both of these ideas involve government picking up the tab for health care insurance. The GOP simply uses different language to achieve the same ends by the same means.

The point is that after six years of trying on the Affordable Care Act for size, some of the original measurements and stitching has to be reworked. Call it whatever you like, it will remain and serve the public better than the prior version..

Remember that the concept of social security in this country required years of changes before Americans accepted the system we have today and it is still evolving. So should our health care system. Embrace the changes because there will be many more before we get it right.




Posted in Macroeconomics, The Retired Advisor