(Photo: Reuters/Jonathan Ernst)
The Affordable Care Act, also known as "Obamacare," is "not just a website," President Barack Obama recently said. True. The law is expansive, with lots of different parts. If the problems with Healthcare.gov are not fixed soon, though, the rest of the law is threatened.
To understand why, it is first necessary to understand what the ACA is mainly trying to accomplish.
While the full title of the law is the Patient Protection and Affordable Care Act, the primary purpose of the law is not to protect patients or make health care more affordable (though some parts of the law attempt to do that.) At its core, the ACA is mainly about providing more Americans with health insurance coverage.
There are four tools that the ACA uses to do this: (1) an expansion of Medicaid (a health insurance program for the poor), (2) health insurance exchanges (which healthcare.gov is mostly for), (3) an employer mandate to provide health insurance for employees, and (4) an individual mandate to purchase health insurance.
So the law, if and when it is fully functioning, would put more low income people on Medicaid, require employers of at least 50 employees to provide health insurance or pay a fine, require everyone else to purchase health insurance or pay a fine, and provide the health care exchanges for those who are not on Medicare or Medicaid, or do not get health insurance through their employers. This would not provide universal coverage (there is a long list of exceptions to the individual mandate), but it would come close.
Two of the four ACA tools – the employer mandate and the Medicaid expansion – experienced some snafus before the website even launched. The White House heard some complaints in the business community that the employer mandate would drive up costs among some businesses at a time when the economy is still struggling to recover from the Great Recession. Obama responded to those complaints by delaying the employer mandate for a year.
Additionally, when the Supreme Court ruled that the individual mandate is constitutional, it also ruled that the ACA cannot force states to participate in the Medicaid expansion. As a result, some states, led by Republicans, decided not to expand Medicaid in their state. In the long term, this may not be a problem ... if the rest of the law is successful.
Those Republicans will likely go along with the Medicaid expansion eventually (or be replaced by Democrats), as long as it is a good bargain for their state, i.e. they get plenty of money from the federal government to pay for it. But, it is not clear whether those conditions will exist in the future, especially if the rest of the main components of the law fails.
This leaves us with the individual mandate and the health insurance exchanges.
For the exchanges, private health insurance companies offer plans at different price levels for the purchasers, some of whom will receive government subsidies to purchase their plans. With the mandate to purchase insurance, the idea is that insurers would have a large enough "risk pool" to keep prices affordable. This means that both healthy and unhealthy people would be paying into the system.
If there are not enough healthy people signing up, prices will go up, when prices go up, fewer people will be able to afford it, more people will drop out, when more people drop out, prices increase even higher, and so on ... – a death spiral. The system at that point will collapse. Insurance companies will no longer offer their products on the exchanges, which would mean some combination of breaking their contracts, suing the federal government or declaring bankruptcy.
Imagine for a moment you are considering purchasing health insurance on the exchanges (if you are not already). These are some of the facts you may have heard:
- The website is having lots of problems.
- There is a 1-800 number you can call but the call center cannot actually enroll you in a plan.
- The website requires you to provide a lot of personal information, such as your Social Security number, before you can shop for a plan or see what your subsidy would be, yet the website is also easily hacked.
- The penalty for not purchasing insurance is unenforceable, so the IRS will not come after you if you do not use the exchange.
Under such circumstances, who would go through the trouble of trying to purchase health insurance on the exchanges? The people who most need it. In other words, lots of unhealthy people and few healthy people. The risk pool will not include enough healthy people to make the system work, and the death spiral begins.
This is why healthcare.gov needs to get fixed soon, or the ACA is in trouble.