President Obama has said a lot of things about health care reform, not just that if you liked your health insurance plan, you could keep it. In a prime-time news conference in July 2009, his rationales for a new law stacked up like planes on an airport runway during a holiday weekend: It would provide "security and stability" for families; it would "keep government out of health care decisions"; it would prevent insurers from "dropping your coverage." He said the program "would not add to our deficit," that it would "slow the growth of health care costs in the long run," that it would be "paid for" but not "on the backs of middle-class families." Most important, he said, "I want to cover everybody."
Even at the time, it sounded like the president was contradicting himself. He sought to expand coverage to almost every single American who needs it, but he was also going to reduce the budget deficit. He was going to force insurers to accept every consumer in the marketplace, regardless of their age, their income, or their health, but he was also going to see to it that premium rates were contained.
Four years later, as the program that all sides now dub "Obamacare" stumbles through its tortuous implementation, the furor over the rollout of the federal online insurance exchange has obscured a larger, more fundamental truth: If the program was going to fulfill all that Obama pledged, not everyone was going to come out ahead—someone was going to have to pay the freight. Some subgroups of Americans were going to be worse off than they were before.
Obama didn't say that in July 2009—or any time while the program was being debated in Congress. He couldn't. He couldn't stand up before the American public and say that the only way to achieve the program's goals was to reallocate money within the health insurance market. That there would need to be a transfer of wealth—from the young to the old, from men to women, from the healthy to the sick. That to raise the floor, you had to lower the ceiling. To do so would have handed his enemies the kind of weaponry they craved, validation that Obama was indeed some sort of "socialist" who believed in "redistribution." It could have killed the effort in its tracks, then and there, making the tea-party eruption in town halls across the country in the month that followed look like a Kiwanis meeting.
Very simply, under the Affordable Care Act, there are winners and there are losers. And there were always going to be.
And had the federal insurance exchange launched this fall with a minimum of fuss, it's possible the sausage-making machinery of Obamacare might have been obscured. If some of the millions of consumers who had received cancellation notices from their insurers in the past few weeks were able to jump on the Web, select a new plan, and ensure continuity of care, it might have alleviated some of the political damage to the administration, even if those consumers were forced to pay more for their new plans.
But that hasn't happened. Instead, the exchange website's woes sparked a media feeding frenzy that filled the airwaves with middle-class citizens relating heartrending tales of canceled policies and rate hikes, adding to the perception, fair or not, that the entire program is in deep jeopardy, or at the very least is some sort of scheme that will either collapse or soak consumers and taxpayers alike. The curtain has been yanked back to expose the ungainly reality that lies at the very heart of the program: Very simply, under the Affordable Care Act, there are winners and there are losers. And there were always going to be. That fact, even more than the star-crossed rollout, may be the more enduring political threat to Obamacare.
EVERYONE'S A WINNER
Obama was confronted about that very possibility at the July 2009 press conference. "When you describe health care reform, you don't—understandably, you don't talk about the sacrifices that Americans might have to make," Jake Tapper, then with ABC News, pointed out to the president. Obama's response to the question was almost a thousand words long, but in it the president never once suggested that any consumer's rates would rise.
But after that, Obama really didn't have to address such matters. Republicans, led by the emerging tea party, focused less on whom the program would burden and more on whether it amounted to a monstrous takeover of the health care system, fixating on issues such as end-of-life care and physician choice. Lost in the din was any in-depth examination of how the ACA would actually work—how it could seemingly provide so much for so many with so few consequences. "This is not the debate we had in 2010," says Avik Roy, an economist who served as an adviser to Mitt Romney's recent presidential campaign.
What the law accomplished was subtler. It shifted standard-setting for the individual insurance market from the states to the federal government. That led to establishing a uniform criterion for the components of a viable insurance plan—which meant that low-cost plans with high deductibles or ones that provided a minimum of benefits that some states allowed and others prohibited would be deemed unacceptable.
That has had the effect of forcing some Americans to pay for plans that cover things they didn't feel they wanted or needed. At his Nov. 15 press conference, Obama likened this to requiring drivers to wear seat belts, essentially saying the "junk plans" that have been sold by insurance companies have put consumers in the position of taking unwarranted risks. But the government's interest lies beyond simple nanny-state-ism: The higher premiums yielded under the new regime help finance coverage expansion.
Maternity coverage has emerged as a prime example. A plan purchased through a health insurance exchange must cover the costs of pregnancy and childbirth, even if the insured is a 24-year-old single man, even if there is little or no chance of his ever using the benefit. To advocates, that's a positive result, one that encourages and supports quality care for expectant mothers. To detractors, it's a direct subsidy based on gender.
It's why progressive reformers were so disheartened last week when it appeared that Obama, along with some Democrats in Congress, were walking away from the minimum-plan requirements after the canceled-policy furor reached a fever pitch. The president proposed allowing insurers one more year to offer plans that would otherwise be canceled. David Cutler, a Harvard University economics professor who helped design the ACA, worries that significantly undermining the law at this juncture would increase costs for other consumers or keep some consumers out of the marketplace altogether. "We need to avoid a situation where unhealthy people are in one set of plans and healthy people are in another. That is a terrible outcome," he told National Journal. "A permanent separation of healthy and sick would be a big problem."
And it's why the individual mandate is the law's linchpin. The requirement that the young and healthy purchase insurance is critical for ensuring that consumers with preexisting medical conditions or older Americans who more frequently use health care services can find affordable plans. It sounds vampiric, but the only way coverage expansion can work is if the younger and healthier assume some of the cost of taking care of the older and sicker. The administration's total enrollment goal for 2014 is 7 million people; of those enrollees, the administration says 2.7 million must be between the ages of 18 and 35. So far, enrollment has fallen far short of that goal.
The notion of subsidizing others isn't foreign, of course. Americans pay into Social Security and Medicare, and the low-income recipients of those programs get a better deal than the high-income ones. Taxpayers pay for roads and schools, and upper-income people pay more, even if they don't drive all that often or have any children in public education. But Obamacare feels different because the benefits are diffuse and less tangible. Think of insurance coverage as a casino, in which the loss a gambler takes playing roulette helps subsidize the loss the house takes when someone else wins at blackjack. Before the ACA, the risk in the individual market was indexed, with insurers able to price policies on the basis of personal circumstance.
Think of insurance coverage as a casino, in which the loss a gambler takes playing roulette helps subsidize the loss the house takes when someone else wins at blackjack.
Obamacare consolidates risk, grouping those most likely to cost the house money with those who have little chance of receiving a payout. The lines of demarcation between young and old blur, thanks to a compression of what insurers call "age rating"—which used to allow companies to charge older Americans not yet eligible for Medicare on the order of five times more than younger ones—and the widespread use of what is known as "community rating," which forces insurers to assesses risk in terms of a pool, rather than an individual. "Ideally, you want to be the sickest person in the pool, so everyone is subsidizing you," says Austin Frakt, a health care economist in Boston.
In the traditional entitlements, just about every taxpayer eventually becomes a "winner," but under the ACA that may never happen. In that way, the law is more of a direct wealth transfer, something more akin to food stamps or welfare. "Medicare and Social Security go to everyone over 65. They're very identifiable as a group," says a former Obama administration economist, who asked not to be identified because of the sensitivity of the subject. "The people that are going to be helped by the ACA are a more diffuse group; it's harder to tell who they are. That group cuts across a lot of lines. It's harder for that group to make its interests known in a central part of the debate. It is a redistribution—and whether it is worth it or not is a question society has to ask."
Obamacare, in fact, has flipped the entitlement narrative on its head: The losers traditionally have been the anonymous taxpayers whose incremental contributions help keep those more visible winners afloat. But with the ACA, the losers are angry, loud, and have been given a powerful platform—one that threatens to make hell for the president and his party alike. Meanwhile, the winners are harder to find, largely because many of them are struggling to purchase insurance on the federal exchange. "We've got losers who know who they are and [are] screaming, and winners who don't know who they are and aren't smiling," says James Morone, a political-science professor at Brown University.
Supporters of the program argue that the act ultimately will make wide swaths of Americans winners, because overall health care costs will be reduced. The growth of health care spending is, in fact, slowing, but it's not clear whether that can be credited to the new law. More worrisome is the prospect that a new class of consumers, those who are eligible for the government subsidies available under the ACA, will become hooked into a private-insurance-driven system in which costs continue to escalate and which then would require greater and greater contributions from business and government alike to keep the system afloat. Again, however, the administration insists this won't happen once the new insurance markets mature.
The ACA design underscores the political challenge that continues to plague the Obama administration and may help explain why Americans are so sharply divided on the question of whether the program is a benefit or a burden. According to polls, low- and middle-income whites see the act as something that helps others, not them. The conflation of the new exchanges and the expansion of Medicaid coverage has cemented that conviction.
A United Technologies/National Journal Congressional Connection Poll taken this month found that only 25 percent of whites said the law would benefit "people like you and your family." The share of minorities who viewed the law that way was double that—at 51 percent. Part of that discrepancy may be explained by the fact that, according to the Census Bureau, African-Americans and Hispanics are nearly twice and three times, respectively, as likely as whites to lack health insurance.
Mark Knapp, who owns a toolmaking and sharpening business in Fairbanks, Alaska, is one of those white Americans who has always held a jaundiced view of Obamacare—but he recently has been given good reason beyond ideology. He and his wife received a cancellation notice from their insurer, Premera Blue Cross, that informed them the new policy would cost them $1,214 a month, a 62 percent increase from what they were paying. Premera explicitly blamed the Affordable Care Act for the change.
Knapp says the two policies are almost identical in terms of benefits, and both keep the yearly deductible at close to $5,000. "It wasn't a junk plan," he says. The margins for his business are such that he may have to consider taking subsidies—which he and his wife may qualify for—to afford the insurance hike. That doesn't feel like a victory to him. "Never in our adult lives have we required assistance from the government," says Knapp, who is 52, adding that the subsidy will mask what, to him, is truly occurring. "Everything is going up," he says. "Somebody is paying the $13,000 [a year] for me if I'm not. It's not getting more affordable; it's getting more expensive."
Roy, the former Romney adviser, is a fellow at the right-leaning Manhattan Institute, which recently released a state-by-state study showing that premiums in the individual market nationwide will rise an average of 41 percent as a result of the ACA, with rates falling in some states and rising in many others. However, much of that increase, Roy notes, will be mitigated by federal subsidies so that costs for many consumers will go down, not up.
FEAR OF THE UNKNOWN
The nature of the income redistribution is what makes Obamacare different from even the share-the-wealth philosophy the president espoused on the campaign trail in 2012. "This is not about [taking from] the top 1 percent," says one alarmed Democratic strategist. "These are people making 60, 70, 80 grand a year."
The people bound to be affected adversely by the Affordable Care Act's cost-shifting the most are those in the individual markets who, unlike Mark Knapp, don't qualify for subsidies, yet are by no means rich. And, adds Ed Fleming, an insurance consultant in Columbus, Ohio, "if you have children, you get into a real pickle. If you have two working adults who together make $70,000, that puts them outside the range of getting a subsidy. Now their choice becomes paying $700 a month for what they have or $500 a month with a $12,700 deductible."
The law's supporters argue that because the individual market accounts for just 5 percent of Americans—15 million people—the burden falls on a select few. (By contrast, 12 million people who are currently uninsured are expected to secure coverage through the exchanges.) But that 5 percent isn't a stable group of individuals; consumers enter and exit that market all the time as they gain and lose jobs, start or abandon businesses, or gain or lose contract work. In addition, there remains the very real prospect that the slice of the market will grow if small businesses stop providing health insurance in the group market and instead pay subsidies to help their employees purchase individual plans.
"It will become a larger population that is shopping on the exchange," says Frakt, the Boston economist. "That status quo is going to change. We'll be having a different conversation in a year."
Indeed, tremendous cost pressures are already affecting the small-business market, Fleming says. Employers are rushing to renew their group policies for 2014 just to lock in their rates, even though many re-upped their plan earlier this year—each time accompanied by a rate hike. "You've taken two increases in your calendar year," he says. But such is the fear of full implementation of the ACA. The more comprehensive benefit plans, the preventive-care requirements—all of it, he says—"is making premiums go through the roof."
"Anybody who said they had a good handle on this was lying," Fleming says.
Admittedly, it's an open question whether health insurers are using the act as an excuse for big rate hikes, as some Democrats have charged. But the increases illustrate another redistributive aspect of the ACA: The government has assessed fees on insurers as another means to finance exchange subsidies, which places the industry in the position of helping consumers buy its own product. At the same time, those costs will be passed along to other policyholders who don't receive subsidies, such as, again, small employers. "All the taxes that are levied on insurance companies are going to filter down to the price of their products," says Holly Wade, an analyst with the National Federation of Independent Business.
The underpinnings of Obamacare could crumble in a number of ways.
And there is the more classic means of redistribution: the federal tax revenue used to fund the Medicaid expansion called for by the ACA. That will help fund coverage for an estimated 13 million Americans nationwide, which supporters argue will produce both societal and economic benefits. At present, that's the largest straight commitment of federal tax dollars, but conservative critics worry that if other ACA funding mechanisms fall short, the government could end up bearing more of the load.
"The whole financing structure for the law is a house of cards," says Charles Blahous, a fellow at the Mercatus Center at George Mason University and a public trustee of Social Security and Medicare. "Unlike a website, it's not so easily fixed."
The underpinnings of Obamacare could crumble in a number of ways: if young people fail to sign up for insurance in the droves needed to make the numbers work (and, given the meager penalty for failing to do so, that remains a definite possibility); or if the so-called Cadillac tax on high-dollar health plans scheduled for 2018 never happens (labor unions, among other interests, hate it); or if Congress, at the behest of the industry, follows through on its threat to eliminate the tax on medical devices; or if the long-promised savings in Medicare fail to come to fruition; or if, down the road, a cash-strapped federal government abandons its Medicaid commitments to states.
While describing Obamacare as a house of cards falls squarely within the lexicon of conservative hyperbole, the simple truth is that the Affordable Care Act is, from a certain point of view, either a finely tuned machine whose parts have to work in an almost orchestral fashion for it to produce the wellspring of results that have been promised, or an infernal, jury-rigged contraption that could collapse from the smallest series of stresses.
In light of the problems the administration has had over the past seven weeks, it is tempting for fair-minded people of any political stripe to see it as the latter. Right now, that, more than anything, is Obamacare's heaviest burden.
This article appears in the November 23, 2013 edition of National Journal Magazine as Losers & Winners.