Nobody likes the unknown, so it’s easy to understand why Americans are growing increasingly wary as the implementation of ObamaCare or, as it is formally known, the Patient Protection and Affordable Care Act, draws near.
Although the law passed in 2010, many of the key components take affect within the next 15 months:
• Health insurance exchanges open on Oct. 1 and are supposed to help people compare competing plans and discover whether they qualify for a taxpayer-funded subsidy.
• Beginning in 2014, all Americans are required to be covered by health insurance which is approved by the federal government. (Many popular high deductible plans, which are less expensive, are not government-approved.) Those who choose not to be covered will be required to pay a tax penalty to the IRS. That penalty begins at $95 but grows to $695 or 2.5% of your income by 2016.
• Businesses with more than 50 fulltime employees are mandated to provide health insurance coverage to all employees who work 30 hours a week or more. The law says that mandate begins in 2014, but President Obama issued an executive order stating that his administration would not enforce that provision until 2015.
Still, the public grows skeptical. A USA Today/Gallup poll found that Americans disapprove of the health care law 53%-42%, with 41% describing themselves as “strongly opposed.” Another poll found that 77% want the individual mandate delayed or repealed, including 49% who want the mandate killed outright.
Some people who currently have no health insurance will soon be covered. However, many others who were not part of “the problem” – either because they receive health insurance through their employer or because they purchase their own coverage – are seeing their costs increase and their choices reduced.
As candidate and as president, Barack Obama promised repeatedly that Americans who like their health insurance can keep it and that his legislation would reduce premium costs by up to $2,500 a year.
That’s not how the legislation is unfolding in the real world where a more accurate interpretation is “you can keep the health insurance you have – if you can still afford it.”
Why is this happening? Well, regardless of whether you like the requirement that insurance must cover pre-existing conditions or removing the link between your health risk and the cost of your premium, no one can deny that those changes are costly to most customers.
By eliminating health status as factor in setting the price of premiums, insurers now must charge younger and healthier individuals the roughly same amount as they charge older and less healthy ones.
In health insurance, there’s an 80/20 rule of thumb. That is, 20% of customers (those with the most severe conditions) account for 80% of the costs. Likewise, the healthier 80% account for just 20% of the costs and, therefore, subsidize insurance for those who are less healthy. For an insurance pool to pay its bills, it needs healthy people to continue to buy insurance to help pay the costs of those who require more care.
Unfortunately, because the new law raises their premiums, young and healthy customers will increasingly find it more attractive to discontinue their insurance and pay the penalty. A recent study found that three million people age 18-34 could save more than $1,000 if they dropped their insurance and paid the penalty for being uninsured.
Worse still, ObamaCare imposes a health insurance tax (or “HIT tax”) on insurance companies, which have no choice but to pass along that tax to customers.
For families who buy their own insurance through the individual market, the HIT tax will increase premium costs by an average of $508 per year or $215 per year for individuals. For small employers, premiums are estimated to increase by $683 annually per family or $276 for individuals, all due to the HIT tax.
These changes to federal law combine to drive health costs in precisely the wrong direction and to drive up costs for consumers.