Understanding the American healthcare balancing act

Once again, the American healthcare system is under heavy fire. Our team explains the workings of Obamacare, and if it can survive a new president with a new agenda.

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With the Trump administration in office, a long-lasting campaign promise to end Obamacare is on the table. With the U.S. ranking in the bottom fifth of developed countries when it comes to healthcare, the GOP began floating the American Health Care Act (AHCA) as an alternative, bringing the healthcare debate under the spotlight once more.

There are unforeseen challenges with the scope of repealing and replacing Obamacare. In a meeting with the nation’s governors, even President Donald Trump admitted that “[healthcare] is an unbelievably complex subject”.

So why is it so complicated?

Well, there are many people to please. On the center stage of the healthcare debate is a multitude of groups vying for policies that benefit them the most:

Consumers are people who use the healthcare system. For example, if you went to your doctor for a flu shot, you are a consumer.

Employers are businesses or organizations. Over half of employers pay for their employees’ healthcare insurance as a “benefits package”.

Healthcare providers are professionals who give either preventative, curative, or rehabilitative care. Providers can range from dentists to orthopedic surgeons.

Insurance companies help pay some of the costs of consumer healthcare. For example, if you go under the knife and you have an insurance plan that covers surgery, your insurance company will help pay for some of it.

Pharmaceutical companies develop, produce, and market drugs, a lucratively expensive process in the United States. On average, it costs hundreds of millions of dollars to release a single drug into the market. As such, these companies often pressure lawmakers for funding. In fact, 5 out of the top 25 highest spending healthcare lobbyists were pharmaceutical-related last year.

National & state legislatures are simply lawmakers. The national level is Congress, and state governments govern their respective states. The two major political parties — Democratic and Republican — often have opposing views on healthcare. As such, when one party supports a law, the other will usually oppose it.

Lobbyists generally work to enact laws and policies that are favorable to different companies and organizations.

How health insurance works

Health insurance, as mentioned before, helps people cover some of their healthcare expenses. But first and foremost, it should be pointed out that health insurance is a business. Their primary objective is to maximize their profits. If you suffer from a lot of medical problems, insurers don’t want to keep paying for your treatment because they aren’t making as much money.

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If you are enrolled in an insurance plan, you are obligated to pay a monthly fee. This amount is your premium and is determined by a variety of factors, including your health status, age, and lifestyle. For example, if you are a senior suffering from asthma and is prone to heavy drinking, you will have a higher premium than a healthy twenty-year-old.

In addition to this premium, you usually pay for deductibles, copayments, and coinsurance for treatment.

Deductibles are the amount a person has to pay their medical bills before their insurance company helps them pay. For example, if you need open heart surgery that costs $5,000, your deductible might be $500. You will need to pay this $500 yourself before your insurance company helps out with the remaining costs. Usually, the lower the premium is the higher the deductible will be.

After you pay your deductible, insurers will charge you either copayments or coinsurance. Copayments are a fixed amount that you pay for a healthcare service. On the other hand, coinsurance is a percentage of the costs that you pay. Copayments and coinsurance are calculated from an amount known as the “allowed amount”. The allowed amount is just the maximum amount that an insurance company will pay for a health-related service.

Here’s an example. Let’s say that a person named John Doe goes to their doctor for his yearly checkup. Their insurance plan’s allowed amount is $100 for a checkup. John has already paid his deductible, so he’s granted 20% in coinsurance. This means John only has to pay $20, while his insurance company covers $80. However, if John didn’t pay his deductible, he has to pay the entire $100 by himself.

Medicaid & Medicare

The Medicaid and Medicare programs are often confused for one another. Both are government programs that are intended to make healthcare more accessible, but both have different purposes and amounts of coverage.

Medicaid helps those who are poor and low-income pay for their health insurance. This system is determined by financial need, and tax revenue funds the majority of this program.

Medicare is a program attached to Social Security and aimed at giving the elderly (65 and older) health insurance. Certain disabled persons also receive automatic Medicare eligibility.

Medicare isn’t intended to help pay for every single health expense. It’s a primary insurer that is designed to cover some of the payments before a secondary insurer is needed for help. A Medigap is the difference between what Medicare actually pays and the full cost of medical expenses. Some have employer-sponsored retirement plans, and their company acts as a secondary insurer to cover their Medigap. Others can pursue specific Medigap policies to match the difference. The poorest, who can’t afford either, often apply for Medicaid as a last resort.

In recent years, more problems are arising with Medicare. Many issues can be traced back to the changing demographics in our society.

First of all, the U.S. population is aging rapidly, and so a lot more people are receiving Medicare. Since Medicare is also funded by tax revenue, fewer are working to actually financially support the program. This is an increasingly bigger problem as many baby boomers — the second largest living generation — are approaching retirement.

Second, life expectancy has also increased greatly in the last few decades. This is problematic because the older one gets, the more vulnerable they are to health problems. With treatments for common diseases increasing, it’s placing a major economic burden on the system. For example, the lifetime cost of treating diabetes, a condition that 30 million Americans suffer from, is over $85,000 per person.

Largely because of these two problems, Medicare is costing the nation a ton of money. The liabilities are approaching $88 trillion, and Medicare alone contributes to 87% of our national debt crisis.

Patient Protection and Affordable Care Act (ACA)

The main concept of “Obamacare” was near-universal healthcare; It was aimed at extending basic medical coverage to the 1 in 5 Americans who were previously uninsured.

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The individual mandate

Many who were previously uninsured were healthy adults who felt that they didn’t need to shell out money for coverage. This meant that insurance companies weren’t making as much money, and so they charged sicker people with much higher (and usually unaffordable) deductibles to compensate.

The Obama Administration believed that one way to make healthcare cheaper for the sick was to have healthy people buy insurance plans. Insurance companies view healthy customers as good investments because it’s unlikely that they will need expensive treatment, and so companies usually make a profit. This way, the ACA anticipated that insurance companies would stop charging the sick so much.

The ACA coerced healthy people into joining the healthcare pool through an “individual mandate”. If you didn’t have health insurance, you paid a hefty fine, ranging from either 2.5% of your income or $695 per adult.

The individual mandate was controversial, and a lawsuit even appeared in the Supreme Court to determine its constitutionality. Some considered it an overreach by the government to essentially force premiums on them. Regardless, the Supreme Court ruled 5–4 that the mandate was constitutional because it was another taxing power granted to Congress.

Pre-existing conditions

Another ACA reform was ensuring that insurance companies could not deny coverage to people with pre-existing conditions. Pre-existing conditions are health problems you had before coverage starts. Before Obamacare existed, if you had a condition such as asthma or cancer, insurance companies could either deny you coverage or charge you more. Obamacare prevented this by ensuring that you couldn’t be denied or charged more regardless of how many pre-existing conditions you have.

Expanding Medicare & Medicaid

The Obama Administration has also increased Medicare & Medicaid spending. For one, Medicare coverage was extended to smaller hospitals, and ill Medicare patients are now monitored more closely.

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Additionally, doctors are not paid by how many patients they care for, but how well they care for them. Groups such as the Joint Commission visit hospitals to certify and accredit them. If they find faults, the hospital must fix their problems or they will lose Medicare & Medicaid reimbursements.

So far, 32 states have expanded their Medicaid programs to cover all people below a certain household income. In those states, you will qualify if your household income is below 133% of the federal poverty level.

Coverage for children

One of the most popular ACA measures is that children are now covered by their parents’ health insurance until they turn 26. This saves money because family plans tend to be cheaper than individual ones. This provision was received with wide bipartisan support. A Kaiser Foundation survey found 9 out of 10 Democrats agreed with this measure, while 8 out of 10 Republicans felt the same way.

However, health economist Joseph Antos dubbed this policy as a “double-edged sword”, because young and healthy customers are a crucial demographic for balancing out the sick. When healthy customers are covered by their parents for an extended period of time, people with chronic illnesses will drive up premiums because insurance companies can’t balance out the expensive costs of treatment.

Regulating “Big Pharma”

In an effort to drive down prices, the FDA can approve more generic drugs to spike industry competition. On top of that, people now receive bigger rebates (refunds) on drugs they get through Medicare.

Nevertheless, pharmaceutical companies can simply jack up the prices on their respective drugs. Take the infamous Martin Shkreli, founder of drug company Turing Pharmaceuticals. In 2015, Turing gained ownership of Daraprim, which was a medical treatment for the infection toxoplasmosis. In a heavily criticized maneuver, each Daraprim pill was jacked up from $13.50 to $750 overnight. Other companies followed suit with their own products, most notably Mylan, who manufactures EpiPens.

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Was Obamacare good or bad?

The ACA received mixed reviews, ones that were usually partisan in nature.

Democrats point out that Obamacare rapidly decreased the number of uninsured people, and thus credit it for saving lives. According to Census Bureau data released last year, 13 million more Americans have health insurance than pre-Obamacare. Enrollment for 2017 also went up, with 6.4 million people signing up for policies throughout the marketplace. Other reforms such as the ones for pre-existing conditions received much support from the party.

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Republicans tend to gravitate towards criticizing the increasing costs of healthcare. Those in the lower income brackets are the ones who benefit the most from Obamacare, but many still struggle to pay off their expensive deductibles. Last October, the U.S Department of Health and Human Services found that premiums rose an average of 25 percent across the states that participate in the Obamacare marketplace.

Many point to the insurance companies who are now leaving the healthcare market because they can’t make a profit, resulting in less free-market competition. A common thesis is that with more companies competing for lower premiums, prices can be substantially reduced in the long term.

Republicans point out that one of the biggest issues is how the ACA squeezes the middle class. Middle-income households are the largest taxpayer blocks, but with their non-existent subsidies, they simply cannot afford the staggering premiums.

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How is the AHCA different?

The American Health Care Act is a more conservative approach to healthcare. There are a couple of major provisions to note.

First is the removal of the individual mandate. In the Republican base, many feel that the government should leave healthcare to the free market and that there should be fewer restrictions. One possible result of this is a return to the higher deductibles for the sick. In an effort to make insurance companies more profitable, states can now bypass and remove the restrictions on pre-existing conditions.

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Next are the tax cuts for drug corporations, which aims at increasing innovation. Since drug development is an expensive, risky, and time-consuming business, this provision is aimed at cutting basic costs so companies can spend more on research and development. Now with a smaller profit motive, the GOP predicts companies will thus charge less for their products.

Lastly, the AHCA will change the costs of insurance in an effort to revive the middle class. If you are are in the middle-level income bracket, more of your salary goes towards your retirement fund. However, if you are older or have a lower income, you will face higher costs. Under the AHCA, there are also long-term cuts to Medicaid, which will slow the rate at which funding increases over the next few decades. Coverage for pregnant women and those with disabilities will be likely reduced as well.

So what’s next?

Republican Majority Leader Mitch McConnell needs to gather at least 50 votes to pass the AHCA in the Senate. New provisions such as an additional $2 billion for fighting the opioid crisis were added to appeal to more moderate Republicans.

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Many are discontented with the proposed Medicaid cuts in their states. The latest defections by Senators Jerry Moran (R-KS) and Mike Lee (R-UT) killed the possibility of even beginning debate on the AHCA. Moreover, a recent analysis by the Congressional Budget Office points out that Trumpcare will cause 23 million people to lose their insurance by 2026.

Regardless, Senator McConnell has planned a vote next week to repeal the ACA, even with the lack of support from moderates. If it fails, more pressure will be placed on Republicans to fix Obamacare rather than to find an alternative.

Disclaimer: I’m neither a health insurance expert nor a certified professional. I’m simply a high school student trying to help my fellow peers understand the complexities of our current systems.

Originally published at rootpolicy.org on July 24, 2017.

The government tracker of http://rootpolicy.org, a student-run political journal covering domestic, international, and social issues.

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