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Higher-Income Individuals Are Struggling to Afford Obamacare, and That's a Problem


Image source: White House on Flickr.

It's been more than six years since President Obamacare signed his trademark health bill, the Affordable Care Act, into law. Yet debate over whether it's been a boon or a blight for America continues to rage on.

The ACA, known better as Obamacare, has managed to enroll 11.1 million people through its online marketplace exchanges through the end of March 2016. Most of them enrolled through HealthCare.gov, the federally run exchange operating on behalf of 38 states, while the remainder of enrollees signed up in the dozen states that operate their own insurance exchanges.

In addition to these 11.1 million enrollees, Obamacare's offer of federal funds helped expand Medicaid programs to low-income earners in 31 states. All told, since Obamacare was fully implemented on Jan. 1, 2014, Gallup estimates that the uninsured rate has fallen from 17.1% to 11% as of the first-quarter of 2016. The Centers for Disease Control and Prevention reported an even lower uninsured figure of 9.1% as of the end of 2015, but its figures also include Medicare enrollment. Long story short, there's a positive side to Obamacare.

But there have been negatives, too. Millions of Americans who who thought they'd be able to keep their plans wound up losing them due to the beefed-up minimum benefit requirements of exchange-based plans. Insurers lost out, too: The risk corridor -- a tool designed to take money from overly profitable insurers and pool it in a fund to be doled out to insurers that were struggling – has only paid out 12.6% of the $2.87 billion requested by money-losing insurers. Without the risk corridor, some of the lowest-cost plans simply closed up shop due to excessive losses.


Image source: Getty Images.

The biggest debate of all: Is Obamacare affordable?

However, the biggest debate continues to revolve around Obamacare's affordability. Whether Obamacare is affordable or not generally depends on who you ask.

According to the Centers for Medicare and Medicaid Services, 85% of the 11.1 million current enrollees are receiving the Advanced Premium Tax Credit, or APTC. The APTC is offered to consumers earning between 100% and 400% of the federal poverty level (persons earning below the FPL may qualify for free care through Medicaid), and it helps lower their monthly premium payments. Additionally, consumers earning between 100% and 250% of the FPL may qualify for cost-sharing reductions, or CSRs, which help lower or eliminate copays, coinsurance, and deductibles. Consumers in this category are often shielded from the full brunt of premium price increases.

But what about people making more than the FPL, or even more than just 250%, of the FPL, making them ineligible for CSRs? For that answer we'll turn to the latest study from the Commonwealth Fund.


Image source: Getty Images.

Obamacare may not be affordable for higher-income adults

A recent study from the Commonwealth Fund of more than 4,800 people compared the costs of Obamacare with the costs consumers were responsible for through employer-sponsored healthcare plans. Unsurprisingly, those earning less than 250% of the FPL had a comparable amount of high-deductible insurance plans to low-income earners getting their insurance through their workplaces. In other words, Obamacare provided a competitive alternative to employer-provided insurance for those earning under 250% of the FPL.

For those earning more than 250% of the FPL, the Commonwealth Fund noted a large disparity in the number of people with high-deductible plans through Obamacare compared to plans purchased through employers. Just 42% of higher-income adults with employer-sponsored care had a high-deductible healthcare plan, compared to 68% through Obamacare's exchanges. Remember, once an individual hits 400% of the FPL, or $47,080 per year, all chances of receiving premium subsidies disappear, which means this group is directly exposed to premium price increases. 

Image source: Getty Images.

Looking ahead to 2017, Obamacare premiums may soar. The Kaiser Family foundation's recent analysis of the lowest-cost silver plans in 14 major cities found an average premium increase of 11% in 2017 based on insurers' initial rate hike requests. Of course, this is just a small snippet of data, and each state's Office of the Insurance Commissioner will go to bat for the consumer, so these increases may ebb a bit. Nonetheless, next year we could be looking at the highest level of health plan premium increases in about a decade. That's bad news for higher-income Obamacare enrollees.

Lofty premiums aren't just hurting high-income consumers

Ballooning premiums are potentially bad news for insurers, too.

Insurers have a trade-off to make when accepting enrollees in Obamacare. Some have gone the route of targeting government-sponsored patients -- those receiving free care via Medicaid, or having a substantial portion of their premiums covered by federal or state aid. Since these payments are coming from the government, they're guaranteed, and "guaranteed" is a great word for any insurance company. The downside is that government-sponsored patients yield lower margins for insurers, so volume is important.

The other route insurers can take is targeting patients who aren't covered by subsidies. These patients are quite appealing to health-benefit providers because they produce superior margins. What's more, patients without subsidies are coveted because their premium payments can help offset the higher costs associated with sicker individuals. And, as a previous Blue Cross Blue Shield Association study has shown, Obamacare enrollees do tend to be a sicker, costlier bunch than employer-sponsored enrollees.

Image source: Getty Images.

But, as the Commonwealth Fund's study showed, higher-income adults are struggling with Obamacare's affordability, and thus may be more likely to drop out of the program if it becomes unaffordable. Just 4 in 10 adults in the Commonwealth Funds' study suggested it was "very easy" or "somewhat easy" to find an affordable plan through Obamacare -- and this was regardless of income level.

Even though we're only talking about roughly 15% of Obamacare's enrollees being exposed to the full brunt of premium price hikes, this is the highest-margin group of customers for insurers. While premium hikes are needed to offset ongoing Obamacare-related losses, insurers could wind up chasing away their most coveted group of patrons.

Also remember that it's usually cheaper to pay the penalty for not purchasing health insurance (known as the Shared Responsibility Payment) than it is to purchase health insurance -- and that includes the tax deductions you may be eligible for when paying your premiums.

What's next for Obamacare?

What's next for Obamacare is still anyone's guess. The November elections should tell us more. Democratic presidential candidate Hillary Clinton would prefer to leave Obamacare in place and build upon its success, whereas Republican presidential candidate Donald Trump would just as soon dismantle it and replace it with his own plan. Once we know who will be in the Oval Office come January, we can take our next steps forward in the evolution of healthcare in the United States. Until then, it'll probably be more watching, waiting, and debating.

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Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, and check him out on Twitter, where he goes by the handle 

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