Did the ACA Lead to High Medical Costs?

Has the ACA Increased Medical Costs, or is There Something Else Going On?

On this page we ask the question, “did the ACA (ObamaCare) lead to higher medical costs, or is something else causing the increase in healthcare costs?”

A simple answer is: Yes, some of the recent cost increases are directly or indirectly related to the Affordable Care Act, but many aren’t. To know what needs fixing, and to understand why healthcare reform was attempted in the first place, we have to understand what is causing the price increases (and, in some cases, what the law does to combat this).

Introduction

All Americans want affordable health care, but many find medical insurance and treatment too expensive.

It is easy to blame expensive insurance plans and high deductibles for increasing our out-of-pocket costs, but those are largely a byproduct of our insurance system, not the cause of the cost problem.

Meanwhile, its easy to blame the Affordable Care Act (or politics in general), but this, while a factor, is hardly the only cause of the problem.

The reality is the ACA caused some price hikes initially, and instability and uncertainty over the GOP repeal and replace plan are causing hikes here in 2017.

Meanwhile, we could point fingers at providers, drug makers, device makers, lobbyists, insurers, etc.

However, none of these factors are alone responsible for the underlying issue of rising healthcare costs. Instead, all these things together, and so much more work in tandem to

Consider: 

• Before the ACA premiums were rising at an unsustainable rate in the individual market (and in the employer market), and, without taking subsidies into account, this trend continued under the Affordable Care Act. Premium hikes may or may not have been partially due to insurers having to cover pre-existing conditions. There are convincing arguments for both points of view.
• In 2015, under the ACA, health care spending grew at the slowest rate since 1960. Meanwhile, in that same year, health care price inflation was at its lowest rate in 50 years.
• High-deductible plans are NOT part of the ACA.^[1] They became more popular under the ACA and were affected by it, but the ACA did not create them, and there is no promise that they will somehow go away without the ACA.

In other words, although there was an initial price hike under the ACA, cost assistance and cost-curbing measures were helping to keep consumer costs down. At the same time, high deductible plans, healthcare inflation, and rising costs were a problem before the ACA and continued to be a problem with it.

Much of the cost of medical care produces a direct profit for insurance companies, medical device makers, pharmaceutical companies, and healthcare conglomerates such as the hospital, residential care, and treatment chains providing specialized services like dialysis.

Neither TrumpCare nor the ACA has addressed the issue of curbing corporate profits (beyond a few taxes levied by the ACA and removed in instances of TrumpCare). We cannot control the cost of healthcare until we address the profit margins driving the healthcare market. Meanwhile, addressing the total problem and not making worse means looking beyond just that.

FACT: In 1980, healthcare accounted for about 8% of our economy. It had almost doubled before ACA went into effect in 2014.^[2]

Has the ACA Increased the Cost of Healthcare?

It is no wonder people are upset by rising medical costs, but insurance premiums were going up by about 10% a year before the ACA went into effect. Insurance premiums have increased by 213% since 1999 for family coverage through an employer. There was an increase of 30%-40% in the three years before the ACA. Since the ACA, premiums have not been rising as fast as they were before.^[3]

Healthcare businesses and startups have been tremendously profitable. However, although there is job growth in healthcare, most healthcare providers are not benefiting from the healthcare industry boom on anywhere large as scale as investors and entrepreneurs. Those delivering services like care facility workers and home health care workers are not sharing in the medical wealth boom although they are employed as a result of it. Few providers or consumers of health insurance are happy with its financial aspect.                                                                                                                                                                                                                  FACT: The entire medical care industry has changed to become more profitable for insurance companies, medical device makers, pharmaceutical companies, and healthcare conglomerates such as the hospital, residential care, and treatment chains providing specialized services like dialysis. These entities do not have cost controls under the ACA or any other legislation. At some point, care may become unaffordable for those outside systems like Medicare, Medicaid, or the V.A.

Who is Struggling Under The Affordable Care Plan?

Employed non-elderly working families and individuals are worse off than they were ten years ago and pay the highest price for healthcare. The causes are many: the increasing wealth gap, comparatively low wages, rising costs, etc. Insurance cost is a significant problem for a large section of the population. At the same time, most people’s wages and buying power has steadily shrunk.

The ACA reduced the number of people left uninsured, but, at the same time, 46% of uninsured adults still find coverage prohibitively expensive. Their coverage isn’t subsidized enough to be affordable, healthcare costs are high, and high deductible health plans require a large out-of-pocket payment before they pay anything.^[4] Healthcare costs continue growing while income levels have been either stagnating or losing buying power.

People who are working are likely only to have access to relatively costly medical insurance policies and high deductible plans. Many employers found it profitable to offer employees health insurance under the ACA, either because they were mandated to or subsidized for doing so. High deductible plans cost fewer premium dollars for the employer than more comprehensive plans. Insurers like them because it saves them from having to pay out much for the average person.

If you have health insurance, you probably realize that the out of pocket medical costs of high deductibles has increased 67% since 2010 alone according to the Henry J. Kaiser Family Foundation. You can find the statistics at the Kaiser Family Foundation website.

In theory, consumers who have high deductible plans were supposed to save money in a Health Savings Account (HSA) and use those pre-tax savings to offset medical costs. Some people do, of course, but most live from paycheck to paycheck and do not have money to save.

A significant number of Americans make too much to receive medical insurance subsidies, but not enough to pay for care. It is easy for them to look at the rising cost of their insurance along with the increasing costs of goods and services and blame the ACA. People can be working hard and have health insurance but be unable to afford healthcare, particularly in a crisis. Please see one of our reader’s stories to find out how this can happen.

FACT: People with high deductible accounts have to pay the first several thousands of dollars in medical costs out of pocket before their insurance begins covering any expenses other than the essential benefits. Many have reacted by skipping doctor’s visits or canceling their health insurance because they feel they cannot afford both the insurance and medical care.^[5]

Whose Life Has Been Improved by The ACA?

The ACA contains hundreds of provisions. Some, like improving Medicare, allowing those with preexisting conditions to purchase medical insurance without a penalty, allowing children to stay on their parent’s policies until they are 26, and ending insurance company caps on lifetime deductibles have been popular.

Likewise, most insured people have been happy to be able to have free preventive care, OB-GYN services, out-of-network emergency room services, and birth control without cost (see New Benefits, Rights, and Protections in the Affordable Care Act for more details about the ACA’s key benefits.)^[6]

Further, many who qualified for Medicaid expansion, cost assistance, expanded employer coverage, or tax breaks for small businesses under the ACA got a great deal. They got better coverage or coverage for the first time, and in many cases, lower costs and better benefits. Of course, this did not happen unless the states people live in expanded Medicaid under the ACA.

Have Insurance Companies Been Hurt by the ACA? Is That Why Costs Have Going Up?

The ACA has increased the number of people with access to healthcare. Before 2014, people who were old or sick paid exorbitantly for health coverage if they could get it at all. Many faced lifetime or annual maximums.  Premature infants and others with complex medical needs often saw their families bankrupted by the cost of care. People died.

It is easy to think that insurance companies raised the cost of insurance because they had to insure sick people and pay for services such as annual wellness visits under the ACA. While these expenses increased costs, the companies have also sold more policies because more people were insured. Increased sales have been profitable.

The ACA provides access to insurance and says that all policies have to offer essential benefits; it does not create insurance policies. Health insurance companies create their policies, and we need to remember that they are in business to make money.

Our healthcare economy is doing well. It isn’t a death spiral; in most cases, it is a “profit spiral”(see Health Insurers are In A Profit Spiral for details). Healthcare is about 1/6th of our economy, and the U.S. economy is the largest economy on earth.

In Summary

The health care economy is creating extraordinary profits for insurance companies, entrepreneurs, and medical companies.

At the same time, the insurance products available to many of us have become increasingly costly, and consumers must pay out-of-pocket for a significant portion of their medical expenses.

These two trends happened at the same time as the ACA but were not a direct result of it.

Although it’s true that some of the ACA’s benefits, rights, and protections were the cause of a temporary increase around 2014 and 2015, the law itself does as much to keep costs down as it did to cause the initial increases.

Medical cost increases have not been caused by the ACA alone; the ACA is not even the primary cause of increases. We need to consider the growing expense of health care in isolation. Pointing to the ACA or a replacement plan isn’t going to solve the underlying problem.

1. High-Deductible Health Plans: A Brief History
2. Why Health Care Eats More of Your Paycheck Every Year
3. Better off Before ObamaCare?
4. Key Facts About The Uninsured Population
5. The Painful Rise of High-Deductible Health Insurance
6. New Benefits, Rights, and Protections in the Affordable Care Act