Most public opinion of "Obamacare" seems to be an ideological reflex for or against a bill being framed as an icon of government expansion. It's disheartening to have something as critical as the health of our nation treated as a political hockey puck, but if that's the case then at least we should know what we're talking about. Let's pop open the hood and take a look inside the Affordable Care Act and find out why exactly you love it or why exactly you are convinced that it's a socialist manifesto.
That gentle humming in your head? It's either the subtle bliss of self-realization or the grinding halt of inevitable brain melt. Either way, you're welcome.
Thanks for reading and as always feel free to post questions or suggestions.
First, how do we talk about it? The technical title is Patient Protection and Affordable Care Act of 2010 (PPACA). Of course that is a bit unwieldy, so most academics just pronounce the acronym PPACA (pee-paa-ca). PPACA sounds like "alpaca" and when spoken in the din of a bar or rowdy dinner party can often veer a sharp political analysis towards an apparent infatuation with woolen sweaters.
The thousand foot view. There are ten parts - called "titles" - to the PPACA. Here are the titles described by their broad themes.
I : Health insurance reform
II : Public programs
III : New healthcare models
IV : Public health
V, VI, VII : Education, health care workforce regulation, making medicine more affordable
VIII : The CLASS act - an in-home care program for the elderly (this was repealed)
IX, X : How we're going to pay for it
I originally intended to explain the entire bill in one post but quickly realized my foolishness. This first post is about Title I and health insurance reform. In subsequent posts I will continue discussing the other titles of the PPACA.
Health Insurance Crash Course:
Coverage - What your insurance company will pay for. It is described with a list of medical services or "benefits". A plan with greater coverage will pay for more benefits.
Premium - The flat fee that you pay monthly for insurance.
Underwriting - The process of determining a premium price based on the health status of an individual.
Risk pooling - distributing the financial risk of illness over a group of people. Risk pooling is a central concept to understanding most talk about health insurance so I'm going to dedicate some time to explain it in more depth.
Insurance exists partly because the cost of medical technology has outstripped the financial capacity of any one person. Disease can affect anyone. Fortunately, severe disease - expensive disease - afflicts relatively few people in a population.
Insurers must make sure that they have enough money in reserve to pay for those few people with expensive illnesses. One strategy is to insure a whole lot of people in the same plan. Let's say 5000 people all pay $100 a month. Most people will usually cost less than they are contributing leaving a surplus of money in case someone gets really sick.
The person that gets really sick also only paid $100 a month but is costing the group much more than that. Some would say it's unfair that a person costing the system more still pays the same as everyone. The catch with illness is that we don't know who the expensive person is going to be. We hope it isn't us, but ultimately we don't know. By pooling a diverse group of people together, we make sure that an an average amount of severe disease in a group will be covered by our collective contributions.
As the pool of insured people gets smaller, the consequences of an individual racking up a large medical bill becomes more severe. An insurer wants to cover a group of 10 people. If 1 of the 10 happens to get leukemia, then the cost of leukemia treatment needs to some how be payed for by the surplus of the other 9. Insurers do this in two ways: one, they charge a higher premium to everyone from the start, ensuring that there will be an adequate surplus money or two, they charge a higher premium once someone gets sick.
Risk pooling in our country happens through employment. All of the employees of a company act as a risk pool. Insurers will bargain to exclusively insure the entire company. Smaller groups and groups with older people (risk of illness) or women (risk of childbirth) usually have higher premiums. If you are an individual getting insurance, insurers engage in underwriting and quote a premium based on how expensive you are likely to be - i.e. your current health status or the presence of pre-existing conditions.
Market forces also play a role. An insurance company wants to ensure all the employees of Wal-Mart. They are willing to provide a discount in exchange for gaining such a high volume of dedicated customers. Large companies - i.e. large risk-pools - have buying power when they bargain for insurance rates. Conversely small businesses and individuals don't have much buying power. Covering 10 employees from a local business is small potatoes for an insurer, they can quote a high premium and tell the employees to take it or leave it.
On the individual level, i.e. a risk pool of 1, people with pre-existing conditions are quoted astronomical premiums by insurers. This makes sense for insurers because they are fairly certain that the person is likely to need expensive medical care. The individual has absolutely no bargaining power so she either accepts the offer or remains uninsured. My dad has a history of cancer and if he ever had to find insurance as an individual, his premium would be several thousand dollars per month. This is exactly how sick people are priced out of health insurance and subsequently health care.
The bottom line, risk pooling is critical for insurance to be functional and affordable. When examining health care reform, think about how a given policy will alter risk-pooling and market forces.
If you are still awake, read on to learn about Title I of PPACA...
Insurance exists partly because the cost of medical technology has outstripped the financial capacity of any one person. Disease can affect anyone. Fortunately, severe disease - expensive disease - afflicts relatively few people in a population.
Insurers must make sure that they have enough money in reserve to pay for those few people with expensive illnesses. One strategy is to insure a whole lot of people in the same plan. Let's say 5000 people all pay $100 a month. Most people will usually cost less than they are contributing leaving a surplus of money in case someone gets really sick.
The person that gets really sick also only paid $100 a month but is costing the group much more than that. Some would say it's unfair that a person costing the system more still pays the same as everyone. The catch with illness is that we don't know who the expensive person is going to be. We hope it isn't us, but ultimately we don't know. By pooling a diverse group of people together, we make sure that an an average amount of severe disease in a group will be covered by our collective contributions.
As the pool of insured people gets smaller, the consequences of an individual racking up a large medical bill becomes more severe. An insurer wants to cover a group of 10 people. If 1 of the 10 happens to get leukemia, then the cost of leukemia treatment needs to some how be payed for by the surplus of the other 9. Insurers do this in two ways: one, they charge a higher premium to everyone from the start, ensuring that there will be an adequate surplus money or two, they charge a higher premium once someone gets sick.
Risk pooling in our country happens through employment. All of the employees of a company act as a risk pool. Insurers will bargain to exclusively insure the entire company. Smaller groups and groups with older people (risk of illness) or women (risk of childbirth) usually have higher premiums. If you are an individual getting insurance, insurers engage in underwriting and quote a premium based on how expensive you are likely to be - i.e. your current health status or the presence of pre-existing conditions.
Market forces also play a role. An insurance company wants to ensure all the employees of Wal-Mart. They are willing to provide a discount in exchange for gaining such a high volume of dedicated customers. Large companies - i.e. large risk-pools - have buying power when they bargain for insurance rates. Conversely small businesses and individuals don't have much buying power. Covering 10 employees from a local business is small potatoes for an insurer, they can quote a high premium and tell the employees to take it or leave it.
On the individual level, i.e. a risk pool of 1, people with pre-existing conditions are quoted astronomical premiums by insurers. This makes sense for insurers because they are fairly certain that the person is likely to need expensive medical care. The individual has absolutely no bargaining power so she either accepts the offer or remains uninsured. My dad has a history of cancer and if he ever had to find insurance as an individual, his premium would be several thousand dollars per month. This is exactly how sick people are priced out of health insurance and subsequently health care.
The bottom line, risk pooling is critical for insurance to be functional and affordable. When examining health care reform, think about how a given policy will alter risk-pooling and market forces.
If you are still awake, read on to learn about Title I of PPACA...
Title I - Health Insurance Reform
I'm sure you heard of a story where an insurance company calls up someone recently diagnosed with cancer and cancels her insurance policy. Retrospectively denying coverage to people with expensive illnesses is called "rescission" and is one of the less pleasant cost-saving tactics of insurers. Well, it's illegal now. Hooray.
Title I also stops insurers from denying insurance or charging higher premiums based on pre-existing conditions - underwriting. My dad, as a cancer survivor, will be able to buy insurance as an individual for the same amount as anyone else. Interestingly, the bill allows insurers to charge higher premiums to those who smoke. Most people are behind this as it is a compromise between holding people accountable for negative health behaviors but not financially penalizing someone for the misfortune of becoming ill.
Tied to the banning of underwriting is likely the most controversial component of the act. Mandatory health insurance. Instead of delving into a discussion of personal liberty vs. the social contract I want to instead explain the financial necessity of mandatory insurance if we want to ban underwriting. The two come as a package.
If underwriting is illegal and there is no mandate, what is to stop people from only seeking health insurance once they become ill? Insurers would be legally bound to provide the same low premium to everyone regardless of health status. If enough people do this then the entire system would consist of ill individuals paying low premiums. There won't be enough money from the premiums to cover the costs of care and the system will fail.
Underwriting allows insurers to check if the pool of people they are insuring is risky. If by chance they are insuring a pool disproportionately full of ill people, they charge a higher premium to everyone to cover the higher average cost of health care. Without the ability to underwrite, insurance companies need to guarantee that risk pools will be large and diverse so there are plenty of healthy people to cover the expenses of the few ill people. Hence, the health insurance mandate. You don't want to be charged more for pre-existing conditions? Fine. Then everyone needs to play for the system to work.
Title I also requires "essential health benefits", a basic package of services that every health plan must include. What defines "essential" is the center of current policy talks. There are also requirements to standardize how insurance plans vary from each other, making them easier to compare when deciding on a plan.
Tied to the banning of underwriting is likely the most controversial component of the act. Mandatory health insurance. Instead of delving into a discussion of personal liberty vs. the social contract I want to instead explain the financial necessity of mandatory insurance if we want to ban underwriting. The two come as a package.
If underwriting is illegal and there is no mandate, what is to stop people from only seeking health insurance once they become ill? Insurers would be legally bound to provide the same low premium to everyone regardless of health status. If enough people do this then the entire system would consist of ill individuals paying low premiums. There won't be enough money from the premiums to cover the costs of care and the system will fail.
Underwriting allows insurers to check if the pool of people they are insuring is risky. If by chance they are insuring a pool disproportionately full of ill people, they charge a higher premium to everyone to cover the higher average cost of health care. Without the ability to underwrite, insurance companies need to guarantee that risk pools will be large and diverse so there are plenty of healthy people to cover the expenses of the few ill people. Hence, the health insurance mandate. You don't want to be charged more for pre-existing conditions? Fine. Then everyone needs to play for the system to work.
You may have read that the Supreme Court will eventually rule on the constitutionality of mandatory health insurance. If the insurance mandate is deemed unconstitutional then most other insurance reform will likely unravel.
Title I also requires "essential health benefits", a basic package of services that every health plan must include. What defines "essential" is the center of current policy talks. There are also requirements to standardize how insurance plans vary from each other, making them easier to compare when deciding on a plan.
Remember all the talk about the public option? Obviously that didn't happen. What we have instead is "health insurance exchanges". Do you work for a small company? Are you a performance fire dancer and part-time herbalist? Insurance exchanges are your future my chakra-aware friend.
Exchanges will be created in each state, they combine individuals and small business into state-wide risk pools. Private insurers bid to provide plans to the exchange as a whole and because a state-wide pool is large and diverse, premiums should be reasonable. Market forces come into play as well; insurers would love to gain all of those potential customers and will likely offer lower prices to the exchange.
Theoretically, exchanges allow traditionally difficult to insure individuals and small risk-pools to have the risk-distribution and bargaining power of a larger risk-pool. No subversive Marxist plot here. Still, if government institutions give you hives and asthma like symptoms, don't worry, joining a health exchange is entirely voluntary - PPACA would hate to deprive you of the joy of bargaining one-on-one with an insurance company.
Disclaimer: I've described exchanges in their most ideal state just to give a feel for the concept. Their success is far from certain and perhaps the grounds for an other post in the undefined future.
Exchanges will be created in each state, they combine individuals and small business into state-wide risk pools. Private insurers bid to provide plans to the exchange as a whole and because a state-wide pool is large and diverse, premiums should be reasonable. Market forces come into play as well; insurers would love to gain all of those potential customers and will likely offer lower prices to the exchange.
Theoretically, exchanges allow traditionally difficult to insure individuals and small risk-pools to have the risk-distribution and bargaining power of a larger risk-pool. No subversive Marxist plot here. Still, if government institutions give you hives and asthma like symptoms, don't worry, joining a health exchange is entirely voluntary - PPACA would hate to deprive you of the joy of bargaining one-on-one with an insurance company.
Disclaimer: I've described exchanges in their most ideal state just to give a feel for the concept. Their success is far from certain and perhaps the grounds for an other post in the undefined future.
To review, Title I is all about health insurance reform and it has some high profile consequences:
1. it outlaws rescission, most underwriting and denying insurance based on a pre-existing condition
1. it outlaws rescission, most underwriting and denying insurance based on a pre-existing condition
2. it creates insurance exchanges as a way for individuals and small businesses to get affordable health insurance
3. it makes sure that every health insurance plan includes a basic package of "essential benefits" and it makes plans easier to compare.
4. it requires everyone to get health insurance
That gentle humming in your head? It's either the subtle bliss of self-realization or the grinding halt of inevitable brain melt. Either way, you're welcome.
Thanks for reading and as always feel free to post questions or suggestions.
