The Affordability of Patient Protection - Research Paper Example

Is patient protection and affordability act really affordable INTRODUCTION: Before proceeding with the discussion on the affordability of Patient Protection and Affordability Act it is pertinent to discuss in brief what the Act actually is. The Act promises the Americans access to quality, affordable healthcare and at the same time creating the transformation within the healthcare system necessary to share the costs. The Congressional Budget Office (CBO) states that the Act is fully paid and that about 94% Americans will gain benefit from it. The total cost of the Act will remain under $900 billion as approved by the US President Obama. According to CBO the Act will not only bend the healthcare cost curve, but will also help in reducing the deficit in the next ten years and beyond (PPACA Detailed Summary, n.d.). The aim of this paper is to evaluate the Act and find out if it is economically viable or not for the Americans. For this purpose I intend to explore the peer reviewed articles in order to understand the economic effects of the Act. Towards the end a conclusion shall be made based on the findings of the research. LITERATURE REVIEW: Howard (2011) has discussed in detail the economic consequences of the Act in his article “The Impact of the Affordable Care Act on the Economy, Employers and the Workforce”. Howard is of the view that the Act is neither affordable nor a solution to the healthcare problems of the Americans. Instead, it would lead to increased problems and cost pressures along with economic degeneration and unemployment. The negative economic impact of the Act can be divided into three categories: The Act does not reduce the deficit as stated by CBO, it rather increases it. It will lead to highly increased insurance cost and unemployment. The regulatory uncertainty of the Act will act as a major hindrance towards the issue of job creation. Here, it would be pertinent to discuss the three categories in detail in order to understand the negative consequences of the Act. The Act does not reduce the deficit AS STATED BY CBO, it rather increases it: Reducing the fiscal deficit leads to economic growth and job creation. If the US government continues to spend money without any cost effective plans, the US economy will soon be crippled. Slowing the growth rate of the health care cost is therefore a good option. The Act however asks the middle class to purchase heavily subsidized health care insurance and doubles the size of Medicaid program because of the increased number of insured people. Howard (2011) is of the view that the Act is not a suitable way of bending the cost curve, as mentioned by President Obama. As more and more people are insured, the demand for health services would increase which would mean more expansion and spending on health care projects, such as Medicaid. The Act ensures more spending on health care and increased demand will lead to increased cost of health care goods and services. A prominent economist, Jonathan Gruber (quoted online in California Healthline, 2010), explained the Act as “a spaghetti approach” to cost control. It is just doing a lot without getting any optimal results. It is just an amalgamation of different projects such as the pilot program Medicaid, bundled payment systems and pay for performance etc. which are thrown against the wall to see which one sticks. The Act does a lot to provide health insurance to millions of uninsured Americans but it does nothing to keep the cost down. Experts also state that long term savings expected from Medicare cuts are also unsustainable. Dorn et al. (2010) is of the view that the Act will affect the federal budget in two ways. The spending of the state run insurance program, Medicaid, on low income adults will rise. Firstly, the number of people signing up for Medicaid will increase. This will cause the states to increase their standard share of Medicaid expenses. Secondly, the Act states that Medicaid must provide health coverage to all the adults with incomes at or below the Federal Poverty Line (FPL). The federal government has the responsibility to pay 100 percent for all the newly eligible individuals during the period of 2014-2016. However, in 2017 the states will have to pay their share of the costs. The share will gradually rise to 10 percent in the year 2020 and thereafter. Analyzing the above two factors, it has been estimated that the state share for Medicaid coverage for adults with income at or below 133 percent of the Federal Poverty Line (FPL) will reach between $21.1 billion and $43.2 billion during the period 2014-2019. Howard (2011) is highly critical of the top down approach of the Act and states that it is also not economically viable. In such a situation the authority lies with the bureaucrats who have little or limited information about the healthcare system. These bureaucrats tend to control the lives and actions of hundreds and thousands of healthcare providers, such as physicians and hospitals who are better aware of the system around them and know better ways to improve the revenue from various administratively favored actions and procedures. Evaluating the initial stages of the Act the Director of the Congressional Budget Office stated: “Rising health care costs will put tremendous pressure on the federal budget during the next few decades and beyond. In CBO’s judgment, the health legislation enacted earlier this year does not substantially diminish that pressure (Elmendorf, 2010).” Howard (2011) states that the CBO has repeatedly commented that the Act will reduce the fiscal deficit in the first decade by a small amount and by trillions of dollars thereafter. How it will do it is still unanswered. The government intends to spend more on Medicaid program, Children Health Insurance Program and, at the same time, subsidizing the middle and upper income individuals into buying insurance. With all these spending in sight the CBO still claims that the Act will reduce the deficit by about $143 billion in the first ten years. At the same time it also claims that about $401 billion will be spent on health care programs only in the first ten years. The CBO state that the Act will increase federal revenue, as tax and fees will be paid, by an amount greater than $525 billion. With raised taxes and fees, the Act is nothing but a burden for the common man. Implementation of the Act will affect the private sector as trillions of dollars will be spent on the health care plans. The private sector will suffer due to reduction in the funds that are needed for job growth and innovation. Fund related to future deficit reduction efforts are also lost. It seems appealing that the Act will reduce the deficit by $143 billion, if one does not consider the fact that the funds are actually coming from the non-health care sector to meet the healthcare requirements of the people. This is not a suitable way to bend the cost curve (Howard, 2011). The Act exposes the gimmicks of the federal government as it double counts $53 billion in Social Security Payments and $70 billion in premium payments of the CLASS program as savings. It ignores the $115 billion discretionary costs associated with the Act. Another gimmick exposed by the Act is that the Congress pretends that it will allow 30% cuts in the payments of the physicians under Medicare, thus assuming that billions of dollars would be saved (Howard, 2012). The advocates of the Act accept the fact that the spending will increase in the first ten years of the implementation of the Act. They, however, focus more on the savings in the second decade and on the Medicare Trustees Report 2010 that the Medicare hospital insurance fund will be extended to additional 12 years along with a huge cut in expenditures. The problem is that the CBO assumes that the cut in expenditures will have no effect on the services for Medicare beneficiaries. The report of the Medicare Actuary does not agree with the 2010 Trustees report stating: “The financial projections shown in this report for Medicare do not represent a reasonable expectation for actual program operations …the statutory reduction in price updates for most categories of Medicare provider services will not be viable (quoted by Price, n.d.).” The analysts have put the deficit costs of the Act to $562 billion in the first ten years and $1.5 trillion in the second decade. To meet these obligations taxes will have to be increased along with major cut down on spending. This is not enough. The private sector will also suffer due to drainage of funds. Investment on public education and infrastructure will also suffer (Eaken and Ramlet, 2010). The already stained budget of the states will also suffer due to the Act. Before the implementation of the Act, about 20% of the states’ budget was used for Medicaid. After the implementation of the Act the Medicaid cost will increase by 100% in the first 10 years and then 90% in 2020. The states will have to spend $21 billion in the new Medicaid costs excluding the new administrative cost of $ 21 billion (Howard, 2011). The states are also responsible for the millions of uninsured Americans. Once the law is passed, many of these eligible but uninsured Americans will switch to Medicaid coverage. These people will be covered under the pre Act rate that is more troublesome. It will increase pressure on states’ budget and other dangerous moves, such as tax increase, budget cuts and employees’ layoffs (Howard, 2011). THE ACT WILL INCREASE INSURANCE COSTS AND UNEMPLOYMENT: According to Howard (2011), the Act has other repercussions as well. The insurance mandates, taxes and employer penalties will have its effect on the cost of health insurance and the decision of the employer to hire new employees. The Act has a number of new requirements, such as extending the coverage of dependent children till the age of 26; ending the lifetime cap on health insurance coverage; ending the annual coverage limit; making it mandatory for the companies to include children with pre-existing conditions from child only coverage policies; and ending cost sharing for preventive services. These requirements lead to higher insurance premiums that the companies will pay by cutting down the employee’s salary or by not hiring new employees. New taxes on insurance companies, pharmaceutical companies and other medical devices companies will have their effect on the employer and employees in the form of increased premiums. The government states that the “grandfathered” plans will not be included in the new insurance regulations and costs. They also state that 69% of all employers will give away their grandfathered status over the next few years and will have to face new rules and costs (Howard, 2011). The experience of the State of Massachusetts regarding the health care in the Affordability Act suggests that the premium of health insurance will rise not only for employers but also for small firms as well. There was a 6% increase in aggregate and by 7% for companies with less than 50 employees. The Act also penalizes companies with more than 50 employees that do not offer coverage to the employees. This penalty will force employers to reduce employees and not hire more. Firms will prefer to hire full time workers to minimize the cost of labor (Eaken, 2011). As a matter of fact, many large companies consider paying the penalty for not offering health coverage to employees far better and cheaper than offering coverage. The low wage employees will prefer to shift to the state run insurance system due to the subsidies and the cost sharing support offered by them as compared to the current tax exemption for employer provided health insurance. High wage employers are not offered subsidies in the exchange and therefore, would like to stick to the employer provided health insurance (Eaken, 2011). The Act gives tax credits to counteract the costs of insurance coverage for small firms. The credit, however, is not for the firms where the number of members are between 10 -25 and an average wage of $ 50,000. Small businessmen and their family members who normally are a part of the firm are excluded from claiming the credit. Under these facts the National Federation of Independent Businesses estimated that only 35% of small firms with the number of employees less than 25 will be able to gain benefit from the credit (Elmendorf, 2010). According to the estimates by the CBO, it is expected that about 3 million employees will be excluded from the employer based insurance coverage. The companies who would choose not to offer coverage would be the ones with small employers or employers who hire low wage workers. Because of this drop out from the employer based insurance coverage, more people will be included in the state run insurance programs which would mean increased taxes and increasing the cost of the program. Approximately 43 million low wage employees are expected to drop in the state run insurance programs (Eaken, 2011). The firms are more inclined to end the healthcare coverage for their low wage employees. They will prefer to outsource their work or automate it in order to avoid penalties or health insurance costs. This transfer of low wage workers to state run insurance will decrease the demand of the low wage workers and expose the taxpayers to the reality of the cost of subsidy (Eaken, 2011). Many low wage workers will also be enrolled in the Medicaid program, a joint program run by the federal and state governments. The program looks comprehensive on paper but is actually inaccessible due to a number of reasons, such as slow and low reimbursements for the services of the physicians. Medicaid is also not viable for the worst illness situations such as cancer and heart diseases (Elmendorf, 2010). A small worker comments on his views about the Act and states that the penalties enforced by the Act will force him to either raise the prices of his products or lay off the workers. His final decision will either be to shut down his business or ask the consumers to pay more for his products (Howard, 2011). The regulatory uncertainty of the Act will act as a hindrance to job creation. It has been mentioned above that the Act will have its negative consequences to the economy as it will lead to increased insurance premiums, penalize the firms who do not offer insurance coverage to the employees, and at the same time give an incentive to the employer to find ways to minimize coverage cost through various ways such as employee reduction, no further hiring or hiring full time laborers. This would mean that a large number of Americans would be excluded from the employer based insurance coverage and therefore, would be included in the government controlled insurance market (Howard, 2011). Several regulations of the Act are still unwritten and have to be chalked down in the coming years. This creates a lot of problems for the employers as the costs associated with federal insurance and state insurance are still uncertain. Employers are also bearing the brunt of the uncertainty of the Act as the Department of Health and Human Services have made a number of amendments in the Act in the initial days after the passage of the Act. A prominent example in this case is that of the Cadillac Tax raising the question how many other taxes would be imposed in the coming years (Howard, 2011). The Act will force many companies to move forward with caution at least till 2014 in cases related to new investments and employee hiring. Unless the issue is solved amicably, the Act will be taken as a burden on the US economy which is already suffering from the worst financial crises since the Great Depression (Howard, 2011). The CBO has estimated that the unemployment rate in the country will increase by 0.5% under the Act. It seems to be a modest rate but the future projections could show worst scenario. The increase in unemployment rate will be basically due to the decision of the employers not to hire new employees. As we compare the unemployment rate due to expensive health insurance in the global market one can foresee the disastrous consequences. Howard (2011) gives the example of France to support his point. France has an expensive package of health insurance for its citizens. The package is financed by heavy taxes on labor. Approximately 350 euros are deducted from the employee’s salary who is earning 3000 euros a month. The employer will then have to add 1200 euros which means that the employee is 1200 euros expensive to the employer. High labor cost in France affects the unemployment rate because the employers are not willing to spend on low skilled workers. Economists are of the view that unemployment rate and expensive national health insurance are directly related to each other, which is explained by the fact that at times of economic growth in France the average unemployment rate is around 10%. To conclude, Patient Protection and Affordable Care Act will be a burden on US economy (Grant, 2012). The aim of the Act was to minimize the overall cost of the health coverage. Instead, its provisions such as mandatory coverage of preexisting conditions and increased premiums are actually increasing the cost of health care, and many would choose to drop their insurance coverage due to non-affordability. Therefore, based on the above argument it can be stated that the affordability act is actually unaffordable. REFERENCES: Douglas Holtz- Eaken. “The Patient Protection and Affordable Care Act: Labor Market Incentives, Economic Growth and Budgetary Impacts.” (2011). Retrieved On April 2, 2012 from http://waysandmeans.house.gov/UploadedFiles/HoltzEakin_Testimony_1_5.pdf Douglas Holtz-Eaken and Micheal J. Ramlet. “Analysis and Commentary Health Care Reform is Likey to Widen Federal Budget Deficits, Not Reduce Them,” HEALTH AFFAIRS 29, NO. 6 (2010). Retrieved on April 2, 2012 from http://www.ncpa.org/pdfs/health-care-reform-likely-to-add-billions-to-deficit.pdf Douglas W Elmendorf, “Cost Estimate for the Amendment in the Nature of a Substitute for H.R. 4872. Incorporating a Proposed Managers Amendment made Public on March 20, 2010 (p. 10). Retrieved on April 2, 2012 from http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/113xx/doc11379/amendreconprop.pdf Douglas W Elmendorf. “Health Costs and the Federal Budget,” (May 26, 2010). Congressional Budget Office, Retrieved on April 3, 2012 from http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/115xx/doc11544/presentation5-26-10.pdf Jonathan Gruber. Quoted in “Cost Questions Could Lead to Further Debate on Health Care Reform, California Healthline. (2010). Retrieved on April 3, 2012 from http://www.californiahealthline.org/articles/2010/4/26/cost-questions-could-lead-to-further-debate-on-health-care-reform.aspx Paul Howard. “The Impact of the Affordable Care Act on the Economy, Employees, and the Workforce.” Manhattan Institute For Policy Research. (2011). Retrieved on April 3, 2012 from http://edworkforce.house.gov/UploadedFiles/02.09.11_howard.pdf Paul Howard. “Why Repealing the CLASS Act is Important – but just the beginning of real Health Care Reform. Medical Progress Today.com. (2012). Retrieved on April 3, 2012 from http://www.medicalprogresstoday.com/cgi-bin/mt/mt-search.cgi?IncludeBlogs=5&tag=Wyden-Ryan&limit=20 Richard Grant. “With or Without Mandate, Affordable Care Act Fails.” Forbes, (2012). Retrieved on April 3, 2012 from http://www.forbes.com/sites/richardgrant/2012/04/01/with-or-without-mandate-affordable-care-act-fails/ Stan Dorn and Mathew Buettgens, “Net Effects of the Affordable Care Act on State Budget,” The Urban Institute, (2010). Retrieved on April 3, 2012 from http://www.urban.org/UploadedPDF/1001480-Affordable-Care-Act.pdf “The Patient Protection and Affordable care Act, Detailed Summary” (n.d.). Responsible Reform for the Middle Class. Retrieved on April 3, 2012 from http://dpc.senate.gov/healthreformbill/healthbill04.pdf Tom Price, T. “RSC Policy Brief: Social Security and Medicare Trustees Report, Republican Study Committee, (n.d.). Retrieved on April 3, 2012 from http://rsc.jordan.house.gov/UploadedFiles/RSC_Policy_Brief_Social_Security_and_Medicare_Trustees_Report.pdf Read More