IN NEW YORK state, it’s all go. Two weeks before launch a call centre in Albany, the capital, buzzed with workers answering questions on Obamacare. An instructor in an adjacent room trained new employees in the strange language of health-care acronyms (HIPAA, ACA, PHI, IAP and so on). New York, led by a Democratic governor, Andrew Cuomo, has implemented the president’s health-care plan with gusto.
In preparation for the opening of the state’s new insurance exchange on October 1st, two dozen trainee “navigators”—that is, people who will help New Yorkers buy insurance on the exchange—were given a test question. Mrs Smith has 17-year-old twins named John and Mike, and a stepdaughter called Jeanine. Jennifer, her daughter, is an athlete who often injures her ankle. Mike goes to a specialist four times a year. Mrs Smith works full-time at Stars Grocery, making $2,350 a month. Which insurance plan would suit her best?
If New York is at one extreme, Texas is at the other. A quarter of Texans are uninsured, the highest share in America. Rick Perry, the governor, has made opposing Obamacare a point of honour. He decided not to expand insurance for the poor and refused to set up an exchange (the federal government has done it for him). Alone at a health fair in the small town of West, Kelly McDonald waited for someone to ask for her help. She had sweets to lure visitors to her table. “Hi there,” she said to two women drifting by. “I’m here to talk about the new health-insurance options that are coming to Texas. There will be new insurance choices on the state marketplace as part of the Affordable Care Act.” The women stared at her blankly. “You may know it as Obamacare.”
New York has a $40m advertising budget to promote its exchange. In Texas, education about Obamacare is left largely to private-sector outfits. Mrs McDonald says her first challenge is explaining to Texans that Obamacare still exists.
Not everyone, it seems, is attuned to the biggest shake-up in American health care since the introduction nearly half a century ago of Medicare and Medicaid, the public programmes for the elderly and the poor. After an hour, Mrs McDonald has gathered contact details from a handful of people who want to learn more. The group she works for, Enroll America, is a non-profit organisation toiling to convey a simple message: Obamacare is here and it will help you.
Most Americans have heard of Obamacare, though a poll in August showed that 44% thought it might have been overturned and few know what it entails. A bitter political battle has been raging since the Patient Protection and Affordable Care Act became law in 2010. Republicans have attacked it relentlessly, in town halls and in the Supreme Court, in state legislatures and in Congress. Obamacare, they claim, will bring fiscal ruin, squash individual liberties, kill jobs and make America’s health system more like those atrocious schemes they have in Europe. The assault spread across a wider front this week, when House Republicans forced the federal government to shut down in the hope of stopping Obamacare (see article), or at least delaying it for a while.
Healthy scepticism
The shutdown began on the same day the new health exchanges opened up. Americans can now shop for coverage at these exchanges. From January, people without insurance will be obliged to buy it or pay a fine. Those who cannot afford it will receive subsidies, part of a big expansion of coverage of the sick and the poor.
The furore over Obamacare is baffling to the rest of the world. Most rich countries have universal coverage; developing countries are trying to introduce it. Yet in America, home to the world’s biggest health system, the fight over insurance is vicious enough to bring government to a halt.
Democrats say Obamacare heralds a new era for health care, moving the country toward universal coverage while keeping costs down. Republicans say it brings unaffordable, socialised medicine. But Obamacare is not the radical left-wing plot that some Republicans claim. Nor is it as ambitious as Democrats hoped.
Instead, Obamacare will have dramatically different effects from place to place and from person to person. The law will raise health costs for some and lower them for others. Some states will see a big expansion of coverage, but 44m Americans will remain uninsured next year, according to the Congressional Budget Office (CBO), a non-partisan bean-counter. The long-term consequences are unpredictable. It may eventually be judged a success, as the catalyst that transformed the rich world’s most dysfunctional health-care system for the better. For now, that system is in turmoil.
Democratic dreaming
Overhauling America’s $2.7 trillion health sector is no easy matter. In the world’s biggest economy nearly 50m people, or one in seven, are uninsured. America spends 18% of GDP on health care. The people of Britain, Norway and Sweden, to name a few, spend half as much but live longer.
Obamacare is loosely based on a health reform in Massachusetts, signed into law in 2006 by the state’s then governor, Mitt Romney. Some regard Romneycare as a success: last year just 4% of the state’s residents lacked health insurance, less than a third of the national average. But even before reform, Massachusetts had a relatively small uninsured population and the measure had broad political support. Obamacare is more ambitious and faces more determined opposition.
One of the biggest problems with America’s system is that insurers have long charged punishing rates to the sick, or refused to cover them at all. Beginning in January, this practice will be banned. Since insurers would soon go bankrupt if they sold only cheap plans to ailing patients needing expensive treatment, Obamacare pushes the young and fit to buy coverage, too. An “individual mandate” will require all Americans to have insurance or pay a penalty. This will give insurers revenue from cheap, healthy patients to offset the cost of insuring sick ones.
Health insurance is pricey: usually at least a few thousand dollars each year. To help those who cannot afford it, Obamacare urges states to expand Medicaid. This scheme currently covers only some of the needy, such as pregnant women. Obamacare offers money to states that cover all those earning up to 138% of the federal poverty level (ie, around $16,000 for a single adult in 2013). Those with incomes of 100-400% of the poverty level (about $11,500-46,000) can buy subsidised insurance on new state health exchanges that will offer an array of plans. (The two groups overlap, so that people can keep their insurance if their income dips slightly.) To discourage employers from dropping company-sponsored insurance, Obamacare requires firms with 50 or more workers to offer affordable coverage or pay a penalty.
Uwe Reinhardt of Princeton University calls Obamacare “an ugly patch on an ugly system”. The law as enacted was never intended to be the final version. The Senate and House each passed their own bills, with wrinkles to be smoothed out later in a single bill. But then Ted Kennedy died and Democrats lost their supermajority in the Senate. Any blended bill sent back to the Senate would have died. So the House passed the Senate’s first draft, which became law, and a separate bill of fixes. The result is confusing.
This has made life tricky for Mr Obama’s health department, which is implementing the law, and for firms trying to prepare. The department has issued regulation upon regulation, leaving health companies to make sense of a torrent of proposed, interim and final rules. In July Mr Obama’s aides delayed until 2015 the requirement for employers to offer insurance after firms complained of too little time to comply.
The main challenge, however, has been political. It is hard to implement a law when opponents want it obliterated. Conservative governors refuse to co-operate. Obamacare authorises states to run their own health exchanges. To the surprise of Democrats, most governors have refused. That left bureaucrats in Washington scrambling to set up exchanges on their behalf.
States have also skewered the plans for Medicaid. Obamacare originally required states to expand the programme—if states did not, they would lose all federal money for Medicaid. But the Supreme Court said this was unconstitutionally coercive and made the expansion optional.
The result is a jumble. More than 20 states will not expand Medicaid. In those states, millions of adults earning less than $11,500 will be too poor for subsidies, yet will not qualify for Medicaid. Some states have rejected the law. Others are implementing it wholeheartedly. Obamacare has created a patchwork. The ability of Americans to find cheap insurance will depend largely on where they happen to live.
State of play
Most consumers will have a choice of at least two insurers. But the number ranges from one in West Virginia and New Hampshire to 16 in New York. Many big insurers have refused to take part because of the added regulatory burden and risk. It is hard to know which patients will enroll and how to price insurance appropriately. As big companies have demurred, new insurers have rushed forward. A quarter of firms on the exchanges are new to insuring individuals for health care, according to McKinsey, a consultancy.
How much will insurance cost? The answer, again, varies. Obamacare requires insurers to cover a minimum set of services, so in most states the simplest plans will become more comprehensive. And there are many other variables. Some insurers may offer patients a wider choice of doctors. An insurer that expects many sick people to enroll will set a higher price than an insurer that expects plenty of healthy ones. The result is wide differences. A 27-year-old will pay $130 a month for a basic plan in Kansas, compared with $286 in Wyoming (see chart).
As the law moves forward, Republicans are still trying to demolish it. Their criticisms are abundant and of varying validity. Most commonly they warn of a government takeover of health care, with Obamacare the first step in a long march towards a single-payer system with the taxpayer footing the bill. There is little evidence of this. Private insurance is changing, not vanishing.
Rand Paul, a senator from Kentucky, reckons that “everybody is going to pay more” for insurance. Some patients will indeed shell out more cash. A healthy person who used to have a bare-bones plan will pay extra to buy better insurance on the exchanges. Others will pay less, particularly the sick and those who qualify for subsidies. Republicans also claim that Obamacare will limit patient choice. Indeed, some insurance plans will limit the choice of doctors a patient may see, to keep costs down. But consumers who want to see more doctors can choose a costlier plan.
It is too soon to know if the other fears of conservatives will be borne out. “Even the Obama administration knows the law is hurting the economy and making it harder for businesses to hire,” declares John Boehner, the Speaker of the House. Indeed some firms say they will keep their workforce under 50 full-time workers to avoid having to offer staff insurance or pay a penalty. The CBO estimates there may be 0.5% fewer jobs than without Obamacare, mostly because some people will choose to work less, as they will no longer need a job to get cheap health insurance.
In treatment
It is unclear whether Obamacare will undermine insurance for the 85% of Americans who already have it. So far, there is scant evidence that lots of firms plan to discard employer-sponsored insurance. Companies are making workers pay for a greater share of their health costs, but this trend predates Obamacare. Some are going a step further, offering workers a sum to buy insurance on private health exchanges. Eventually some employers may not stump up for insurance at all, choosing to pay higher wages instead. This would be unpopular, at least at first—Mr Obama promised Americans that if they liked their health insurance, they could keep it.
More serious are concerns about the law’s effect on spending. The CBO estimates that Obamacare will shrink the deficit by $109 billion from 2013 to 2022—the cost of subsidies would be offset by other measures, including taxing the most expensive plans and lowering payments to hospitals. This assumes that Congress will keep unpopular promises, such as squeezing hospitals. Often, it does not.
Then there is the Republicans’ simplest argument: Obamacare will not work. Aside from early technical glitches—which have been widespread—there is a risk that young, healthy people will not sign up. Obamacare’s penalty for not buying insurance—$95 or 1% of income, whichever is greater—is barely a slap on the wrist. But if healthy people do not buy coverage in 2014, insured patients will be disproportionately ill and expensive. That would encourage insurers to raise prices the next year, which would put off more healthy people, pushing prices still higher.
Such a “death spiral” could doom Obamacare. Some conservatives are hoping it will. One popular web video shows a young woman in a gynecologist’s office. Uncle Sam pops up between her legs, speculum in hand. “Don’t let government play doctor,” the advert advises. “Opt out.” Mr Obama and his supporters urge patience—any reform this big, they say, will have problems at first. But change is not confined to insurance. The rest of American health care is also being reinvented.
Doctors, hospitals and clinics are in a state of upheaval. Many hospitals are responding to the tumult by getting bigger. There were more than 200 mergers in 2011 and 2012, according to Irving Levin Associates, a research firm. The mammoth new hospital systems enjoy obvious economies of scale: for example, they can manage supply chains better and invest in health technology. As hospitals buy doctors’ offices, they are shifting services from expensive places to cheaper ones. Less promisingly, big hospital companies also have the clout to drive up health bills.
The hospitals’ present way of doing business looks untenable. The more services doctors provide, whether medically necessary or not, the more they are paid. Hospitals and doctors have few incentives to keep patients well, but plenty to shower them with unnecessary tests and operations. Charges are astoundingly high and hard to fathom. Shopping for health care is akin to choosing a car blindfolded, then learning the price three months later. Replacing a hip in America costs more than three times what it does in Britain.
This old model is now being challenged by insurers, employers and patients. There are two main shifts. Some reforms are driven by Obamacare; others have come about independently.
First, insurers are trying to scrap health care’s perverse incentives. Obamacare includes experiments to pay hospitals for providing effective care, rather than lots of it. Groups of doctors and hospitals have applied to be “accountable care organisations” (ACOs) for patients in Medicare. These ACOs are rewarded for keeping costs below a benchmark. “Bundled payments” pay a lump sum for a complete course of treatment, such as shoulder surgery. This encourages hospitals to prevent costly complications.
Private insurers are staging their own experiments. UnitedHealthcare, America’s biggest insurer by revenue, has linked some hospital payments to measures of quality and efficiency. In July United said it would more than double the value of these contracts, from about $20 billion today to $50 billion by 2017.
Second, patients are acting more like consumers. As employers have made workers pay for a greater share of their health bill, patients have become more careful shoppers. This may have helped to slow the frenzied growth of health spending, which has risen 3.9% a year since 2009 , compared with 4.7% in 2008 and 7.6% in 2007. The arrival of state and private exchanges is making patients shop around for insurance, a trend that looks set to continue. More than one-quarter of Medicare beneficiaries now use their public money to buy private insurance plans.
Your good health
As patients become pickier, other parts of the health system are adapting. A person with a sore throat might once have sat idly in a doctor’s waiting room, missing hours of work to deal with a minor illness. Now that same patient can visit a conveniently located urgent-care centre, which treats acute and chronic ailments. Pharmacies such as Walgreens and CVS, which have long run retail clinics, are opening more and offering more services. Nurses handle simple ailments for a small fee or direct sicker patients to a doctor. Most retail clinics make their prices clear to patients. Pressure is rising for other doctors and hospitals to follow suit.
Some things will improve. By 2016, 25m people will have insurance who would not have had it otherwise, predicts the CBO. Experiments in the public and private sector may be curbing costs. The CBO suspects that structural changes, including the shift of services from hospitals to clinics, have helped slow the growth of Medicare spending.
But there is much more work to do. Despite Obamacare’s expansion of insurance, 31m will still lack it by 2016, according to the CBO. Medicare’s costs continue to rise. Health spending is growing faster than wages, and is set to hit 20% of GDP by 2022. The CBO says health costs remain the biggest long-term threat to America’s finances. Public support is fragile. Only 39% of Americans support Obamacare, compared with 51% who disapprove, according to a recent poll by the New York Times and CBS. However, 56% would rather try to make the law work than stop it by stripping it of cash. “I feel certain it will go down as one of the best reforms in history,” Mrs McDonald insists. Mr Obama, whose legacy turns on the law’s success, doubtless hopes she is right.
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