What the ACA Decision Really Means for the Future of Private Health Insurance

Did the Supreme Court save private health insurance, or just drive another nail in its coffin?

Ironically, it might well turn out to be the latter.

Keep in mind that from a consumer perspective, much of the Affordable Care Act was about trying to keep private insurance affordable in America.  But “affordable” is a relative term.  When your employer pays most of the cost, insurance is a lot more affordable than if you’re paying the bill yourself. 

At over $20,000 per year for a typical plan providing family coverage, health insurance now costs around 40% of the median household income of $49,445!

Being mandated to take on that expense – even with the generous subsidies ACA provides – understandably rankles people.  It’s no wonder that millions of healthy people may still choose to roll the dice and go without.

But even though we have spent so much time arguing about the cost of insurance and the private insurance market, the fact is that it pays only a small part of the nation’s health care bill.

An August 2011 article in the New England Journal of Medicine reported that private insurance paid only a little over a third of all health care costs, and even less – one quarter – of mental health care costs.

Even those small numbers are high.  When you take into account (1) the share of private insurance that is subsidized by the government through tax benefits and (2) the share of private insurance that is paid by all levels of government on behalf of public employees, the percentage of care paid for by privately-funded private insurance is only in the teens.

Even if members of the public can’t recite the data, they have a sense that health insurance is simply no bargain.

One of the best illustrations of this is in the Pre-Existing Condition Insurance Program (PCIP), the short term solution devised by the federal government and put into place through ACA to provide guaranteed health insurance to adults with pre-existing conditions.  The program will run from 2010 until 2014, targeted to people with pre-existing conditions who were uninsured and uninsurable.

If you meet the eligibility criteria, then enrolling in PCIP is like winning the lottery.  It almost guarantees that you receive more in benefits than you pay for insurance.  In fact, this was true – in its first year or so, it paid out $1.30 for every dollar it took in.

The government estimated that 4 million people were eligible for the program, and that 375,000 of them would enroll.  As of this April 30, only 67,482 had.

What does it say about the future of private insurance when people won’t even buy it when they know it will pay out more than it costs?

It shouldn’t come as a surprise to anyone that so many people – up to 67% - wanted the individual mandate to be overturned by the Court, according to a NY Times/CBS poll taken in March.

Even people who support universal coverage find fault with a system so stacked against the consumer – in which the cost of insurance bureaucracy alone is twice what we pay for our entire system of public health, and more than we pay for all nursing home care, home care, dental care, or veterans services in America. 

It’s not like insurers are highly regarded.

For all the good they’ve done in this country – and they have often done the hard negotiating work of keeping prices of health care under control (for evidence of this I need only look at the statement for my most recent blood tests.  The lab accepted $8.57 as payment in full from the insurer for tests it for which it would have charged me $57.85 if I were paying the bill on my own), insurers have lost touch with the desires of their customers, and are now seen more as obstacles to health than facilitators of care.

And the $1.1 billion in bureaucratic overcharges ACA is forcing them to pay back this year doesn’t help their reputations at all.

The only strategy ACA proponents could come up with to shore up insurance was to mandate people to have it.

Organizations like the Heritage Foundation introduced the individual mandate to our healthcare debate twenty years ago as an alternative to “Medicare for all” proposals.  They understood that Congress was going to have to drag people kicking and screaming into the insurance marketplace.

In the aftermath of the Supreme Court decision, that’s even more obvious.

This is the third in a series of five OHPM columns on the impact of the Supreme Court decision on the Affordable Care Act. Monday: the impact of the ACA decision on Medicare and Medicaid.