With the Oct. 1 rollout of government-operated health insurance purchasing exchanges, Obamacare will reach its most important milestone yet. After years of claims and counterclaims, repeated House votes to repeal the law, even an attack ad with Uncle Sam as a leering would-be gynecologist, we’re about to see how this experiment in almost-universal health insurance will work. That is, unless congressional Republicans manage to defund a law that loquacious Senator Ted Cruz of Texas calls a “glitch-riddled health-care takeover that is killing jobs, wages, and health-care benefits all across the nation.”
Glitches and all, Obamacare can work if given a chance. But it’s more complicated than your average piece of historic social legislation. That’s in part because the Affordable Care Act has set off a cascade of other changes in the U.S. health insurance industry. “What the ACA has done is put all 300 million-plus Americans in the mode of thinking about health care,” says Jim Winkler, a chief innovation officer at Aon (AON), a London-based company that operates a private insurance exchange in the U.S.
The trickiest part of Obamacare is the awkward combination of private insurance for the rich and public insurance for the poor. The political gene-splicing produced a hippalectryon: half horse, half rooster, and entirely ungainly. Middle- and upper-income families will stick with employer-sponsored health insurance. Poorer Americans will get expanded Medicaid or receive subsidies to purchase private insurance through the new government-sponsored websites known as exchanges.
The problems mainly involve the people who are stuck in between, including low- to moderate-income, full-time employees. They’re poor enough that they would qualify for government subsidies through the exchanges. But Congress wanted to suppress the number of people on exchanges and preserve employer-sponsored health insurance. So the ACA bars people from buying subsidized insurance through an exchange if they have the opportunity to buy affordable insurance through their employers. Some of these workers will be allowed to sign up for benefits in 2014, but they will be kicked off in 2015 when the employer mandate takes effect after a one-year delay. For millions of lower-income Americans, then, receiving insurance through their employers might not seem like a benefit at all, but an obstacle to getting cheaper, potentially better coverage through an exchange.
Those subsidies make all the difference. For a New Jersey family of four earning $50,000, the unsubsidized premium for benchmark coverage (the second-cheapest “silver” plan, covering 70 percent of expected expenses) is $943 a month. After applying a tax credit, the cost drops to $282, according to data released by the government on Sept. 25. President Obama, appealing to the young, healthy, and uninsured that he needs to sign up, said that for some, “you’re going to be able to purchase high-quality health insurance for less than the cost of your cell phone bill.”
One reason congressional Republicans are fighting Obamacare so hard—to the point of threatening a government shutdown—is their fear that once it’s in operation, it will unleash forces that will lead to the expansion of government-subsidized insurance. That fear isn’t unfounded. After all, one obvious way to help the low-income workers who are barred from subsidized coverage would be to change the eligibility rules. That could be done by simply declaring more employer-offered plans unaffordable to their low-income employees. If a company’s offering is declared unaffordable, then the company’s low-income workers would qualify for subsidized insurance. In an e-mail, Dr. Jay Bhattacharya, a professor at Stanford University School of Medicine who wrote about the law in the current issue of Health Affairs, said: “It’s hard for me to predict what Congress will do, but I think there will be a lot of pressure to switch over from people who are put in a tough situation because of the current interpretation.”
Obamacare could also expand if more part-time workers throw in their lot with the exchanges. Currently they’re not eligible for subsidies if they work at a job for 30 hours a week or more. (Their employers are required to offer them coverage.) Raising that threshold to 35 hours a week would relieve employers of responsibility for multitudes of part-time workers—and give the employees a shot at the public subsidies. Even if the law stays as is, some employers may reorganize to get more of their workers below the 30-hour threshold and onto the exchanges.
Before any of this happens, major employers are already looking for ways to pare costs via Obamacare. United Parcel Service (UPS) said in August it would no longer provide benefits to employed spouses of 15,000 nonunion workers, noting that under the ACA, they must be offered coverage by their own companies. Trader Joe’s, the supermarket chain, said in September it would end health benefits next year for part-time workers. Employees will get a $500 payment and be sent to the public exchanges. With the federal tax credits available there, most workers will get a better deal than the company could offer, it said.
Where companies don’t have the option of sending workers to government-operated exchanges, they’re directing them to private insurance exchanges. These, like the government-sponsored exchanges, are essentially websites where people can choose from a variety of private insurance policies. Employers cover part of the premiums. The private exchanges aren’t part of Obamacare, but “a lot of employers are going to use the air cover of the ACA to potentially pull back on the role that they play” in employees’ health insurance, says Todd Van Tol, a partner in the health and life-sciences practice at management consulting firm Oliver Wyman (MMC). In September, Walgreen (WAG), the pharmacy chain, announced the switch to private exchanges for all its 160,000 employees. IBM (IBM) and Time Warner (TWX) said they will send retirees to the private exchanges, with company stipends to help pay for coverage. “It’s like the shift from defined pension plans to 401(k) plans” in that responsibility shifts to the employee, says Dr. Brad Weinberg, a founding partner of Blueprint Health, which helps health-care startups.
Private exchanges offer more choice and greater efficiency. For workers, the concern is that employers, like a noncustodial dad after a divorce, will start cutting back on their contributions toward premiums. “The companies realized they cannot continue to be a social insurance system for the American people,” Uwe Reinhardt, a Princeton University health economist, said by e-mail.
Geoffrey Tracy is the chief executive officer and owner of Chef Geoff’s, a company with five restaurants and just under 400 employees in metropolitan Washington. Forty-two are covered by employer-sponsored insurance. A few years ago he found himself in line at a Christmas party with Representative Steny Hoyer, a Maryland Democrat. He expressed his concern about the cost of Obamacare, which he says will boost his company’s labor costs by $500,000—about equal to a 50 percent increase in rent. “The government is basically telling you what benefits you need to give to your employees. It’s no longer a competition thing in an open market,” he says.
But Tracy has since made peace with the act. He has asked his human resources director, Meghan McCourt, to find an insurance plan cheap enough so it’s affordable by the current standard even for his $8.50-an-hour dishwashers. “This is what is required by law, and I basically have to get in line and comply,” he says. The best hope for Obamacare is the Chef Geoff’s scenario—that this strange mythical beast with a horse’s head and radiant tail feathers will gradually come to be accepted as just another feature of the business landscape.