Running head: AFFORDABLE CARE ACT 1

Effects of the Affordable Care Act

William Tepper

Wilmington University
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Effects of the Affordable Care Act

The Affordable Care Act (ACA) was a landmark health reform bill that was signed into

law in 2010. According to the Center for Medicare and Medicaid Services [CMS] (2015) the

main goals of the ACA was to make health insurance affordable to more people and “support

innovative medical care delivery methods designed to lower the costs of health care.” Most of

the major provisions of the ACA did not begin until 2014, from 2014 to 2016 there was a swift

decline in the uninsured population. According to the Henry J Kaiser Family Foundation [KFF]

(2018) the affordable care act is responsible for almost 20 million Americans gaining health

insurance. However, the increase in the insured population is largely a result of government

funding. The means through which the ACA makes healthcare more affordable is through

subsidies and expansion of the existing Medicaid program. Both of which are at the expense of

the American taxpayer, limiting the effect of driving health care costs down. Although a step in

the right direction, the ACA has serious repercussions for taxpayers and the American healthcare

system.

Medicaid and Medicare were created as part of the Social Security Amendments of 1965.

Medicare is a program that health care benefits senior citizens. According to the CMS (2015)

Medicaid allowed states the “option of receiving federal funding for providing health care

services to low income children, their caretaker relatives, the blind, and individuals with

disabilities” (p. 2). The original intent of Medicaid was to fund health coverage for people who

could otherwise not afford it. It was not intended to be a means to make health care more

affordable to the average American. The introduction of the ACA in 2010 caused expansion of

Medicaid programs to cover more Americans. The ACA mandated that states extend the program

to residents that are below 138% of the federal poverty level (KFF, 2018). For Americans whose
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income is greater than the Medicaid level are benefited through Health insurance marketplaces.

These marketplaces sell health insurance and are run by the state or federal government. People

who make less that 400% of the federal poverty level are eligible for subsides that help pay for

the cost of insurance (KFF, 2018). There were other provisions of the ACA bill that allowed

adult children to stay on their parent’s plan until they turn 26. Also, insurance companies cannot

discriminate based on a pre-existing condition or drop a person because of a medical condition.

Included in the ACA were provisions that reformed health care for the better.

Economics of the ACA

Before the ACA, the government already had a budget deficit. Every new program comes

at the expense of the national debt. The ACA is a social program, it has some provisions to pay

for itself like tax penalties to large companies who do not offer affordable health coverage to

employees but does not pay for itself entirely. One measure of the ACA is the individual

mandate that imposes a tax penalty on people who do not have insurance. However, this measure

was repealed with the Tax Cuts and Jobs Act of 2017. According to the Fritzsche & McNelli

(2018) the ACA alone was expected to cost the federal government 86 billion dollars in 2018 and

these figures are expected to increase, resulting in a total cost of 1,227 billion dollars for the

years 2018 to 2027 (p. 22). These figures are calculated using the projections of the data and

subtracting the projected revenue created by the ACA. This money comes out of the already

overburdened federal budget.

Safety-Net Hospitals and the ACA

Safety-net hospitals are hospitals that provide care to patients regardless of their ability to

pay for services. Cunningham & Felland (2000) define safety-net hospitals as:
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“critical providers of medical care to low-income uninsured and other vulnerable

populations… often operate with low or negative margins, in large part because a

high proportion of patients are either uninsured or Medicaid beneficiaries, for

whom patient revenues often do not cover the costs of providing care. To cover

the costs of uncompensated care, most safety net hospitals receive subsidies from

federal, state, and/or local governments.” (p. 3)

These hospitals rely on government subsidies to continue to operate. As the number of uninsured

people decline safety-net hospitals can expect some increase in revenue from the newly insured.

According to the AHA (2018) there was a 48.8-billion-dollar payment deficit in relation to the

cost to provide services to Medicaid recipients in 2016 alone (p. A-34). Medicaid pays less than

the cost to provide care. Therefore, even with more patients insured with Medicaid, safety-net

hospitals do not receive full reimbursement for the cost of care. To supplement the low payment-

to-cost of Medicaid, these hospitals receive a federal subsidy called a Disproportionate Share

Hospital (DSH) payment. As part of the ACA, DSH payments are set to decrease; in theory with

the increase in the insured population, less DSH payments will be required to sustain safety-net

hospitals. However, with the decreased reimbursement of Medicaid and rising cost of healthcare,

these institutions may not be able to sustain themselves.

Along with the possibility of decreased revenue, the ACA creates a greater demand for

healthcare. Growth of the insured population will increase the demand for healthcare. Less

people will forego medical care due to the associated cost. According to the AHA (2018) the

workforce in America will be short 193,000 nurses by 2020 (p. 51). With nursing and physician

shortages currently present and DSH payments set to decrease, safety-net hospitals will have less

funds to recruit new staff and invest in developing their staff.

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Other factors can contribute to a safety-net hospital financial future. Demographics of the

surrounding population can determine reimbursement for care. Undocumented immigrants are

ineligible for Medicaid and Children’s Health Insurance Program (CHIP). Some states extend

CHIP to pregnant mothers, because the child will be a natural-born US citizen. Emergency care

for these patients is paid for by Emergency Medicaid. However, individual states and localities

may not provide reimbursement for care provided to undocumented immigrants. The federal

Emergency Medicaid fund is dispersed for care performed for emergencies. However, according

to KFF (2018) even legal or authorized immigrants are much more likely to be uninsured and

may be restricted during the first five years of residence. This may affect payment of safety net

hospitals serving a significant immigrant population.

Although, Emergency Medicaid covers a large portion of the cost associated with

emergency care, like active labor for undocumented immigrants. If the state and local

governments do not extend CHIP to the unborn children, the mothers may not have adequate

access to health services such as prenatal care. According to Bloch & Chahroudi (2019) studies

show a relationship between maternal health and health outcomes of offspring (p. 1). This

compound the effects of poverty and health. Access to health care for immigrant populations not

only affects the hospital payment but may affect the health of the population through

generational effects of poverty. This leads to increased penalties for readmissions as well as

more services provided to uninsured persons.

Hospital readmission reduction program

Another measure of the ACA is the Hospital Readmission Reduction Program (HRRP).

The HRRP aims at reducing excessive readmissions by reducing the percentage of Medicaid

reimbursement for certain types of readmissions. The types of readmissions a hospital can be
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penalized for conditions that are considered preventable. The list includes: heart attack, heart

failure, and pneumonia, elective joint replacements, chronic obstructive pulmonary disease and

coronary artery bypass grafts. According to the AHA (2016) “readmissions are higher in

communities that are economically disadvantaged” and hospitals serving low income populations

were more likely to incur a penalty (p. 1). It is commonly known fact that poverty is linked to

higher incidence of disease and poor health outcomes. Safety-net hospitals are at a disadvantage

because they serve populations whose health is affected by poverty. The HRRP does not

consider external factors like poverty when penalizing hospitals for readmissions. Reduced

reimbursement for services diminishes the hospitals’ ability to improve and expand. Lack of

funding further compounds the inability of a safety-net hospital to meet the needs of an

impoverished population and prevent readmissions for chronic conditions.

Unrelated readmissions also constitute grounds for a readmission penalty. Especially in

impoverished and elderly populations, co-occurring health conditions can contribute to

readmission rates. According to the AHA (2016) “a patient may be hospitalized for pneumonia,

and then readmitted within 30 days for a hip fracture . . . current measures would count this

readmission against the hospital” (p. 2). This practice enables Medicaid to penalize hospitals

unfairly for readmissions. Readmission penalties are a small percentage of reimbursement.

However, for hospitals that rely on Medicaid for a large share of payment can lead to financial

hardship.

Cost-Shifting by Hospitals

The means of payment for the ACA is not limited to funding from the federal

government. The low reimbursement rates of Medicaid cause a shortfall in payments for care

provided to Medicaid recipients. This deficit is paid for by private insurance as illustrated by the
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fact that private insurance reimburses more that the cost for care. According to the American

Hospital Association [AHA] (2018) on average Medicaid reimbursed 88.1% of the cost of care,

whereas private payer insurance paid 144.8% of the cost of care (p. A-33). The cost of Medicaid

is shifted to other payer types as well as the government. In effect, health insurance becomes

more expensive for everyone. This idea is highly controversial and debated. However, the cost-

to-payment ratios for Medicaid and Medicare continue to decrease, while the cost-to-payment

ratio for private-payer insurance continue to increase.

Cost Shifting by Inclusion

Insurance acts a cost pool for all persons covered on a given plan. The person responsible

for costs incurred by the plan pays more for the costs of their care through deductibles and co-

payments. However, the amount offset by the insurance company is paid with the premiums of

the group. One major change of the ACA is that insurance companies are no longer able to

“discriminate” based on a pre-existing condition. This means that the person who is likely to

incur significantly more costs pays the same as the rest of the insured pool. Before the ACA,

insurance companies could decline coverage to these high-risk individuals or charge higher

premiums, to insulate the cost of said persons. As more high-cost people are allowed into the

insurance pool, the more costs are incurred. In response, insurance companies increase premiums

to protect their margin. The premiums of healthy, low-cost payers pay for the care of the

unhealthy, high-cost payers. By not allowing insurance companies to discriminate against high-

risk or high-cost individuals, the ACA increases the cost of health insurance for all members of

the pool.

In contrast to the cost-shifting by allowing unhealthy, high-risk individuals into the

insurance pool is the individual mandate of the ACA. The individual mandate is a tax penalty
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incurred when a person does not have health insurance. Many younger, healthy Americans

choose to forgo health insurance since they are unlikely to incur significant medical expenses.

The individual mandate serves the opposite purpose of barring discrimination on the basis prior

conditions. It increases the number of healthy people in the insurance market. Healthy people

that incur relatively low costs, buffer the cost of the unhealthy persons. However, the cost for

marketplace plans often eclipse the tax penalty for middle-income earners. Americans who make

more than 50 thousand dollars per year are ineligible for government subsidies. According to

Fehr, Cox, Levitt, & Claxton (2019) the national average monthly premium for a 60-year-old

making 50 thousand dollars per year is 708 dollars per month, for the cheapest plan; 17% of total

income. These figures vary greatly depending on locality and increase with age. Even though

premiums are subsidized for persons between 138% and 400% of the federal poverty level,

people above 400% of the poverty level pay the full premium.

ACA in the Context of Healthcare Reform

The ACA has been a controversial piece of legislature from the start. The effects of the

ACA have positive and negative consequences for healthcare reform. The provision of the ACA

that bars discrimination allows for more people to have affordable insurance. However, that

alone does not solve the greater issue of the cost of healthcare. This inclusion alone simply

makes the healthier, low-cost individuals that pay for the unhealthier individuals. The hope is

that the higher-cost individuals with chronic conditions will be healthier and have a lower cost

burden. For instance, a person with a chronic condition can afford to effectively manage their

health with access to specialists and routine health care. Hospitals admission is a large cost,

according to the AHA (2018) hospitals services amounted to $1.08 trillion in 2017, 32% of

overall health expenditures for that year (p. 5). If their care is properly managed, then it will
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reduce amount of hospital admissions for acute exacerbations of chronic conditions. The

outcome is contingent upon many factors, including proactiveness in seeking care and

compliance with treatment.

Issues the ACA Fails to Address

There are many factors in the American Healthcare system that contribute to the overall

high cost of health care in the US. The ACA fails to address key factors contributing to the high

cost of health care. One such factor is pharmaceutical benefit managers (PBMs). PBM’s are

intermediaries between drug manufacturers and the pharmacy, that negotiate drug prices with the

manufacturer and maintain formularies. However, according to Dusetzina S & Bach (2019)

Patients paying deductibles or co-insurance overpay when obtaining prescription

drugs that have large rebates because patients’ out-of-pocket costs are calculated

based on the pre-rebated price (“list price”). For example, a patient with a $1000

drug deductible filling a prescription for a drug that has a list price of $400 and a

net price of $300 (rebate of 25%) would pay $400 initially. Similarly, if the

patient had 25% co-insurance for prescriptions, the price to the patient would be

based on the pre-rebate price ($100 out-of-pocket instead of $75). (p. E2)

The extra money from the rebate is netted by the PBM and Medicare. The same company that

negotiates with the manufacturer is the company that receives rebate payments from the

manufacturer. Essentially, PBM’s are private companies that profit from the negotiations on

behalf of Medicaid and Medicare. Current federal regulations protect PBM’s from fraud and

abuse charges. A regulation proposed by the Office of the Inspector General of the Department

of Department of Health and Human Services (2019) seeks to end this protection and current
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PBM rebate practices (p. 2340). Most ACA marketplace plans utilize PBM’s as part of their

coverage.

Challenges to the Constitutionality of the ACA

The constitutionality of the ACA has been questioned throughout its history. An

important factor in making laws is the constitutionality of those laws. The Constitution serves as

a basis for Federal law. It serves to protect the rights of the people from the government. The

constitutionality of the Patient Protection and Affordable Care Act has been challenged

previously and continues to be challenged in federal courts. To this date there have been six

supreme court cases that challenge the constitutionality of the ACA. The supreme court case of

National Federation of Independent Business v. Sebelius was a constitutional challenge to the

federally mandated Medicaid expansion and the individual mandate. A 7-2 majority ruled that

the forced Medicaid expansion was “an unconstitutional coercion,” but opted in a 5-4 decision to

allow states to voluntarily participate in the expansion (Rosenbaum, 2013, p. S21). The

individual mandate was not struck down in this case. The supreme court had admitted that

provisions of the ACA were unconstitutional as they were written. Nevertheless, the legal

standing of the ACA is still debated to this day, in the case of Texas v Azar. The lack of

consensus surrounding the ACA may hinder further progress to healthcare reform.

Government Investment in Private Corporations

The utilization of private health insurance companies as a vehicle for marketplace plans

allows private mismanagement of government funds. The marketplace plans are private health

insurance plans subsidized by the government. According to Field (2015) private health plans are

costlier than government plans like Medicaid, having an “overhead rate is estimated to be about

15 percent, while Medicare’s is roughly 2 percent . . . which results from higher executive
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compensation and shareholder dividends.” Government funds are used to fund private

corporations instead of utilizing more cost-efficient Medicaid plans. By subsidizing health

insurance for low-income individuals, the ACA subsidizes private corporations as well. Private

health insurance companies are more financially equipped to advocate against universal health

reform in the future.

Opposing Viewpoints

Since the ACA was enacted, its support has been largely partisan. Democratic

representatives hail the ACA as an achievement. However, Republican representatives

view the it as a failure. The subsequent administration of President Donald Trump has

expressed its desire to repeal and replace the ACA. However, attempts to repeal and

replace the ACA have failed to become law. The ACA remains a controversial act and to

this day, efforts to repeal through legislative and judicial means continue.

Reduction in Uninsured Persons & Overall Cost Savings

The ACA has had some success in decreasing the total number of uninsured

persons. According to KFF (2018) almost 20 million Americans have gained health

insurance because of the ACA. This is a victory for proponents of the ACA, that more

Americans have affordable health insurance. However, according to the AHA (2018) of

the 28.8 million new Medicaid recipients since 2010, 16 million were non-disabled adults

(p. 11). The claim that the ACA is effective at making health insurance affordable is

relative. It did extend coverage to those that previously did not have health insurance

coverage. A large majority of persons now covered under the new provisions did so at the

direct expense of the American taxpayer. Also, according to KFF (2018) “individuals

living in non-expansion states being the most likely to be uninsured.” Medicaid

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expansion is one of the driving factors in reducing the uninsured. The ACA did not make

health insurance more affordable by reducing the cost of health insurance but, made

health insurance affordable through direct payment from the government.

Partisan media outlets like Vox claim that the ACA also colloquially known as

Obamacare, saves the government money. According to Kliff (2017) “Twice in the past

year, the Congressional Budget Office has revised downward projected spending on the

Affordable Care Act.” However, this only means that the government is now spending

less on health care than initially projected, not that the government is saving money. The

article also claims that since current projections from the CBO are less than originally

predicted in 2010, that the ACA saved the government money. The CBO has consistently

overestimated government spending on health care. The earliest reports available date

back to 2007, three years before the ACA was even passed. Overestimating federal

spending may simply be a prudent measure by Congress’s budget analysists.

Hospital Readmission Reduction Program

The aim of the HRRP is to reduce excess readmissions to hospitals for

preventable reasons. According to Collins & Saylor (2018) the penalties of the HRRP

encourage hospitals address readmission in challenging populations and implement

strategies to reduce admissions. Like other provisions of the ACA, the HRRP is well

intentioned but has flaws. The HRRP penalties do not consider the populations served

when assigning penalties, as factors such as poverty can influence health outcomes for

those patients. Also, the AHA (2016) “the measures may need to be adjusted to account

for decreases in admissions as well as readmissions” (p. 1). Readmissions per admission,

do not reflect a decrease in readmissions if admissions are reduced as well. Overall the
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incentivizing prevention of readmissions is progress in health care reform, but the

implementation of measures should be reevaluated to improve fairness and effectiveness.

When coupled with the significant increase in the population receiving Medicaid, the

penalties are even more costly.

Conclusion

The ACA did extend health insurance to millions of Americans. The children now

covered under CHIP and marketplace plans is a victory for the ACA. However, according

to the CBO’s own estimates the amount of people covered by CHIP and marketplace

plans will remain static or decrease through 2028 (Fritzsche & McNelli, 2018, p. 4). The

good that has come of the ACA has already happened. Over the next decade, the ACA’s

provisions alone will cost the American taxpayer over 1.2 trillion dollars, yet the number

of uninsured citizens will increase (Fritzsche & McNelli, 2018, p. 22). Although the ACA

did reduce the number of uninsured persons, the effects are limited. Even if the Medicaid

expansions are adopted across the country, there will still be a limited effect. The number

of uninsured Americans will decrease with the expansion but eventually the uninsured

population remain static or increase over time.

The full extent of the repercussions for safety net hospitals and providers is yet to

be realized. Institutions whose mission is to serve all patients, regardless of ability to pay

are in jeopardy. There is no doubt that institutions will have to change and adapt to the

post-ACA health care environment. Demographic changes may affect the future stability

of these institutions. As DSH payments continue to decrease, economic depression in an

area could affect the population that is uninsured and covered by Medicaid. Since

Medicaid pays less than private insurance, hospital margin could be affected.
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The ACA is revolutionary attempt at health care reform. It is not a solution, but a

progressive step of health care reform. One glaring failure of the bill is that it does not

address many of the costly issues in health care. The rising cost of acute care is one issue

that the bill did address. The HRRP created by the ACA, may unfairly affect hospitals

that serve low-income populations. The ACA encouraged the utilization of PBMs and

allowed their abuses to continue. Hopefully, more health care legislation will target the

issues the ACA created as well as the issues it failed to address. Although it has a high

cost for the American taxpayer, the ACA has done more to reform health care than any

bill since the creation of Medicare as part of the Social Security Act of 1965.
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