Obamacare Coverage Is Worse than Nothing for Most People

Devon Herrick
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Posted: Feb 22, 2016 10:06 AM
Obamacare Coverage Is Worse than Nothing for Most People

Most left-leaning health policy wonks assume everyone needs health coverage. I’ve never understood that. Insurance is a way to protect assets for people with assets to protect. Economists also sometimes describe health insurance as income protection in the event of an illness, since medical care costs money. Economist sometimes view health coverage as the ability to buy highly subsidized medical care in the event of an illness. Families’ health risks, aversion to risk and family finances differ, so arguments that everyone needs the same type of protection against medical bills are not particularly convincing. To cloud the issue even further, the aforementioned left-leaning policy advocates often believe that any system that requires reaching for one’s wallet during a medical encounter is unethical, since not everyone has a wallet of the same thickness. Again, this makes no sense since the poor would benefit more than the wealthy from the savings by forgoing costly health coverage. Obamacare has caused more people to reach for their wallets after a medical encounter -- not less.

Because advocates think health coverage is something that everyone should have, one of the primary goals of the Affordable Care Act was to expand coverage to the uninsured. Their thinking was that some of the uninsured could not afford health coverage because their incomes were not sufficient, while others could not afford coverage because of health concerns that made medical underwriting costly. What difference did it make? Obamacare made them worse. A few weeks ago, I wrote how under Obamacare people with health coverage can rack up huge medical bills despite having insurance. Basically, Obamacare destroyed their insurance -- at least the kind of coverage they once had. The only coverage many people can now afford are plans with excessively high premiums in return for excessively high deductibles -- leaving few funds left over to pay for medical bills out of pocket or fund a health savings account.

Earlier this year, a report from the University of Pennsylvania found all but the most heavily subsidized Obamacare enrollees would be better off financially if they skipped coverage and pay for their own medical care out of pocket. The people whose incomes fall between 1.38 and 1.75 times the poverty level will spend about three times the amount on premiums for a Silver plan as they would have out of pocket had they remained uninsured. For those earning more than 250 percent of poverty, most will be worse off financially compared to having remained uninsured. By design, Obamacare is a bad deal for most people! Except for the unlucky few who experience catastrophic health complaints, the vast majority of Obamacare enrollees would be better off uninsured.

From an efficiency standpoint, paying for routine medical bills out of pocket costs less than paying bills through an insurer who, in turn, funds medical claims from premiums. In the process of trying to make medical care cheaper for those with pre-existing conditions, Obamacare has made most enrollees worse off than prior to the Affordable Care Act. Paradoxically, they are even worse off than being uninsured.

Indeed, deductibles in the exchange have risen to the point that most enrollees pay virtually all their routine medical needs out of pocket. With deductibles of $5,000 or more becoming common, Obamacare is becoming little more than a sickness tax on people who don’t expect to reach their deductibles. It’s an unofficial tax on most enrollees to reward insurers and offset some of the cost of insuring the few people with major health conditions. That is not an efficient way to subsidize medical care.

I’ve talked to people who say they’ve made the conscious decision to forgo Obamacare and just pay the penalty and pay cash for medical care. A few even think they can get out of the penalty. One lady I talked to suggested she’d be far better off just taking the money she would have spent on largely worthless insurance coverage and using it… (hold on to your hats, this is controversial!) on actual medical care. She will pay out of pocket for her physician visits. She will use a discount pharmacy card for her prescription drugs. She will pay for laboratory testing out of pocket. She’s even considering having some procedures done that her insurance would never have covered, even if she met her deductible.

There are arguably other benefits to American revolting against Obamacare and remaining uninsured. The Rand Health Insurance Experiment of the 1970s found when people were exposed to significant cost-sharing, they consumed about 30 percent fewer medical services on average. More recently, research by the Kaiser Family Foundation found the uninsured consume only about half the care of those with coverage ($2,443 vs. $4, 876).

It’s rather sad when you realize the Affordable Care Act made health care unaffordable and left the formerly-insured better off with no coverage. As I’ve already explained, it would be far cheaper for most to just pay bills out of pocket with the money they saved by going bare. Obamacare is hardly a legacy to celebrate.