How Obamacare Rations Care for the Sick

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When the health reform debate began more than a dozen years ago, most public health advocates touted the need for universal coverage. By the time Congress passed the Affordable Care Act (ACA), however, it had become predicated on also making care accessible for people with pre-existing conditions. 

Obamacare allowed people with chronic illnesses to buy health coverage at rates no higher than their healthy neighbors. This feature has always been popular. Americans feel sympathy for those who were penalized for conditions like high blood pressure, high cholesterol and heart disease. Less healthy individuals often paid higher premiums to compensate for their higher risk. Prior to the ACA pre-existing conditions could increase premiums as much as 50% or even 100% of healthy individuals’ premiums. Looking back this seems rather cheap compared to the cost of Obamacare today. Prior to Obamacare most state insurance markets required guaranteed renewability. Thus, consumers not covered by employer plans had an incentive to maintain continuous coverage to avoid higher premiums if they dropped coverage and later tried to enroll. Furthermore, the problem of pre-existing conditions was exaggerated by Obamacare supporters. Wharton School economist Mark Pauly estimated only about 1% of the population was unable to get health coverage due to a pre-existing condition before the ACA. 

The ACA did not work as intended. Once health plans were required to accept unhealthy individuals at rates unadjusted for risk, premiums for everyone had to increase. As premiums rose, healthier individuals looked for ways to drop out or reduce their coverage. Unhealthy individuals sometimes tried to game the system, joining when expensive care was needed and dropping soon afterwards. This caused a further increase in premiums. Over time the Affordable Care Act became decidedly unaffordable.

When the ACA became law most Americans naively assumed Obamacare would be similar to employee health plans or the individual policies many Americans had before the ACA. That wasn’t the case. The typical Obamacare plan today bears a closer resemblance to Medicaid managed care plans, but with high cost-sharing. Many of the plans are managed by the same firms who specialize in Medicaid managed care.  Why? Because managed care plans find subtle ways to reduce costs and ration care. This is a competitive advantage among plans not allowed to adjust premiums for risk. The only alternative is rationing care.

Over time average Obamacare deductibles rose as healthy individuals defected to cheaper plans with less coverage. In addition, Obamacare networks also began to restrict enrollees’ choice of doctors and hospitals. For example, one study found nearly three-quarters of insurers (72%) feature narrow networks in the plans offered through the federally managed exchanges ( This is in stark contrast to 5% to 7% of employer plans that limit worker choices to a narrow network of physicians and hospitals. A report by health consulting firm Avalere found Obamacare plans typically contract with one-third fewer doctors and hospitals, on average than commercial plans. This equates to 42 percent fewer heart specialists and cancer doctors, one-third fewer mental health and primary care providers and one-quarter fewer hospitals. 

More restrictive networks is one of the ways Obamacare holds costs down. Keep in mind networks also become narrow when doctors refuse to affiliate with Obamacare plans due to low fees. Not only do some insurers reject providers who charge higher fees, at the same time, providers may want to avoid patients whose plans have deductibles that run into the thousands. Cost-sharing under the deductible often goes uncollected when money is tight

One noticeable result is that top hospitals are out of reach for many Obamacare enrollees. For example, the flagship Mayo Clinic is inaccessible to many Obamacare plan enrollees in Minnesota. Many exchange plans also do not include top cancer centers in their networks. The University of Texas MD Anderson Cancer Center is not on any exchange plans in Texas. Memorial Sloan Kettering Cancer Center is not in any of the typical gold, silver, or bronze individual plans on the New York exchange.  

If the ACA marketplace was designed to meet consumer needs like other markets, instead of rationing care for sick enrollees Obamacare would compete to meet their needs. Medicare Advantage plans are an example of a system where expensive enrollees are not shunned because the federal government compensates plans for seniors’ health status.  By contrast, Obamacare subsidizes premiums for low-income Americans but allows no risk adjustment at the individual level. Economist John Cochrane has shown how market-based risk adjustment without government involvement can work. Now we need to design a better system.

Garbage In, Garbage Out: Bad Data Led to an Obamacare Disaster

Medicaid was created to be a safety net for the truly needy such as seniors, people with disabilities, and low-income children. Most of us agree: It is important to protect this program for the people who need it most.

Unfortunately, many politicians have lost sight of Medicaid’s intended purpose. In doing so, they took limited resources meant for truly needy individuals and moved millions of able-bodied adults—the majority of whom do not work at all—to the front of the line instead. Meanwhile, hundreds of thousands of people with developmental disabilities and other conditions remain trapped on waiting lists, hoping to someday get access to desperately needed services.

This is happening because of ObamaCare’s Medicaid expansion. Under ObamaCare, lawmakers have the option to expand welfare to able-bodied adults in their states. Far too many states made the tragic decision to expand their Medicaid programs, causing enrollment surges. These enrollment surges far surpassed projections—resulting in far more newly eligible welfare enrollees than policymakers promised taxpayers in their states. Sadly—as is often the case with massive, ill-advised expansions of government—it is the taxpayers who are left footing the (enormous) bill.

When it comes to ObamaCare expansion, policymakers, as well as taxpayers, deserve to know why these over-enrollments keep happening. A new report from the Foundation for Government Accountability (FGA) answers that exact question.

According to the report, the main reason states so badly underestimated enrollment is their reliance on Census Bureau data to make estimations. This data does not work for projecting expansion enrollment for multiple reasons.

First, the Census Bureau defines ‘households’ differently than the Medicaid program. For example, for an able-bodied adult who lives at home with his parents and does not work, Census data counts his parents’ income to determine his poverty status. The result is that Census data would indicate that he is not eligible for expansion. But after ObamaCare expansion, his state might learn the hard way that he is eligible because Medicaid eligibility is based on his personal income only. Oops. The enrollment overruns begin.

The Census Bureau also defines ‘income’ differently than Medicaid does. The Census, for example, considers cash welfare as income. Medicaid, however, excludes cash welfare from income calculations, resulting in more people appearing to have lower incomes and thereby qualifying for Medicaid. Oops again.

Finally, there are differences in how the Census Bureau and Medicaid define poverty because the Census Bureau evaluates more data points that could result in a person no longer being under the threshold required to receive Medicaid benefits under expansion.

But ultimately, perhaps most alarming, are differences in data collection. While Medicaid eligibility is determined by tax filing data—cold, hard facts—Census Bureau data is based on income information that is self-reported in a survey. You read that correctly: Critical decisions about whether or not to expand Medicaid to hundreds of thousands of people are routinely being made based on polling data.

The result of the use of this bad data is a massive undercounting of the number of people who could become eligible for Medicaid under an expansion plan. Altogether, the number of adults made eligible for Medicaid expansion could be more than 72 percent higher than census data suggests. The resulting over-enrollment busts state budgets and consume limited resources.

Medicaid expansion is shattering projections and creating a welfare trap for more than 12 million able-bodied adults. Regrettably, taxpayers and the truly needy will continue to pay the price. The takeaway for states that have rightly rejected expansion is simple: don’t trust the numbers. If your state is looking at expansion enrollment estimates, they are relying on Census data—and they’re preparing to replicate this nightmare