Insurance Law

ObamaCare: PLEASE! Stop Calling It ‘Insurance’

The crescendo and climax of the Supreme Court's King v. Burwell decision ices the cake in the ongoing controversy swirling around the integrity, legality, and constitutionality of the Affordable Care Act. But controversy about the merits and flaws of the Affordable Care Act continues unabated and will likely intensify throughout the remainder of President Obama's second term in office.

The rationale articulated in Chief Justice Robert's opinion defies logic in the minds of ACA opponents, raising uestions about the law's integrity and answering none.  ACA advocates, on the other hand, see the SCOTUS decision as a reasoned examination of the law as a whole and the inferred intent of Congress to extend subsidies to all qualifying insurance applicants.  In other words, Chief Justice Roberts and the majority ostensibly view the disputed phrase - 'Exchange established by the State' - in the context of the ACA in its entirety, and also in the context of inferred congressional intent.

Indeed, Chief Justice Roberts himself casts the Court's decision as results-orientend.  He writes: "Congress passed the Affordable Care Act to improve health insurance markets, not to destroy them. If at all possible, we must interpret the Act in a way that is consistent with the former, and avoids the latter,... Those credits are necessary for the Federal Exchanges to function like their State Exchange counterparts, and to avoid the type of calamitous result that Congress plainly meant to avoid."

In the aftermath, a great deal of attention will remain focused on tax elements: the scope, magnitude, and extensive reach of taxes funding the law; whether or not required premium payments should or should not be scored as tax revenues; and whether or not signing up for coverage on the federal exchange web site should, as a value judgment, qualify otherwise elgible enrollees for subsidies.

But for all intents and purposes, a key point has been ignored - viz., the very nature of benefits Americans must pay for.

The Affordable Care Act purports to make available a menu of comprehensive health insurance coverage options that millions of Americans can accommodate in their household budgets.  But should we really call coverage under Obamacare insurance???

The short answer is NO. Strictly speaking, the ACA creates entitlements, making health care more available to those who might otherwise not have access, and subsidizing the cost with public funds for those who would not otherwise be able to afford health care.  So, calling the ACA “Social Health Care”, rather than "Insurance,"is much closer to the mark. But why does this make ACA defenders uncomfortable?  Social Security has been a major part of the American fabric for 80 years, and very few criticize the terminology as a socialist slur.  

The very nature of the ACA concept being sold as insurance is largely a myth. Let’s openly and publicly acknowledge the ACA – and transactions over the exchanges in particular – for what it does and what it stands for – Social Health Care. Let’s not pretend that it has much, if anything, to do with insurance, because it does not.

Consider the following: Essentially, all the fundamental building blocks of insurance principles are missing under the ACA regime. Here are some of the elements laying the foundation of “insurance policies” being purchased on the exchanges:

  • There is no underwriting, so virtually no attention to enrollees’ health condition is allowed.
  • This means that policies are guaranteed issue. No one can be denied coverage.
  • No coverage exclusions are allowed for pre-existing conditions.
  • Age-based premium bands deviate substantially from established actuarial principles.
  • 80 percent of all enrollee coverage is subsidized by the federal government. (This element is prone to drastic reduction should SCOTUS hold that enrollees are ineligible for subsidies.)
  • Last but not least, adverse selection is front-and-center: The oldest and sickest are most likely to sign up, while the young and healthy are inclined to abstain from coverage and pay the penalty, notwithstanding increasing annual penalty levels. (However, it's important to note that a SCOTUS decision disqualifying enrollees from eligibility for subsidies would have had a huge impact, by providing added incentive to financially stressed young and healthy citizens to forego coverage altogether. If SCOTUS had decided against the government, and in the absence of a "quick fix" to the law by Congress pursuant to such an outcome, the risk pool impact would profoundly undermine the foundation of the Affordable Care Act.)

The elements outlined are a recipe for disaster in the world of insurance underwriting and actuarial science.

Note also the parallels between the ACA and Social Security.  At least there’s an argument for parallels. Yes, insurance companies are ObamaCare’s conduit to pay claims via premium revenues, whereas Uncle Sam collects FICA taxes to administer Social Security claims.  But insurers’ ACA role is largely ministerial, more like third party administrators (TPAs) than underwriters promulgating rates based on risk assessment. And in time, the TPA role will become more evident as loss ratios rise.

Controversies raging over ACA are manifold: They include constitutional questions, coverage rates and deductibles, shaky website performance and security problems, patient access to health care providers, legality of subsidies to federal exchange enrollees, and the fallout from the public relations blowout over Professor Jonathan Gruber’s marginal view of American voters’ intelligence.

But these issues still take a back seat to the main event – Is this really insurance?  NO - not at all.  Let's recognize the ACA for what it truly does: It provides a social service to many whose financial challenges would otherwise prevent acces to health care.  Love the ACA - or hate it - for what it really is, what it purports to do, those who derive benefits, and those who do not.