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Is Obamacare Becoming the Unaffordable Care Act?

Consumer-driven health care is sending out-of-pocket costs soaring

By Richard Eisenberg

Let me start by saying this is not a political screed against Obamacare; I’m thrilled that some 18 million Americans now have health insurance who didn’t before the law took effect, lowering the percentage of uninsured adults from 18 percent in 2013 to 11.9 percent today.

But I’m growing concerned that for some people — especially older, middle- and lower-income adults — the Affordable Care Act is becoming The Unaffordable Care Act.

A Growing Problem: The Underinsured

Several recent studies suggest to me that due to a combination of Obamacare’s incentives to reduce premiums; the rise of so-called “consumer-driven” and high-deductible health plans and employers’ moves to combat the Affordable Care Act’s coming “Cadillac tax” on certain health plans, rising numbers of Americans are now not uninsured, but underinsured.

What’s underinsured? The Commonwealth Fund, a nonpartisan health research group, defines the underinsured as insured people whose out-of-pocket costs — excluding premiums — equal 10 percent or more of household income (5 percent or more for the low-income) or whose deductibles equal 5 percent or more of household income. Commonwealth says 23 percent of insured people between age 19 and 64 are underinsured, double when it looked in 2003.

In other words, these people are finding themselves facing enormous out-of-pocket health expenses — sometimes leading them to deplete their savings and rack up serious medical debt.

Meantime, the new economics of health care are causing confusion among employees. Only 18 percent of boomers understand consumer-driven health care, for example, according to the 2015 Aflac WorkForces Report.

“I think everyone is confused,” says Chris Duke, Director of the Center for Consumer Choice in Health Care at Altarum Institute, a nonprofit health systems research and consulting group. Adds Paul Fronstin, a Senior Research Associate with the Employee Benefit Research Institute: “Consumer-driven health care is a lot different than what most of us have been used to seeing in the past.”

Alarming Stats From Assorted New Studies

Here’s what a boatload of recent studies and articles show:

Many households, particularly those with lower incomes, don’t have enough in ready savings to cover their deductibles or their plans’ out-of-pocket limits. That’s from a February 2015 report of the Kaiser Family Foundation. Nearly half of underinsured adults with problems paying medical bills or with medical debt used up their savings to pay their bills, said the Commonwealth Fund.

Employers are increasingly requiring employees to sign up for consumer-driven health plans (CDHP) or their cousins, high-deductible health plans (HDHP). And the trend is expected to continue. One reason: Obamacare aims to lower premiums and one way employers can do this is by raising employees' deductibles, since there’s a seesaw aspect to health insurance.

CDHPs are Preferred Provider Organization (PPO) plans with high annual deductibles — at least $1,300 for individual coverage and $2,600 for family coverage — combined with tax-sheltered Health Savings Accounts (HSAs) or Health Reimbursement Arrangements (HRA). They covered about 26 million people in 2014, or 15 percent of the privately insured market, and employees in them are more likely to be age 45 to 54, according to the Employee Benefit Research Institute.

HDHPs work similarly to CDHPs but they don’t have HSAs (apologies for the alphabet soup).

The number of organizations offering CDHPs almost doubled from 2007 to 2013 and the number of members enrolled in them nearly quadrupled during that period, according to the April 2015 Truven Health MarketScan. Truven says 64 percent of large employers now offer one or more CDHP and 76 percent plan to in the future.

Obamacare’s “Cadillac Tax,” which takes effect in 2018, is encouraging employers to switch to high-deductible plans so employees will share more of their health care costs. It’s a 40 percent excise tax on health benefits companies provide beyond a certain threshold — $10,200 for singles and $27,500 for families in 2018. (The average premium last year was $6,025 for singles and $16,834 for families, according to the Kaiser Family Foundation.)

A recent story, which called the Cadillac tax “the next big Obamacare battle” said the benefits consulting firm Mercer estimates that roughly a third of employers will owe the Cadillac tax in 2018 — and roughly 60 percent in 2022 — if they don’t change their plans.


Says Fronstin: “The Cadillac tax will drive more and more employers to adopt plans that raise the deductibles and lower premiums.”

Employees in high-deductible plans are seeing huge increases in out-of-pocket costs and some are trimming medical care as a result. The Truven study says CDHP members saw a 69 percent increase in claims-based, out-of-pocket costs over three years compared to a 23 percent increase for non-CDHP members. Also, it notes, after switching to CDHPs, members had fewer medical visits and lab services, smaller supplies of prescription drugs than expected if they’d stayed in non-CDHP plans and were less likely to receive care for existing chronic conditions than their non-CDHP counterparts.

Similarly, the Commonwealth Fund report said 44 percent of underinsured adults reported not getting needed medical care in the past year because of the cost. It also found that 41 percent with deductibles of $3,000 or more reported problems paying their medical bills or were paying off medical debt.

Meantime, health costs are outpacing inflation. Health care prices have risen 15.6 percent since December 2007, while consumer prices overall increased by 11.1 percent, according to the Altarum Institute. Some health insurers are proposing premium hikes of 15 to 35 percent in 2016, according to the Obama Administration.

And many people buying insurance through the Obamacare exchanges are facing unexpected medical bills that sometimes greatly exceed the Affordable Care Act’s caps on out-of-pocket expenses, according to a recent Wall Street Journal article.

That’s because the limits on out-of-pocket costs ($6,600 for an individual and $13,200 for a family in 2015) amazingly don’t apply to charges from out-of-network providers. And, the Journal says, health plans with limited or “narrow” networks comprise roughly half of all Obamacare exchange networks. The number of health insurers offering narrow-network plans has grown, overall, in recent years.

How to Lower Your Health Costs

One way people might be able to keep their health costs down is to do more research about the price of potential medical care and then choose a less expensive alternative without sacrificing quality. Duke cites a Journal of the American Medical Association study that found patients who used a particular price-comparison tool cut their lab test costs by 14 percent.

“Consumer-driven health care is about empowering consumers with information so they can make the best choices,” says Matthew Owenby, senior vice president and chief HR officer at Aflac.

Problem is, health care transparency “is in a very bad state,” Duke says. “Transparency is increasing, but we have a very long way to go,” he adds. One new site that impresses Duke: the Health Care Cost Institute’s, which offers typical pricing for 78 “care bundles” and 17 conditions based on cost data from 40 million patients. It’s similar to Healthcare Bluebook, Duke notes.

In today's consumer-driven health care world, it's time to start driving.

Photograph of Richard Eisenberg
Richard Eisenberg is the former Senior Web Editor of the Money & Security and Work & Purpose channels of Next Avenue and former Managing Editor for the site. He is the author of "How to Avoid a Mid-Life Financial Crisis" and has been a personal finance editor at Money, Yahoo, Good Housekeeping, and CBS MoneyWatch. Read More
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