Affordable Care Act Isn’t

By Richard A. McGrath, CIC, LIA

Calling something “affordable” doesn’t make it so.

Even without considering its impact on health insurance premiums, the Patient Protection and Affordable Care Act has an estimated cost of about $1 trillion, making it the most expensive new law in history.  And the real cost of healthcare reform is likely to be much higher.

So, other than having to pay for healthcare reform with higher taxes, how will the new law affect you?
Based on experience in Massachusetts and elsewhere, it will increase the cost of insurance, reduce the quality of care and result in more government control over your healthcare.

Proponents of the healthcare reform argue that healthcare quality will improve because of federal requirements requiring that plans meet minimum requirements, various new pilot programs and a requirement that preventative care programs be provided to consumers at no cost.

Opponents believe that more time and, therefore, more money will be spent on regulatory matters, given the volume of new requirements.  They also believe the overall cost of the program will result in cutbacks in the quality of care in an attempt to control costs.

Healthcare reforms also include $500 billion in cuts to Medicare over the next decade, just as the 77 million baby boomers are preparing to retire.  Can Medicare services be cut successfully just as demand for them is about to increase?

At more than 2,000 pages, it would be impossible to summarize everything included in the new law, but among its features, it will:

  • Mandate that U.S. citizens purchase health insurance, and that all but small employers provide it or pay fines.
  • Prohibit denial of coverage for “pre-existing conditions.”
  • Establish insurance exchanges through which high-risk individuals and families can buy insurance that is paid for in part by the federal government.
  • Significantly expand eligibility for Medicaid.
  • Make significant cuts in Medicare coverage.

Higher Costs, Lower Quality

These and other provisions of the complex reform will decrease the number of uninsured Americans, increase taxes, create government-controlled exchanges for the purchase of insurance and reduce Medicare coverage.

Universal coverage.  One of the most costly aspects of healthcare reform is the requirement that Americans with “pre-existing conditions” receive insurance coverage.  Until now, health insurers have typically denied coverage to those who have serious health conditions, because providing such coverage results in higher premiums for everyone.

Since Massachusetts implemented a similar universal healthcare law, the state’s health insurance premiums have become the highest in the country – in spite of subsidies from the federal government.  In fact, much of the state’s funding from last year’s federal economic stimulus law was used to subsidize Medicaid and pay for the cost of health insurance coverage.

When the Massachusetts program was signed into law, the cost of health insurance subsidies was initially projected to be about $725 million a year.  While estimates increased nearly 20 percent to $869 million in 2009 and $880 million in 2010, Governor Patrick’s office announced a $294 million shortfall this year.

An analysis by the Rand Corporation projects that overall healthcare spending in Massachusetts will nearly double to $123 billion by 2020.

Will the federal law result in similar cost overruns?  Historically, the major federal healthcare programs, Medicaid and Medicare, have cost far more than projected.

Mandated health insurance.  The new law requires all Americans to be covered by health insurance, although the Constitutionality of this provision is being challenged.  Those who lack coverage could face penalties equal to 2.5% of their income, up to $2,250 per family or $695 for individuals.

Opponents argue that many will pay the penalty, which is significantly lower than the cost of health insurance, then purchase insurance when they become sick and really need it.  That would push up insurance premiums for those who are permanently insured.

High-risk pools/Insurance exchanges.  In the beginning, before new healthcare exchanges are developed, state-run “high-risk pools” will be developed to cover Americans who cannot buy insurance on the private market.  However, because of the anticipated cost, 18 states have already declined to participate in the new high-risk pools.

Medicaid will expand to provide free coverage to anyone within 133% of the poverty level (which was $18,310 for a family of three in 2009).  Individuals and families earning above that amount up to 400% of the poverty level will be able to purchase insurance through the new healthcare exchanges, and special exchanges will also be established that provide an opportunity for small businesses to buy insurance.

Employers with more than 50 employees will be fined $750 per employee if even one employee obtains insurance through an insurance exchange.

Medicare cuts.  To keep the cost close to $1 trillion, Congress made significant cuts to Medicare.  This year, cuts are being made to inpatient psychiatric hospitals.

Next year, cuts are scheduled to be made to the Medicare Advantage program, and to diagnostic imaging services, ambulance services and many other Medicare-funded programs.  In addition, Medicare payments to physician-owned hospitals will be prohibited, and cuts will be made to long-term care hospitals, nursing homes and inpatient rehabilitation facilities.

Medicare cuts for dialysis treatment and hospice care are scheduled to begin in 2012, along with additional cuts for inpatient psychiatric hospitals.  Medicare cuts for hospitals that treat low-income seniors begin in 2013.  Additional cuts for home healthcare and for coverage of hospital-acquired infections are scheduled to begin in 2014.

Given that these cuts will be made at a time when demand is expected to increase significantly, either the federal government will need to add more money to Medicare or healthcare quality will suffer.

Taxes.  A 10% tax on indoor tanning begins this year.  A new 3.8% tax on investment income for individuals earning $200,000 a year and more and families earning $250,000 and more is scheduled to begin in 2013.  The tax is not indexed for inflation, so it will affect an increasing number of families each year.  A 2.3% tax on medical devices also begins in 2013.

Conversely, some small employers will be eligible for tax credits, but only if employee salaries average less than $25,000 a year.

These are just some of the major provisions included in the complex new law.  The law is so broad and so complex, even most members of Congress don’t know what it includes.  The one thing we do know is that healthcare reform is likely to cause more problems than it fixes.

Richard A. McGrath, CIC, LIA is President and CEO of McGrath Insurance Group, Inc. of Sturbridge, Mass.  He can be reached at

This article is written for informational purposes only and should not be construed as providing legal advice.