The Future Of Obamacare

It's open-enrollment season again for major medical insurance policies. But this time, many consumers will see fewer choices than usual. That's because, over the past year, several major carriers -- including Aetna; UnitedHealth Group, the country's largest insurance carrier; Humana; and even some Blue plans -- pulled out of certain state marketplace exchanges. This led to a growing sense that the insurance revolution known as Obamacare might be on the brink of imploding.

Not so fast, say some experts.  Reports of the imminent demise of the Affordable Care Act may have been greatly exaggerated.

Opinions can run hot, and there's little doubt that a degree of turmoil lies ahead. Given this, though, what are financial advisors to believe? What should they tell their clients -- employers and employees alike -- about the future of health-care benefits?

The answers depend on whom you ask.

Different Health System
"There's a big misconception that all of health insurance is Obamacare," says Carolyn McClanahan, M.D., a Certified Financial Planner and director of financial planning at Jacksonville, Fla.-based Life Planning Partners. "Employer-based insurance, which has to follow certain rules under the A.C.A., is not what's sold on the exchanges where the losses for insurers are. Insurers in the employer-based market are actually making great profits."

Employers were originally exempt from A.C.A. requirements. Small employers still are. But now, as of 2016, the law requires businesses with 50 or more full-time employees to provide insurance for those employees and their dependents (up to age 26), or pay a penalty. As Dr. McClanahan noted, that insurance is not drawn from the state-sponsored exchanges. Those exchanges are designed for individuals who (a) don't have other coverage and (b) only earn between 100 percent and 400 percent of the poverty level. (Those who earn more and don't have other coverage must purchase full-cost insurance or pay a penalty, and those who earn less may apply for Medicaid.)

"We have four different health-care systems in this country," McClanahan explains.  Medicare and, to an extent, Medicaid are paid through government programs but offer privately provided care. Veterans and armed-services personnel receive coverage that's both government-paid and government-provided. Most private-sector workers secure insurance that's privately paid for and privately provided. The final group is the self-insured who, under Obamacare, receive a degree of government assistance to pay for privately provided coverage.

"This complexity greatly increases our overhead," observes McClanahan. "If we could simplify our health-care system, which Obamacare failed to do adequately, we could probably save $300 billion a year in aggregate health-care costs."

Is Obamacare A Sustainable Model?
Though she asserts that Obamacare did "little to mitigate costs," she does find it sustainable, at least for the time being. "There is good and bad in the law," she says.  As for what to tell your clients in the meantime, she suggests that advisors break their clients down into three groups. "If they have employer-based coverage, you can tell them their costs are going to continue rising. That was true even before Obamacare. Costs were going to go up whether or not the A.C.A. passed," she says. "All advisors can do is help their clients plan for increasing health-care costs."

If they don't have employer-based insurance, chances are their income is over the 400 percent poverty threshold (that's assuming that poorer folks don't seek out financial advice -- but there are exceptions; see below). They still have to buy their own insurance, but they can rest assured that their options won't be affected by recent pullouts from the exchanges. "The withdrawals of national carriers from marketplace exchanges will not impact what's available outside the exchanges," McClanahan reiterates.  "I see no contagion effect."

But some advisors might also have clients who are early retirees. They're too young for Medicare and no longer eligible for employer-sponsored coverage. "You may be able to make them qualify for tax credits under Obamacare," she says. "It can be fairly easy to bring their incomes as reported on their tax returns down under 400 percent of the poverty level so they qualify for the exchanges, which would greatly reduce their health-insurance costs."

This small segment of clients will see a reduction in their benefits choices because of the recent pullouts.