RALEIGH — The federal health care law known as Obamacare creates more problems for North Carolinians than just the faulty website that has generated recent headlines. A new John Locke Foundation Spotlight report documents key Obamacare flaws and offers alternatives for addressing health care needs.
“An infestation of technological bugs rendered the HealthCare.gov website largely inoperable, and it clearly needs a major fix,” said report author Katherine Restrepo, JLF Health and Human Services Policy Analyst. “But the bigger problem lies within the actual policy implications of Obamacare itself, including rules surrounding its health insurance exchanges.”
The federal law calls for a health insurance exchange in each state. Each exchange is an online marketplace where individuals can shop for heavily regulated health plans offered by participating insurance companies, Restrepo said. “The exchanges are one of the most important pillars of Obamacare.”
Restrepo’s report highlights different rules for exchanges run by the states and the federal government.
“North Carolina is one of 36 states that opted for the federal government to facilitate an exchange for its state,” Restrepo explained. “This choice is significant. Obamacare’s exchange provision contains a major loophole that can ultimately clot the flow of subsidies in states with federally facilitated exchanges. Those subsidies are designed to help offset the cost of higher health insurance premiums tied to Obamacare.”
Without subsidies, it’s possible that the 36 states with federal exchanges could be freed from Obamacare’s mandates, Restrepo said. “In May 2012, the IRS unilaterally amended regulations so that subsidies could be allocated in both state and federal exchanges, but that decision has sparked multiple lawsuits. A ruling on one critical lawsuit is expected in February 2014.”
The outcome of the legal action could have far-reaching implications, Restrepo said. “Essentially, the exchange subsidies are the beating heart of Obamacare,” she said. “If these lawsuits succeed, then more than two-thirds of the states will not be granted subsidies. This means health plans on the exchanges will be unaffordable for many citizens. Pushback against this monumental pillar of the law will lead to a serious reconsideration of the very viability of Obamacare.”
Even if subsidies can proceed in states with federal exchanges, those subsidies are not likely to extend as far as Obamacare’s advocates had promised, Restrepo said. The Obama administration suggested that subsidies would be available on a sliding scale for people with incomes between 100 percent and 400 percent of the federal poverty level. That means individuals making up to $45,960 a year, couples with $62,040 in income, and a family of four making up to $94,200.
“The National Center for Public Policy reports that, in two-thirds of the states, subsidies do not extend beyond 300 percent of the federal poverty level for individuals from 18 to 34 years old,” Restrepo said. “In fact, subsidies greatly diminish for individuals in this age group making more than $25,000 a year. In North Carolina, subsidies would end at $35,504 for a 34-year-old.”
This factor could lead to fewer young adults, so-called “young invincibles,” choosing to sign up for health insurance, Restrepo said. “That’s a major problem for Obamacare, which depends on these young invincibles to help cover costs for older, sicker people and balance the risk pool.”
Federal budget sequestration has placed limits on another source of premium assistance subsidies, Restrepo said. “Individuals earning less than 250 percent of the federal poverty level are eligible for these additional subsidies, but the federal budget sequester scales back those subsidies by 7.2 percent.”
Restrepo’s report shows Obamacare already has had significant impacts on North Carolinians. “Through mid-November, 43 percent of Blue Cross Blue Shield of North Carolina’s 375,000 individual policyholders were told they would not be allowed to renew their existing health plans, and almost 160,000 consumers received health insurance cancellation letters,” she said. “At the same time, only 1,662 North Carolinians were able to complete the enrollment process through the state’s new federal health insurance exchange.”
President Obama’s recent announcement of a one-year reprieve for canceled individual-market policies added another wrinkle to North Carolina’s situation, Restrepo said. “Even with this one-year change, the long-term implications for North Carolinians are unclear.”
Meanwhile, the new law has prompted Blue Cross and Coventry Health Care to offer 31 different insurance plans on North Carolina’s federal exchange. This state is seeing among the largest premium increases associated with Obamacare compliance, Restrepo said.
“According to the Manhattan Institute, percentage increases for North Carolina health insurance premiums rank fourth-highest nationwide in the individual market,” she said. “For example, an average 27-year-old man is likely to see monthly premiums increase from $80 to $214, or 168 percent. The increase is even higher for a 64-year-old man, at 192 percent.”
Policymakers should pursue other ideas, Restrepo said. “Absurd rate increases may suggest that the federal government’s health care takeover is near collapse, but the war is far from over,” she said. “Rather than doubling down on our nation’s already costly health care system with more government regulations, free-market principles should be embraced.”
“Health insurance can be more affordable by providing patients with a choice of plans that include benefits and services specifically tailored to their individual needs,” Restrepo added. “Reduced health care costs also can be achieved by increasing price transparency, deregulating the insurance market, and repealing North Carolina’s certificate-of-need law.”
Katherine Restrepo’s Spotlight report, “Redistribution of Health: Severe Side Effects of the Affordable Care Act’s Health Insurance Exchanges,” is available at the JLF website. For more information, please contact Restrepo at (919) 828-3876 or [email protected]. To arrange an interview, contact Mitch Kokai at (919) 306-8736 or [email protected].